Speaker 1: Just issued Supreme Court ruling could make it much harder
Speaker 1: for companies to prevent their products from being resold at
Speaker 1: a discount. The issue for the court was whether patent
Speaker 1: holders give up their patent rights when they sell an item.
Speaker 1: The court's answer a resounding yes. The ruling came in
Speaker 1: a case involving those printer cartridges that often cost almost
Speaker 1: as much as the printer itself. With us to help
Speaker 1: understand the ruling and what about meaning in the marketplace
Speaker 1: are Robin Feldman. She is the director of the Institute
Speaker 1: for Innovation Law at you See Hastings Law School. She
Speaker 1: filed a brief that urged the court to reach the
Speaker 1: result that it did. And Gregory Dolan, he's co director
Speaker 1: of the Center for Medicine and Law at the University
Speaker 1: of Baltimore. He filed a brief urging the court to
Speaker 1: rule the other way. Thanks to both of you for
Speaker 1: joining us. Greg, Before we get into all the important
Speaker 1: legal questions in this case, can you just explain to
Speaker 1: us who was involved in the case and what the
Speaker 1: dispute between the two companies was. Sure um um the
Speaker 1: case to come and it's both involved in making printer cartridges. UH.
Speaker 1: The plaintiff lex Mark. They make printer cartridges that many
Speaker 1: people using their printers to um print documents and um
Speaker 1: as many people know. These cartridges have ink or other
Speaker 1: materials that me and eventually cards just run out and
Speaker 1: they can be You can either replace the whole cartridge
Speaker 1: or you can refill the old one and um you know,
Speaker 1: reuse it. And the issue in this case was whether
Speaker 1: or not um these cartriges could be refilled. Lex Mark
Speaker 1: had two ways of selling their initial cartridges. They either
Speaker 1: sold it to their customers at full price does and
Speaker 1: then customers could do them what they wanted. They could
Speaker 1: throw them out, they could readfill whatever, or they sold
Speaker 1: them at a significant discount about discounts on a condition
Speaker 1: that they will not be resfiled, and then instead the
Speaker 1: cartridges spent cars will be sent back to lex Mark
Speaker 1: UH impression products. They defended in this case until these
Speaker 1: old cartridges, both the ones that were sold in the
Speaker 1: United States and the ones that was all the broad
Speaker 1: whether or not they were under the first or second program,
Speaker 1: and refilled them and then sold them obviously for cheaper
Speaker 1: than the original manufacturer, and that was a dispute whether
Speaker 1: or not doing so violates lex marks, patents and Robin.
Speaker 1: How did the Supreme Court come to its decision today
Speaker 1: is a big win for free enterprise, which is reflected
Speaker 1: in the language throughout the Supreme Court. Under patent exhaustion,
Speaker 1: when a product is sold, the patent right ends. In
Speaker 1: other words, if I buy a hammer, I should be
Speaker 1: able to hit any nail I want, or resell it
Speaker 1: to anyone I want. Anything else creates bottlenecks in the
Speaker 1: flow of commerce, and it comes up the system. The
Speaker 1: Supreme Court decision spoke in terms of an auto repair
Speaker 1: shop in a way that should make sense to all consumers.
Speaker 1: If a car owner drives into the shop, the repair
Speaker 1: should be able to fix the car and not have
Speaker 1: to worry about invisible restrictions that might exist on each
Speaker 1: tiny component of the car. The Supreme Court said, patent
Speaker 1: system doesn't work that way. When you sell an item,
Speaker 1: that's the end of the patent right. Greg. Based on
Speaker 1: the brief you file, I'm going to guess that you
Speaker 1: don't agree with that reasoning. If I'm I'm right, what
Speaker 1: what is the court said that's wrong? Well, I don't
Speaker 1: want to go too too far in my disagreement. I
Speaker 1: think Robin is right in part in a sense that
Speaker 1: there's certainly a huge value and there's certainly this badground notion.
Speaker 1: Once you sell your patented product, that product should be
Speaker 1: able to move in a stream of commerce downstream, and
Speaker 1: I shouldn't have to you know what, I buy use cars.
