WEBVTT - Supreme Court Bars Patent Holders from Blocking Resales (Audio)

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<v Speaker 1>Just issued Supreme Court ruling could make it much harder

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<v Speaker 1>for companies to prevent their products from being resold at

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<v Speaker 1>a discount. The issue for the court was whether patent

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<v Speaker 1>holders give up their patent rights when they sell an item.

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<v Speaker 1>The court's answer a resounding yes. The ruling came in

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<v Speaker 1>a case involving those printer cartridges that often cost almost

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<v Speaker 1>as much as the printer itself. With us to help

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<v Speaker 1>understand the ruling and what about meaning in the marketplace

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<v Speaker 1>are Robin Feldman. She is the director of the Institute

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<v Speaker 1>for Innovation Law at you See Hastings Law School. She

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<v Speaker 1>filed a brief that urged the court to reach the

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<v Speaker 1>result that it did. And Gregory Dolan, he's co director

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<v Speaker 1>of the Center for Medicine and Law at the University

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<v Speaker 1>of Baltimore. He filed a brief urging the court to

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<v Speaker 1>rule the other way. Thanks to both of you for

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<v Speaker 1>joining us. Greg, Before we get into all the important

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<v Speaker 1>legal questions in this case, can you just explain to

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<v Speaker 1>us who was involved in the case and what the

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<v Speaker 1>dispute between the two companies was. Sure um um the

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<v Speaker 1>case to come and it's both involved in making printer cartridges. UH.

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<v Speaker 1>The plaintiff lex Mark. They make printer cartridges that many

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<v Speaker 1>people using their printers to um print documents and um

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<v Speaker 1>as many people know. These cartridges have ink or other

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<v Speaker 1>materials that me and eventually cards just run out and

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<v Speaker 1>they can be You can either replace the whole cartridge

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<v Speaker 1>or you can refill the old one and um you know,

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<v Speaker 1>reuse it. And the issue in this case was whether

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<v Speaker 1>or not um these cartriges could be refilled. Lex Mark

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<v Speaker 1>had two ways of selling their initial cartridges. They either

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<v Speaker 1>sold it to their customers at full price does and

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<v Speaker 1>then customers could do them what they wanted. They could

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<v Speaker 1>throw them out, they could readfill whatever, or they sold

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<v Speaker 1>them at a significant discount about discounts on a condition

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<v Speaker 1>that they will not be resfiled, and then instead the

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<v Speaker 1>cartridges spent cars will be sent back to lex Mark

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<v Speaker 1>UH impression products. They defended in this case until these

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<v Speaker 1>old cartridges, both the ones that were sold in the

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<v Speaker 1>United States and the ones that was all the broad

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<v Speaker 1>whether or not they were under the first or second program,

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<v Speaker 1>and refilled them and then sold them obviously for cheaper

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<v Speaker 1>than the original manufacturer, and that was a dispute whether

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<v Speaker 1>or not doing so violates lex marks, patents and Robin.

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<v Speaker 1>How did the Supreme Court come to its decision today

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<v Speaker 1>is a big win for free enterprise, which is reflected

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<v Speaker 1>in the language throughout the Supreme Court. Under patent exhaustion,

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<v Speaker 1>when a product is sold, the patent right ends. In

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<v Speaker 1>other words, if I buy a hammer, I should be

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<v Speaker 1>able to hit any nail I want, or resell it

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<v Speaker 1>to anyone I want. Anything else creates bottlenecks in the

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<v Speaker 1>flow of commerce, and it comes up the system. The

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<v Speaker 1>Supreme Court decision spoke in terms of an auto repair

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<v Speaker 1>shop in a way that should make sense to all consumers.

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<v Speaker 1>If a car owner drives into the shop, the repair

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<v Speaker 1>should be able to fix the car and not have

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<v Speaker 1>to worry about invisible restrictions that might exist on each

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<v Speaker 1>tiny component of the car. The Supreme Court said, patent

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<v Speaker 1>system doesn't work that way. When you sell an item,

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<v Speaker 1>that's the end of the patent right. Greg. Based on

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<v Speaker 1>the brief you file, I'm going to guess that you

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<v Speaker 1>don't agree with that reasoning. If I'm I'm right, what

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<v Speaker 1>what is the court said that's wrong? Well, I don't

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<v Speaker 1>want to go too too far in my disagreement. I

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<v Speaker 1>think Robin is right in part in a sense that

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<v Speaker 1>there's certainly a huge value and there's certainly this badground notion.

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<v Speaker 1>Once you sell your patented product, that product should be

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<v Speaker 1>able to move in a stream of commerce downstream, and

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<v Speaker 1>I shouldn't have to you know what, I buy use cars.

