In a positive decision for patentees, the Full Court of the Federal Court of Australia has held that third party modifications to patented goods which go beyond mere repair and constitute remaking or repurposing the goods may constitute patent infringement.
In doing so, the Full Court acknowledged that unless a patentee imposes clear conditions or restrictions on a direct purchaser of goods at the original point of sale, the purchaser will have an implied licence to use the patented goods as they see fit. However, the scope of this licence does not extend to remaking or repurposing the goods.
The decision provides useful guidance for patentees and businesses dealing in patented goods, subject to the outcome of any application for special leave to the High Court.
Seiko Epson Corporation (Seiko) commenced proceedings against Calidad Pty Ltd (Calidad) for patent infringement in respect of "refurbished" printer cartridges imported and sold in Australia by Calidad.
Calidad purchased the cartridges from Ninestar, a manufacturer of generic printer consumables. Ninestar had obtained used Epson cartridges from third parties, and had refilled and refurbished the cartridges. Calidad imported and sold these cartridges in Australia as "remanufactured Epson cartridges". Two methods were used to "refurbish" the Epson cartridges: (1) reprogramming of the memory chip; and (2) removing and modifying the whole circuit board by inserting a new memory chip.
Seiko asserted that Calidad's conduct in importing, offering to sell and selling the "repurposed" printer cartridges infringed its patents. In its defence, Calidad asserted that it benefited from an implied licence to deal in the cartridges, derived from the unrestricted sale of the original Epson cartridges.
Trial Judge's findings
At first instance, Calidad successfully defended Seiko's patent infringement claims in part.
The trial judge found that the sale of a patented product includes an implied licence allowing the purchaser to use the product as they see fit. The implied licence may be restricted by placing contractual obligations on a direct purchaser (who is clearly on notice of the restrictions), or may be extinguished if the subsequent modification of a product is extensive.
The key question in this case was therefore whether the modified Epson products still constituted the same embodiment of the patented invention as the original product (in which case Calidad may have benefitted from the protection of an implied licence).
The Court held that some (but not all) of the products imported and sold by Calidad were not materially the same product as those originally sold by Seiko, so the implied licence was extinguished in respect of those products.
Full Federal Court decision
Calidad appealed the decision to the Full Federal Court, and Seiko cross-appealed.
The Judges of the Full Court each delivered separate decisions in relation to Calidad's liability for patent infringement. Each of Justices Greenwood, Jagot and Yates determined, albeit on slightly different bases, that Calidad's appeal should be dismissed and Seiko's cross-appeal upheld.
The Full Court upheld the principles articulated by the trial judge in relation to an implied licence which will travel with the original sale of patented goods - if any restrictions are to be imposed, they must be clearly communicated at the point of sale. However, the Full Court overturned the trial judge's findings that some of the Epson cartridges imported and sold by Calidad fell within the scope of an implied licence.
In doing so, the Full Court held that:
- the modification of the Epson cartridges amounted to a repurposing of the cartridges which was effectively a "remaking" of the invention the subject of Seiko's patents, and therefore constituted patent infringement;
- Ninestar had not merely "repaired" the cartridges - this would suggest the cartridges were somehow broken or defective, when in fact the cartridges had been consumed as intended and were no longer functional; and
- the correct question was not whether any implied licence arising from the original unrestricted sale of the Epson cartridges was "exhausted", but whether Ninestar’s and Calidad's conduct fell outside the scope of an implied licence.
The Full Court did not the address the question whether a doctrine of exhaustion of patent rights applies in Australia, leaving this issue unsettled.
In a subsequent decision in relation to the suitable form of injunction to be granted restraining Calidad’s future conduct, the Full Court held that Seiko should benefit from:
- an injunction to restrain Calidad from continuing to deal in the particular cartridges found by the Court to infringe Seiko's patents; and
- a more general form of injunction to restrain Calidad from infringing Seiko's patents (intended to guard against circumstances in which Calidad subsequently deals in cartridges which incorporate different modifications).
The Full Court delivered judgment in respect of the appropriate form of injunctive relief on 27 September 2019 and requested the parties to submit final orders. Any application for special leave to appeal to the High Court will be due to be filed within 28 days of the date of the final orders.
As this case involves matters of principle relating to patent law in Australia, if Calidad seeks special leave, the High Court may grant leave to appeal to consider the scope of any implied licence to deal in patented goods, the applicability of any doctrine of exhaustion, and distinctions between repair, refurbishment and modification of patented products.
With thanks to Anna Harley and Claudia Berman for preparing this Insight.