HIGH COURT OF AUSTRALIA
KIEFEL CJ,
BELL, GAGELER, KEANE, NETTLE, GORDON AND EDELMAN JJCALIDAD PTY LTD & ORS APPELLANTS
AND
SEIKO EPSON CORPORATION & ANOR RESPONDENTS
Calidad Pty Ltd v Seiko Epson Corporation
[2020] HCA 41
Date of Hearing: 11 & 12 August 2020
Date of Judgment: 12 November 2020S329/2019
ORDER
1.Appeal allowed with costs.
2. Set aside the orders made by the Full Court of the Federal Court of Australia on 5 July 2019 and the declaration and orders made by the Full Court of the Federal Court of Australia on 29 October 2019 and, in lieu thereof, order that:
(a)the appeal to that Court be allowed with costs and the cross-appeal to that Court be dismissed with costs;
(b)declaration 1 and orders 2 to 8, 10 and 11 of the orders made by the primary judge on 16 February 2018 be set aside and, in lieu thereof, it be ordered that:
(i)the applicants' originating application, including the applicants' claims of patent infringement, breach of cl 2(a)(ii) of the settlement deed, breach of statutory duties under ss 145 and 148 of the Trade Marks Act 1995 (Cth) and contravention of ss 18 and 29 of Sch 2 to the Competition and Consumer Act 2010 (Cth), otherwise be dismissed; and
(ii)subject to order 9 of the orders made by the primary judge on 16 February 2018, the applicants pay the respondents' costs of the proceeding; and
(c)the matter be remitted to the primary judge for determination of the respondents' claim for pecuniary relief for breach of cl 2(a)(i) of the settlement deed.
On appeal from the Federal Court of Australia
Representation
D Shavin QC with P J T Creighton-Selvay for the appellants (instructed by Gilbert + Tobin)
A J L Bannon SC with C L Cochrane and D Larish for the respondents (instructed by Quinn Emanuel Urquhart & Sullivan)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
CATCHWORDS
Calidad Pty Ltd v Seiko Epson Corporation
Patents – Infringement – Where printer ink cartridges embodied inventions claimed in two patents – Where used cartridges acquired by third party and modified for re-use – Where modified cartridges imported into Australia for sale to public – Where patentee alleged infringement of patent rights – Where s 13(1) of Patents Act 1990 (Cth) provides patentee has exclusive rights to exploit invention – Where "exploit" includes make, hire, sell or otherwise dispose of product and to use it – Whether modifications to cartridges constituted impermissible "making" of new product – Whether doctrine that patentee's exclusive rights with respect to product are exhausted on first sale ("exhaustion doctrine") should be accepted – Whether doctrine that implied licence arises on sale of patented goods to purchaser ("implied licence doctrine") should continue to be applied.
Words and phrases – "conditions as to use", "embodying the claimed invention", "essential features", "exclusive statutory rights", "exhaustion doctrine", "exhaustion of rights", "exploit", "implied licence", "implied licence doctrine", "infringement", "invention", "make, hire, sell or otherwise dispose of", "make, use, exercise, and vend", "making", "manufacture", "modifications", "monopoly", "monopoly rights", "patent", "patent rights", "personal property", "product", "repair", "re-use", "single use", "use".
Patents Act 1903 (Cth), s 62.
Patents Act 1990 (Cth), ss 2A, 13, 135, 144, Sch 1.
KIEFEL CJ, BELL AND KEANE JJ. The exclusive statutory rights of a patentee to exploit an invention which is a product include the rights to "make, hire, sell or otherwise dispose of the product" and to "use" it[1]. The question of principle which arises on this appeal concerns the scope of those rights and whether a patentee's rights with respect to the sale and use of a particular product should be regarded as exhausted when that product is sold or whether they continue. It requires consideration of the approach taken by this Court in National Phonograph Co of Australia Ltd v Menck[2] ("Menck (High Court)") and that of the Privy Council on appeal[3] ("Menck (Privy Council)").
[1]Patents Act 1990 (Cth), s 13(1), Sch 1 (definition of "exploit").
[2](1908) 7 CLR 481.
[3]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15; [1911] AC 336.
The other question that arises is no less important. Accepting that a patentee retains the exclusive right to make a product embodying the essential features of the invention, the question is whether modifications made to a product to enable its re‑use amount to a making of a new product and infringe on that account.
