14 October, 2019
Calidad Pty Ltd v Seiko Epson Corp [2019] FACFC 115
What you need to know
- The implied licence granted on sale of patented goods is limited to the right to use, import, sell or hire the goods.
- Repurposing of printer cartridges by refilling the cartridges and resetting the microchip so that a printer detects that it is full is tantamount to making the products and outside the scope of any implied licence.
- This decision clarifies that the scope of an implied licence is limited and does not extend to re-making the patented product.
Background
Seiko Epson Corp (Seiko) sells and authorises the sale of printer cartridges (Epson cartridges) worldwide. The original Epson cartridges embodied the invention in two patents, which amongst other things, enabled the Epson cartridges to communicate as required with a printer.
After the Epson cartridges were sold and used, third parties including Ninestar Image (Malaysia) SDN BHD (Ninestar) collected the empty cartridges and modified them to enable the cartridges to be refilled with ink and re‐used. These "repurposed" cartridges were then sold to Calidad Pty Ltd (Calidad) who imported and sold them in Australia. Different modifications were made at different times to each of the cartridges to produce the repurposed products.
Seiko alleged that Calidad infringed their patents by importing and selling the repurposed cartridges in Australia. Calidad argued that upon sale the cartridges carried with them an implied licence to use and repair the cartridges that did not impose additional restrictive conditions or limitations on a subsequent buyer.
At first instance, the Federal Court held that certain repurposed cartridges sold prior to April 2016 did infringe the Seiko patents. The Court found that these cartridges were repurposed in such a way that the process protected by Seiko's patent was exploited by Ninestar. The method through which the cartridges were repurposed was altered for those sold after April 2016, and as such, the primary judge concluded that those cartridges did not infringe Seiko's rights as patentee.
On appeal, Seiko argued that all of the repurposed cartridges infringed. Calidad cross-appealed, arguing that none of the repurposed cartridges infringed the Seiko patents.
Repurposing the cartridges
Ninestar obtained Epson cartridges from third party suppliers, and from recycling bins. When collected, the memory chip in each cartridge recorded that the cartridge was used and when inserted into a printer, the cartridge would read as "empty" such that they could not be used. In repurposing the cartridges, Ninestar refilled the cartridges with ink, created new seals to hold the ink and either replaced the memory chip with a new chip, or reset the existing chip to enable it to function once refilled with ink.
Issues on appeal
On appeal, the Full Federal Court was required to determine:
- whether the primary judge had erred in determining the implied licence granted to a purchaser of a patented product is extinguished when that product is repurposed as the cartridges were;
- whether it is within the scope of an implied licence to carry out the modifications outlined above; and
- whether a patentee can prevent a person who has title to a patented product from repurposing the product for subsequent sale and import in Australia.
The rights of a patent holder
Under s 13 of the Patents Act 1990 (Cth), a patent holder has the exclusive right to exploit, or authorise another person to exploit, the invention. "Exploit" is defined under the Act to mean the right to make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things. It is settled law that a patentee who sells a patented article gives the buyer a licence to use the product.
The Court in National Phonograph Company of Australia Ltd v Menck (1911) 12 CLR 15, established the scope of the implied licence. In this case, the Privy Council held that once a patentee sells a patented article, the rights in that article are not exhausted such that the purchaser has no right to make a new embodiment of the invention purchased.
The scope of an implied licence
The Court determined that the primary judge had incorrectly framed its inquiry into whether the repurposed product infringed Seiko's rights as patentee, by considering whether those rights were extinguished on modification of the Epson cartridges.
In three separate judgments, the Court held that the implied licence arising on the sale of the Epson cartridges did not extend to performance of the process of repurposing the cartridges as employed by Ninestar.
These modifications went beyond "repairing" the cartridges, an action generally understood to be included in the implied licence. The Court found that Ninestar's modifications constituted the making of a new embodiment of the invention claimed in the patents.
Justice Jagot cited the English authorities including Solar Thompson Engineering Co Ltd v Barton [1977] RPC 537 in which the implied licence was considered to extend to repairing a patented article, but not to manufacturing a new article which infringes the patent. The Court held that infringement is not avoided, merely by using parts derived from the original patented article sold. The Court held that determining whether the allegedly infringing article is a repair or a substantially new article made in accordance with the claim is a question of fact which will differ on a case by case basis.
Justice Greenwood stated that the scope of the implied licence does not include a right to "make" the product as this is reserved for the patentee. Once Ninestar undertook the modifications to the Epson cartridges, this was held to constitute "making" a product, infringing on Seiko's rights as patentee.
The Court did not differentiate between the cartridges repurposed before or after April 2016 finding that, in fact, all the repurposed cartridges underwent the process of being refilled with ink and having the respective microchips reset to communicate useability with a printer, infringing Seiko's rights to exclusively make the patented product.
As such, by importing the infringing cartridges, Calidad infringed Seiko's patents.
While each Judge reached the same conclusion and all three judges made clear that each case will turn on its own facts, there were three separate judgments in this matter. Therefore, there remains scope for further clarity on the implied licence. An application for special leave to appeal to the High Court was filed on 2 August 2019 so we may yet hear more about this issue.
For further information, please contact:
Nina Fitzgerald, Partner, Ashurst
nina.fitzgerald@ashurst.com