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<v Speaker 1>That case, maybe I shouldn't have to go and try

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<v Speaker 1>to figure out whether each and every one of those components,

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<v Speaker 1>you know, what is the patent status. That makes sense,

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<v Speaker 1>and so I agree with Robin on this point. The

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<v Speaker 1>issue though, is whether or not it also makes sense

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<v Speaker 1>to have these kind of dual tracks, meaning that the

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<v Speaker 1>people who bought the car ship with sign you can

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<v Speaker 1>discount whether or not it makes sense to offer the

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<v Speaker 1>same product at multiple price levels in exchange for transferring

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<v Speaker 1>different set of rights. And for some people it makes

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<v Speaker 1>sense to pay a full price uh and get the

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<v Speaker 1>right not just to use, but to resell, but for

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<v Speaker 1>others makes sense to pay less but not necessarily have

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<v Speaker 1>a right to resell. And so since with the starting

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<v Speaker 1>with the chronalogy, I would offer another one. It's the

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<v Speaker 1>kind of difference between a buying of a car and

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<v Speaker 1>then you can do with it whatever you want. You

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<v Speaker 1>can gift it, you can keep it, you can crash

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<v Speaker 1>it whatever you want to do with it, and lease

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<v Speaker 1>in a car where certainly can use it. But you

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<v Speaker 1>don't have full and unrestricted price to resell. Yes, return

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<v Speaker 1>it to the dealership once a time myself and I

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<v Speaker 1>think that, and you pay different prices, and I think

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<v Speaker 1>that's also a good way and a benefit to consumers.

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<v Speaker 1>Do you have both options? We are talking about a

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<v Speaker 1>new Supreme Court ruling that says that once a company

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<v Speaker 1>that has a patent sells the product, the company has

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<v Speaker 1>has used up its patent rights in that product and

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<v Speaker 1>can't event a product from being resold. That's just out today.

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<v Speaker 1>Our guests are Robin Feldman of the University of California's

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<v Speaker 1>Hastings Law School and Gregory Dowan of the University of

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<v Speaker 1>Baltimore UM. Robin. A minute ago, greg was was essentially

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<v Speaker 1>saying that this ruling will limit the flexibility that patent

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<v Speaker 1>holding companies have. They won't be able to prevent provide

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<v Speaker 1>consumers with the kinds of options that the that lex Mark,

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<v Speaker 1>the printer cartridge company did in this case. What do

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<v Speaker 1>you think about that? So the Supreme Court essentially said

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<v Speaker 1>you don't get the higher price option the higher price

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<v Speaker 1>option is only when you are using patent rights when

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<v Speaker 1>you're not supposed to that that's what you're not allowed

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<v Speaker 1>to do. Uh. You mentioned earlier though, about a trend

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<v Speaker 1>for this decision, and I completely agree. Today's decision is

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<v Speaker 1>another loss for the Federal Circuit, which has become the

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<v Speaker 1>Supreme Court's favorite whipping boy. Way now, the third Federal

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<v Speaker 1>Circuit case the Supreme Court has overturned this year, and

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<v Speaker 1>they harshly vacated a fourth. That's a trend we've seen

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<v Speaker 1>for quite some time. So over the last five years,

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<v Speaker 1>the Supreme Court has reversed the Federal Circuit the time,

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<v Speaker 1>and that does not include when the justices affirmed the

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<v Speaker 1>result but rejected the logic. The Federal Circuit is batting

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<v Speaker 1>about zero before the High Court, and I think the

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<v Speaker 1>message is clear the High Court. The Supreme Court believes

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<v Speaker 1>that the Federal Circuit has been overreaching on behalf of

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<v Speaker 1>patent holders and has been dialing back on those types

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<v Speaker 1>of decisions. Gregory, excuse me, Let's go back to consumers

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<v Speaker 1>for a moment. Because the companies make like for example,

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<v Speaker 1>lex Mark, they make most of their money off the

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<v Speaker 1>cartridge sales, so is there anything to stop them from

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<v Speaker 1>just putting out one cartridge at a higher price. I

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<v Speaker 1>think that's exactly right. So I think I disagree with

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<v Speaker 1>robbing against uh not you know somewhat. I don't think

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<v Speaker 1>Supreme Courts said you don't get to charge the higher prices.

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<v Speaker 1>I think Supreme Court said you can charge once. Uh.

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<v Speaker 1>And the implication of that that you most companies like

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<v Speaker 1>lux Mark will end up charging the higher prices. They

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<v Speaker 1>will basically do away with the discount condition that people

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<v Speaker 1>return the cartridge. So instead people who you know, where

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<v Speaker 1>they were willing to return the cartridge or not, not,

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<v Speaker 1>everybody's gonna get charged the higher price. Uh. And ultimately,

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<v Speaker 1>I think for people who used to pay the higher

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<v Speaker 1>price anyways, I think there will be in difference for

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<v Speaker 1>people who were very willing to pay the lower price

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<v Speaker 1>in exchange for these restrictions, They're actually gonna be worse off.