The questions arise in this context. The first respondent manufactures and sells computer printers and printer ink cartridges under the brand name "Epson" ("the original Epson cartridges"). The original Epson cartridges embody the inventions claimed in two patents of which the first respondent is the patentee. The original Epson cartridges are manufactured and sold in a form which permits only a single use. When the ink in the cartridge runs out it is usually necessary to replace the cartridge. Empty original Epson cartridges are obtained by a third party, Ninestar Image (Malaysia) SDN BHD ("Ninestar"), from various sources. Ninestar makes modifications to the cartridges which enable them to be refilled and re-used (potentially on multiple occasions). The appellants (together "Calidad") acquire the modified cartridges from Ninestar and import them into Australia for the purpose of sale to the public.
In proceedings in the Federal Court of Australia[4] the respondents (together "Seiko") alleged that by doing so Calidad infringed the first respondent's rights as patentee. In those proceedings Seiko did not contend that any contractual conditions restricting the use to which the original Epson cartridges could be put were imposed at the time of the sale to the original purchaser.
[4]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1.
It is not disputed that on the sale or resale of a patented product the purchaser becomes the owner of that item of property. It is a principle of the law of personal property that the owner of chattels has an absolute right to use or dispose of them as they think fit. This principle was applied by a majority of this Court in 1908 in Menck (High Court), where it held that conditions on resale could only be imposed as a matter of binding agreement. The Court applied a doctrine that a patentee's monopoly rights of use and sale with respect to a product arising from statute are exhausted on sale (the "exhaustion doctrine").
In Menck (Privy Council) it was held that a patentee may impose conditions on the sale or use of patented goods at the time of their sale to the original purchaser. Any conditions so imposed continue to apply to the goods after sale so long as persons later obtaining title to them have notice of the conditions. If no conditions are imposed, the owner of the goods has the ordinary rights of ownership, but only because in such a case the law implies a full licence[5] (the "implied licence doctrine").
[5]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 28; [1911] AC 336 at 353.
The proceedings in the Federal Court were conducted by the parties by reference to the approach taken in Menck (Privy Council). A Full Court[6] held that the implied licence did not extend to the modifications made by Ninestar. Further, the modifications amounted to a "making" of a new patented product or a remaking of the original and infringed the patentee's rights.
[6]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572.
In the Full Court Calidad reserved its right to argue on any appeal to this Court that the decision in Menck (High Court) was correct and that Menck (Privy Council) should not be followed. It now asks this Court to hold that the exhaustion doctrine should be applied in cases of this kind. Seiko contends to the contrary and further argues that regardless of which doctrine is applied the modifications amount to a "making" of the patented product.
The modifications made to the original Epson cartridges are within the scope of the rights of an owner to prolong the life of a product and make it more useful. They do not amount to an impermissible making of a new product. This Court has not been bound by decisions of the Privy Council for some time[7]. The rule, that a patentee's rights with respect to a particular product are exhausted once that product is sold without conditions as to use, should be accepted. The appeal should be allowed, for the reasons which follow.
Menck (High Court) and the exhaustion doctrine
[7]Viro v The Queen (1978) 141 CLR 88; Privy Council (Limitation of Appeals) Act 1968 (Cth); Privy Council (Appeals from the High Court) Act 1975 (Cth).
The plaintiffs in Menck (High Court) manufactured and sold products of which they were patentees to purchasers on whom restrictions as to resale were imposed. The plaintiffs claimed an injunction against the defendant, a retail seller who had bought the products from the original purchaser. It was alleged that he had obtained the goods from the purchaser contrary to the terms of the restrictions, of which he had notice, and resold them at a price lower than that permitted by the plaintiffs. This was a use of the plaintiffs' invention without their permission and therefore an invasion of their monopoly rights. The plaintiffs claimed to be entitled to condition the future use or sale of the patented products following their initial sale, not by reference to any contract but by reference to the patent itself and the rights given by s 62 of the Patents Act 1903 (Cth) to "make, use, exercise, and vend the invention".