Speaker 1: That case, maybe I shouldn't have to go and try
Speaker 1: to figure out whether each and every one of those components,
Speaker 1: you know, what is the patent status. That makes sense,
Speaker 1: and so I agree with Robin on this point. The
Speaker 1: issue though, is whether or not it also makes sense
Speaker 1: to have these kind of dual tracks, meaning that the
Speaker 1: people who bought the car ship with sign you can
Speaker 1: discount whether or not it makes sense to offer the
Speaker 1: same product at multiple price levels in exchange for transferring
Speaker 1: different set of rights. And for some people it makes
Speaker 1: sense to pay a full price uh and get the
Speaker 1: right not just to use, but to resell, but for
Speaker 1: others makes sense to pay less but not necessarily have
Speaker 1: a right to resell. And so since with the starting
Speaker 1: with the chronalogy, I would offer another one. It's the
Speaker 1: kind of difference between a buying of a car and
Speaker 1: then you can do with it whatever you want. You
Speaker 1: can gift it, you can keep it, you can crash
Speaker 1: it whatever you want to do with it, and lease
Speaker 1: in a car where certainly can use it. But you
Speaker 1: don't have full and unrestricted price to resell. Yes, return
Speaker 1: it to the dealership once a time myself and I
Speaker 1: think that, and you pay different prices, and I think
Speaker 1: that's also a good way and a benefit to consumers.
Speaker 1: Do you have both options? We are talking about a
Speaker 1: new Supreme Court ruling that says that once a company
Speaker 1: that has a patent sells the product, the company has
Speaker 1: has used up its patent rights in that product and
Speaker 1: can't event a product from being resold. That's just out today.
Speaker 1: Our guests are Robin Feldman of the University of California's
Speaker 1: Hastings Law School and Gregory Dowan of the University of
Speaker 1: Baltimore UM. Robin. A minute ago, greg was was essentially
Speaker 1: saying that this ruling will limit the flexibility that patent
Speaker 1: holding companies have. They won't be able to prevent provide
Speaker 1: consumers with the kinds of options that the that lex Mark,
Speaker 1: the printer cartridge company did in this case. What do
Speaker 1: you think about that? So the Supreme Court essentially said
Speaker 1: you don't get the higher price option the higher price
Speaker 1: option is only when you are using patent rights when
Speaker 1: you're not supposed to that that's what you're not allowed
Speaker 1: to do. Uh. You mentioned earlier though, about a trend
Speaker 1: for this decision, and I completely agree. Today's decision is
Speaker 1: another loss for the Federal Circuit, which has become the
Speaker 1: Supreme Court's favorite whipping boy. Way now, the third Federal
Speaker 1: Circuit case the Supreme Court has overturned this year, and
Speaker 1: they harshly vacated a fourth. That's a trend we've seen
Speaker 1: for quite some time. So over the last five years,
Speaker 1: the Supreme Court has reversed the Federal Circuit the time,
Speaker 1: and that does not include when the justices affirmed the
Speaker 1: result but rejected the logic. The Federal Circuit is batting
Speaker 1: about zero before the High Court, and I think the
Speaker 1: message is clear the High Court. The Supreme Court believes
Speaker 1: that the Federal Circuit has been overreaching on behalf of
Speaker 1: patent holders and has been dialing back on those types
Speaker 1: of decisions. Gregory, excuse me, Let's go back to consumers
Speaker 1: for a moment. Because the companies make like for example,
Speaker 1: lex Mark, they make most of their money off the
Speaker 1: cartridge sales, so is there anything to stop them from
Speaker 1: just putting out one cartridge at a higher price. I
Speaker 1: think that's exactly right. So I think I disagree with
Speaker 1: robbing against uh not you know somewhat. I don't think
Speaker 1: Supreme Courts said you don't get to charge the higher prices.
Speaker 1: I think Supreme Court said you can charge once. Uh.
Speaker 1: And the implication of that that you most companies like
Speaker 1: lux Mark will end up charging the higher prices. They
Speaker 1: will basically do away with the discount condition that people
Speaker 1: return the cartridge. So instead people who you know, where
Speaker 1: they were willing to return the cartridge or not, not,
Speaker 1: everybody's gonna get charged the higher price. Uh. And ultimately,
Speaker 1: I think for people who used to pay the higher
Speaker 1: price anyways, I think there will be in difference for
Speaker 1: people who were very willing to pay the lower price
Speaker 1: in exchange for these restrictions, They're actually gonna be worse off.