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<v Speaker 1>And I think what making matters worse is that not

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<v Speaker 1>only did Spring Courts say that this rule now applies

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<v Speaker 1>within the United States, they also say that the same

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<v Speaker 1>thing applies if the patentees of the product abroad, and

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<v Speaker 1>that has some serious implications. So, for example, pharmaceuticals are all,

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<v Speaker 1>there's very different prices in the United States and abroad,

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<v Speaker 1>especially if you think about third world countries. And if

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<v Speaker 1>people now understand that there's other restrictions as to what

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<v Speaker 1>you can and cannot import to United States, nothing to

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<v Speaker 1>do with patent law. But nonetheless, if people can buy

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<v Speaker 1>drugs that are meant for third world countries for people

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<v Speaker 1>who can't afford to pay a lot, and then paying

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<v Speaker 1>those lower prices and instead bringing back to the United

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<v Speaker 1>States and sell them here, ultimately perhaps American consumers might

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<v Speaker 1>be better off because they pay lower prices, but that

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<v Speaker 1>means that people in third world countries will very much

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<v Speaker 1>be robbed of the opportunity to get access to drugs

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<v Speaker 1>at low cost because companies will no longer be able

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<v Speaker 1>to place differentiate And I think that's a problem, Robin. Uh.

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<v Speaker 1>Let's talk about that those international sales, because that was

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<v Speaker 1>the subject of Justice Ginsburg's partial descent and and and

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<v Speaker 1>part of the argument is, look, when you're when you're

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<v Speaker 1>selling something abroad, you don't get the charge of that

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<v Speaker 1>higher price. Uh, that that that that comes from that

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<v Speaker 1>comes from having a patent on some things that you're

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<v Speaker 1>perhaps rising at a lower price. And then if somebody

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<v Speaker 1>turns around and brings it back into the United States,

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<v Speaker 1>that's really gonna undermine your sales without giving you any

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<v Speaker 1>corresponding benefit to the pharmaceutical pricing areas when I've studied

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<v Speaker 1>a lot and is very troubling. I'm I'm sure most

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<v Speaker 1>of your listeners have had sticker shock going to buy

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<v Speaker 1>medication for themselves or their relatives. With the prices of

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<v Speaker 1>drugs in this country have skyrocketed in recent years. That

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<v Speaker 1>has been less true in the international market, so US

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<v Speaker 1>customers are supporting super high prices here um and paying

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<v Speaker 1>for lower prices abroad. Now, I'm not sure that the

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<v Speaker 1>prediction that prices will rise internationally on pharmaceuticals will hold

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<v Speaker 1>true because lots of other companies have different types of

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<v Speaker 1>payer systems, and pharmaceutical companies don't have the ability to

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<v Speaker 1>charge those higher prices everywhere that they can here. I

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<v Speaker 1>don't think we'll see that, but it would be interesting

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<v Speaker 1>if the effect of the Supreme Court decision would be

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<v Speaker 1>to see some discipline of price in this country as

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<v Speaker 1>they have gone so high. And Gregory speaking about pharmaceutical products,

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<v Speaker 1>is there more of a danger there with or is

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<v Speaker 1>there more hesitance to reuse certain things like devices like

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<v Speaker 1>cardiac catheters or things like that. Well again, so pharmaceuticals

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<v Speaker 1>there aren't interesting um interesting issue because in addition to

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<v Speaker 1>of course the patent rules, there are other rules and

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<v Speaker 1>other regimes that may preclude reimportation um. And there's of

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<v Speaker 1>course into the backstop as you mentioned, that may be

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<v Speaker 1>fear of using or reusing some devices like catheters or

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<v Speaker 1>pacemakers because of the potential for tort losses. But there

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<v Speaker 1>are for example, uh, anti metrobiol drugs that are being

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<v Speaker 1>sold to combat aids in sub Saharan Africa where people

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<v Speaker 1>can't really afford to pay more a dollar a day

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<v Speaker 1>or two dollars a day. Whereas but the way they're

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<v Speaker 1>sold the reason they're also cheaply. There's Robin is right.

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<v Speaker 1>The United States and Western world general, US a bit more,

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<v Speaker 1>the rest of the Western world a bit less subsidizes

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<v Speaker 1>those drugs by staying higher prices here. And if we

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<v Speaker 1>now are dealing with a doctor of international exhaustion. Uh

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<v Speaker 1>and when everybody with our American consumer or a you know,

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<v Speaker 1>some elite consumer can buy a drug that fill for

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<v Speaker 1>two dollars, what's going to happen I think there's those

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<v Speaker 1>two doctors are gonna get reported back into the United States.

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<v Speaker 1>We're gonna have to leave it there, Greg, thank you,

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<v Speaker 1>Greg Dolan, Robin Selman. Coming up, we're gonna talk about

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<v Speaker 1>fiduciary duties by investment advisors. This is Bloomberg