Griffith CJ, with whom Barton and O'Connor JJ agreed, rejected the plaintiffs' claim of an invasion of their patent rights. Griffith CJ and Barton J referred with approval to decisions of the Supreme Court of the United States in the mid-19th century which held that when a patentee sells a patented machine to a purchaser, the machine is "no longer within the limits of the monopoly"[8]. The patentee having received on sale the royalty for their invention in that particular product, "it is open to the use of the purchaser without further restriction on account of the monopoly of the patentees"[9].
[8]National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 509-510 per Griffith CJ (referring to Bloomer v Millinger (1864) 68 US 340 at 351 and Adams v Burke (1873) 84 US 453 at 456), 524 per Barton J (referring to Bloomer v McQuewan (1853) 55 US 539 at 549 and Adams v Burke (1873) 84 US 453 at 456).
[9]National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 510 per Griffith CJ, quoting Adams v Burke (1873) 84 US 453 at 456.
Griffith CJ[10] described as "an elementary principle of the law of personal property", that:
"the owner of chattels has an absolute right to use and dispose of them as he thinks fit, and that no restrictions can be imposed upon this right, except by positive law or by his own contract".
[10]National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 510.
That being the state of the common law, the right asserted by the plaintiffs, his Honour considered, must depend on the meaning of the words "use" and "vend" in s 62 of the Patents Act 1903[11]. In his Honour's view, the words "use the invention" mean putting the idea of the invention into practice for some purpose. They do not continue to apply where the patented article is made and sold by the patentee and comes lawfully into circulation in the market as a chattel[12]. As to the word "vend", his Honour reasoned that it could not have been intended by the legislature to effect a change to a fundamental principle of the common law by introducing a new class of chattels which were effectively inalienable, without clear words expressing that intention[13]. The words "vend the invention" should be understood to mean "to put the product of the invention in the possession of the public" and not to refer to a sale of the product once it has been lawfully sold on the market[14].
Menck (Privy Council) and the implied licence doctrine
[11]National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 510.
[12]National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 511-512.
[13]National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 512. See also at 526-527 per Barton J.
[14]National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 512 per Griffith CJ.
The Privy Council did not deny the fundamental nature of the principle of the common law respecting an owner's right to use and dispose of chattels. Lord Shaw, who gave the advice of the Board, recognised that it would be contrary to the "public interest and to the security of trade" were it otherwise[15]. The difficulty, in his Lordship's view, was the enforcement of that principle "without impinging upon ... the right of property granted by the State and by way of monopoly to a patentee, and his agents and licensees, 'to make, use, exercise, and vend the invention … in such manner as to him seems meet'"[16]. These rights extended to "the imposition of conditions in the transactions of making, using and vending, which are necessarily an exception by Statute to the rules ordinarily prevailing"[17]. This in turn led to the need to "adjust the incidence of ownership of ordinary goods with the incidence of ownership of patented goods" so as to "avoid any collision of principle"[18].
[15]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 22; [1911] AC 336 at 347.
[16]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 22; [1911] AC 336 at 347.
[17]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 22; [1911] AC 336 at 347.
[18]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 22; [1911] AC 336 at 347.
Lord Shaw accepted that if the conditions imposed by the patentee were said, as a matter of patent law, to "run with the goods", a "radical change in the law of personal property" would have been effected[19]. But there would be no such radical change in allowing for a restriction on the alienation and use of a chattel where the restrictions were known to the person who had become owner. That was merely to acknowledge that in the case of patented goods, but not ordinary goods, ownership is subject to a limitation of this kind. These principles were considered to "harmonize" the rights of the patentee with those of the owner[20].
[19]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 23; [1911] AC 336 at 348.
[20]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 23-24; [1911] AC 336 at 348-349.
Lord Shaw said[21] that it could be gleaned from the decided cases[22] that a patentee, by virtue of the statutory monopoly, could impose conditions restrictive of sale or use at the time of sale which would not apply to ordinary chattels. If no such conditions were imposed (a sale "sub modo") it is presumed that it was intended to vest the full rights of ownership in the purchaser. The qualification to this last-mentioned proposition is that an owner's rights in a patented chattel will be limited if it is shown they knew of the conditions sought to be imposed by the patentee at the first sale. That was the position in which Mr Menck found himself.
[21]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 28; [1911] AC 336 at 353.
[22]The references include Betts v Willmott (1871) LR 6 Ch App 239. See also Société Anonyme des Manufactures de Glaces v Tilghman's Patent Sand Blast Co (1883) 25 Ch D 1; Incandescent Gas Light Co Ltd vCantelo (1895) 12 RPC 262.