Speaker 1: And I think what making matters worse is that not
Speaker 1: only did Spring Courts say that this rule now applies
Speaker 1: within the United States, they also say that the same
Speaker 1: thing applies if the patentees of the product abroad, and
Speaker 1: that has some serious implications. So, for example, pharmaceuticals are all,
Speaker 1: there's very different prices in the United States and abroad,
Speaker 1: especially if you think about third world countries. And if
Speaker 1: people now understand that there's other restrictions as to what
Speaker 1: you can and cannot import to United States, nothing to
Speaker 1: do with patent law. But nonetheless, if people can buy
Speaker 1: drugs that are meant for third world countries for people
Speaker 1: who can't afford to pay a lot, and then paying
Speaker 1: those lower prices and instead bringing back to the United
Speaker 1: States and sell them here, ultimately perhaps American consumers might
Speaker 1: be better off because they pay lower prices, but that
Speaker 1: means that people in third world countries will very much
Speaker 1: be robbed of the opportunity to get access to drugs
Speaker 1: at low cost because companies will no longer be able
Speaker 1: to place differentiate And I think that's a problem, Robin. Uh.
Speaker 1: Let's talk about that those international sales, because that was
Speaker 1: the subject of Justice Ginsburg's partial descent and and and
Speaker 1: part of the argument is, look, when you're when you're
Speaker 1: selling something abroad, you don't get the charge of that
Speaker 1: higher price. Uh, that that that that comes from that
Speaker 1: comes from having a patent on some things that you're
Speaker 1: perhaps rising at a lower price. And then if somebody
Speaker 1: turns around and brings it back into the United States,
Speaker 1: that's really gonna undermine your sales without giving you any
Speaker 1: corresponding benefit to the pharmaceutical pricing areas when I've studied
Speaker 1: a lot and is very troubling. I'm I'm sure most
Speaker 1: of your listeners have had sticker shock going to buy
Speaker 1: medication for themselves or their relatives. With the prices of
Speaker 1: drugs in this country have skyrocketed in recent years. That
Speaker 1: has been less true in the international market, so US
Speaker 1: customers are supporting super high prices here um and paying
Speaker 1: for lower prices abroad. Now, I'm not sure that the
Speaker 1: prediction that prices will rise internationally on pharmaceuticals will hold
Speaker 1: true because lots of other companies have different types of
Speaker 1: payer systems, and pharmaceutical companies don't have the ability to
Speaker 1: charge those higher prices everywhere that they can here. I
Speaker 1: don't think we'll see that, but it would be interesting
Speaker 1: if the effect of the Supreme Court decision would be
Speaker 1: to see some discipline of price in this country as
Speaker 1: they have gone so high. And Gregory speaking about pharmaceutical products,
Speaker 1: is there more of a danger there with or is
Speaker 1: there more hesitance to reuse certain things like devices like
Speaker 1: cardiac catheters or things like that. Well again, so pharmaceuticals
Speaker 1: there aren't interesting um interesting issue because in addition to
Speaker 1: of course the patent rules, there are other rules and
Speaker 1: other regimes that may preclude reimportation um. And there's of
Speaker 1: course into the backstop as you mentioned, that may be
Speaker 1: fear of using or reusing some devices like catheters or
Speaker 1: pacemakers because of the potential for tort losses. But there
Speaker 1: are for example, uh, anti metrobiol drugs that are being
Speaker 1: sold to combat aids in sub Saharan Africa where people
Speaker 1: can't really afford to pay more a dollar a day
Speaker 1: or two dollars a day. Whereas but the way they're
Speaker 1: sold the reason they're also cheaply. There's Robin is right.
Speaker 1: The United States and Western world general, US a bit more,
Speaker 1: the rest of the Western world a bit less subsidizes
Speaker 1: those drugs by staying higher prices here. And if we
Speaker 1: now are dealing with a doctor of international exhaustion. Uh
Speaker 1: and when everybody with our American consumer or a you know,
Speaker 1: some elite consumer can buy a drug that fill for
Speaker 1: two dollars, what's going to happen I think there's those
Speaker 1: two doctors are gonna get reported back into the United States.
Speaker 1: We're gonna have to leave it there, Greg, thank you,
Speaker 1: Greg Dolan, Robin Selman. Coming up, we're gonna talk about
Speaker 1: fiduciary duties by investment advisors. This is Bloomberg