Over the last several months, the United States Supreme Court has issued a number of opinions that have broad implications to the automotive industry, particularly on the eve of commercial launches of autonomous vehicles. These opinions cover obscure legal issues from forum shopping for the purpose of taking advantage of Texas “Rocket Docket” to whether accused patent infringers can assert a defense of laches.
While each of these opinions is relevant in its own way, one recent opinion could have significant implications to the auto industry, particularly with respect to maintenance, repair and modification by owners of vehicles. The Court’s decision in Impression Products v. Lexmark reinforced and strengthened the patent exhaustion doctrine, which is the legal principle that once a patented product is sold, the patent rights of the patent holder become exhausted. In other words, the purchaser of the patented product and all subsequent owners are free to use or resell the product without risk of an infringement suit.
Lexmark designs, manufactures and sells toner cartridges for use in laser printers and has obtained a number of patents covering both the cartridges and their manner of use. When toner cartridges run out of toner, they can be refilled and used again creating an opportunity for other companies to refill and resell the cartridges at a lower price than Lexmark’s new cartridges. As a defense to these resellers, Lexmark installed microchips preventing reuse and offered customers a 20% discount on reused cartridges in exchange for agreeing to reuse the cartridges only once. Impression Products both overcame the restrictions on the microchip and resold the same Lexmark cartridges multiple times, prompting Lexmark to sue Impression Products for patent infringement.
In response to the United States Appellate Court for the Federal Circuit’s ruling that Lexmark’s patent rights were not exhausted, the Supreme Court concluded that Lexmark exhausted its patent rights in those cartridges the moment it sold them. In short, Impression Products defended against Lexmark’s claims by contending that Lexmark’s patent rights were exhausted when it sold the cartridges. The Federal Circuit, however, disagreed and ruled in favor of Lexmark, concluding that its patent rights were not exhausted. Impression Products then filed a Petition for Writ of Certiorari, urging the Supreme Court to review the Federal Court’s ruling. The Supreme Court granted certiorari and ultimately concluded that Impression Product’s position was correct and that Lexmark had exhausted its patent rights. The Supreme Court also found that while the single-use and no-resale restrictions may be perfectly clear and enforceable under contract law principles, they do not entitle Lexmark to retain patent rights in an item it has elected to sell.
While the Lexmark decision included other findings relative to international issues, the strict ruling on patent exhaustion could be contrary to the position of the OEMs with respect to technology included in vehicles that have been sold. Indeed, the Lexmark decision contradicts the assertions made by John Deere and General Motors that, under the Digital Millennial Copyright Act (DMCA), they still own substantial portions of the vehicles they sell to the public.
The DMCA was enacted in 1996 generally to criminalize production and dissemination of technology, devices or services intended to circumvent measures that control access to copyrighted works including software and also criminalizes the act of circumventing such an access control. Twenty years ago, however, it was not contemplated that tractors and vehicles would require a sophisticated code for proper operation. But that has, in fact, turned out to be the case. John Deere has even been described as a software company that sells tractors.
Given that, to enable owners of vehicles the ability to make necessary repairs without being in violation of the DMCA, in 2015, the Copyright Office issued an exception to the DMCA commonly referred to as the Class 21 exception that covers many types of motor vehicles and mechanized farm equipment. In short, altering electronic control units of vehicles for the purpose of diagnosis, repair and modification may now constitute non-infringing activity. In response to the exception, John Deere now requires its consumers to sign End-User License Agreements restricting an owner’s ability to repair and modify their equipment, which is not too dissimilar to the agreement required by Lexmark. A so-called Right-To-Repair movement accuses the likes of John Deere and General Motors of eviscerating the notion of ownership.
In an era when semi-autonomous and fully autonomous vehicles are on the horizon, the complex issues of ownership, safety and intellectual property rights are intersecting at a fast pace. The U.S. Supreme Court has made it clear in the Lexmark decision that patents cannot be asserted against a purchaser of a patented article. The integration of computer code and electronics with historically mechanical devices presents unique challenges to a manufacturer’s efforts to protect its intellectual property, whether the manufacturer is an OEM or a supplier. While the courts and federal agencies may now be strengthening the rights of purchasers with respect to products protected by intellectual property, public policy–at least with respect to vehicles–may require restrictions to modification in the face of the Lexmark opinion. John Deere and General Motors make reasonable arguments with defense of restrictions with respect to maintenance, repair and modification by owners, particularly when safety and warranty issue are involved. It is unlikely manufacturers will be able to rely on intellectual property rights in defense of these restrictions. The OEMs will likely rely on contractual restriction to overcome their collective inability to enforce intellectual property rights after sale of a vehicle. However, it is increasingly apparent that the technology disruption associated with autonomous vehicles will cause many of these issues to be revisited for the foreseeable future.