The exhaustion doctrine more recently
Impression Products Inc v Lexmark International Inc[23] is a recent decision of the Supreme Court of the United States. It is a case which bears a striking similarity to the facts of this case and is a clear example of the application of the exhaustion doctrine. Roberts CJ, speaking for the majority[24], confirmed that the Court had adhered to that doctrine for over 160 years, applying it to the statutory right[25] to "exclude others from making, using, offering for sale, or selling [a patentee's] invention[s]". The landmark case, in 1853[26], identified by his Honour was one to which reference had been made in Menck (High Court).
[23](2017) 137 S Ct 1523.
[24]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523 at 1531.
[25]35 USC § 154(a).
[26]Bloomer v McQuewan (1853) 55 US 539.
Lexmark sold toner cartridges the subject of its patents for use with laser printers. The used cartridges were refilled by Impression Products, among others, for resale and re-use. In an endeavour to meet this competition Lexmark offered discounts to customers who agreed to use the cartridge only once and not to transfer the empty cartridge to anyone but Lexmark. It installed a microchip on each such cartridge that prevented re-use. Its competitors, including Impression Products, developed methods to counter the microchip.
Lexmark brought proceedings for infringement of its patent constituted by the refurbishment and resale of the cartridges. A majority of the Supreme Court held that Lexmark had exhausted its patent rights in the cartridges "the moment it sold them". Their Honours acknowledged that the single-use/no-resale restrictions in Lexmark's contracts with its customers may be enforceable under contract law but they did "not entitle Lexmark to retain patent rights in an item that it has elected to sell"[27].
[27]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523 at 1531.
Roberts CJ explained[28] that the "exhaustion doctrine" is not a presumption that arises on sale, rather it recognises a limit on the scope of the patentee's statutory rights. His Honour said that a patentee is free to set the price and negotiate contracts with purchasers but they may not, "'by virtue of his patent, control the use or disposition' of the product after ownership passes"[29]. Acknowledging that the effect of a patent is to grant to a patentee a right to prevent others from using or selling their product, his Honour explained that the exhaustion doctrine regards that exclusionary power as extinguished when the product is sold. His Honour reiterated what had been said in the earlier cases – that when a patentee chooses to sell a patented product it "is no longer within the limits of the monopoly". Instead it becomes the "private, individual property" of the purchaser with all the rights and benefits of ownership[30].
[28]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523 at 1534.
[29]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523 at 1531, quoting United States v Univis Lens Co Inc (1942) 316 US 241 at 250.
[30]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523 at 1531.
Roberts CJ[31] also referred to a case in 1918 which bears some similarity to the facts in the Menck decisions. Retailers were required to resell graphophones at a specified price pursuant to a contract with the patentee. When the agreement was breached the patentee sought to enforce the resale price agreement through patent infringement suits. The decision[32] did not turn upon the illegality of the restrictions, his Honour said, but the fact of sale. It was beyond controversy that by selling the graphophone the manufacturer placed it beyond patent law. The manufacturer could not, by imposing restrictions as to its use, keep it under the patent monopoly.
[31]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523 at 1533.
[32]Boston Store of Chicago v American Graphophone Co (1918) 246 US 8; see also United States v Univis Lens Co Inc (1942) 316 US 241.
The policy underlying the exhaustion doctrine was said to involve both the public interest and the object of patent statutes. Roberts CJ observed[33] that since at least the time of Lord Coke[34] restrictions on the resale or use of an item after its sale have been held void as contrary to the public interest. Patent statutes promote the progress of science by granting a limited monopoly to inventors to secure the financial rewards for their inventions. But once a patentee sells an item, they have enjoyed the rights secured by that monopoly and the purpose of the patent law is fulfilled.
[33]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523 at 1531-1532.
[34]Referring to Coke, The First Part of the Institutes of the Laws of England (1628), § 360 at 223a.
A similar policy is said[35] to have been the original rationale for the exhaustion doctrine applied by the Court of Justice of the European Union[36]. Once an intellectual property right owner has received their reward by marketing a product in the European Union they cannot prevent the further circulation of that product in the market. The doctrine is used to balance the exclusive rights of intellectual property owners with the protection of the internal market as an area in which the free movement of goods is ensured[37].
[35]Tritton on Intellectual Property in Europe, 5th ed (2018) at 785 [7-008]-[7-009].
[36]See Deutsche Grammophon Gesellschaft mbH v Metro-SB-Grossmärkte GmbH & Co KG [1971] ECR 487; Centrafarm BV v Sterling Drug Inc [1974] ECR 1147; Merck & Co Inc v Primecrown Ltd [1996] ECR I-6285. See also United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 458 [69].
[37]Tritton on Intellectual Property in Europe, 5th ed (2018) at 785 [7-009].
The development of the exhaustion doctrine in the European Union has been traced[38] to a publication in Germany in 1900, not long before the Menck decisions. The author reasoned from factors which included the purpose of the monopolistic rights to conclude that the reward should be obtained once for each product. Once the patentee themselves had used the patented invention with respect to a certain product, whether by way of sale or otherwise, they could no longer exercise those patent rights for that specific product[39].
[38]Heath, "Exhaustion and Patent Rights", in Okediji and Bagley (eds), Patent Law in Global Perspective (2014) 419 at 421-423, 426-431, referring to Kohler, Handbuch des Deutschen Patentrechts in rechtsvergleichender Darstellung (1900).
[39]Heath, "Exhaustion and Patent Rights", in Okediji and Bagley (eds), Patent Law in Global Perspective (2014) 419 at 422-423, referring to Kohler, Handbuch des Deutschen Patentrechts in rechtsvergleichender Darstellung (1900).
The Patents Act1990 and the right to exploit
The scope of the right to exploit given by the Patents Act 1990 (Cth) is to be ascertained by reference to s 13(1) of the Act read with the definition of the term "exploit" in Sch 1 to the Act. Section 13(1) provides:
"Subject to this Act, a patent gives the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit the invention."
The Patents Act 1990 provides for infringement proceedings to be brought to enforce the rights[40] referred to in s 13(1) and for a patentee to obtain relief by way of injunction, damages or an account of profits[41]. In Northern Territory v Collins[42], Gummow A-CJ and Kirby J observed that no definition is provided in the Act for what constitutes an "infringement". The statutory scheme instead focuses upon the exclusive rights given by the patent "as illuminated by the definition of 'exploit'"[43].
[40]Patents Act 1990, s 120.
[41]Patents Act 1990, s 122.
[42](2008) 235 CLR 619.
[43]Northern Territory v Collins (2008) 235 CLR 619 at 624 [20].
The term "exploit" in relation to an invention which is a product is defined to include[44]:
"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".
[44]Patents Act 1990, Sch 1 (definition of "exploit").
The term "invention" means "any manner of new manufacture the subject of letters patent and grant of privilege within section 6 of the Statute of Monopolies, and includes an alleged invention"[45]. An invention is disclosed in the complete specification of the patent[46]. A "patented product" means "a product in respect of which a patent has been granted and is in force"[47].
[45]Patents Act 1990, Sch 1 (definition of "invention").
[46]Patents Act 1990, s 40(2)(a).
[47]Patents Act 1990, Sch 1 (definition of "patented product").
The object of the Act is stated in s 2A[48], "to provide a patent system in Australia that promotes economic wellbeing through technological innovation and the transfer and dissemination of technology. In doing so, the patent system balances over time the interests of producers, owners and users of technology and the public".
[48]Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Act 2020 (Cth), Sch 1 item 1.
The patents, the product and the modifications
The two patents in which the inventions embodied in the original Epson cartridges are claimed are Australian Patents No 2009233643 ("the 643 patent") and No 2013219239 ("the 239 patent"). Claim 1 of the 643 patent is a combination claim divided into 11 integers. In summary they comprise: [1] a printing material container adapted to be attached to a printing apparatus; [2] a memory driven by a memory driving voltage; [3] an electronic device; [4] a plurality of terminals; and [5]-[11] the layout of those terminals. The infringement proceedings below were conducted by the parties on the basis that consideration of claim 1 of the 643 patent would suffice, no doubt because there was no material difference between the 643 patent and the 239 patent.
Ink cartridges for printers were in existence before the priority dates of the patents. The "background art" information to the 643 patent states that it had become common practice to equip cartridges with a memory for storing information concerning the ink and another device such as a higher voltage circuit to detect the level of ink remaining in the cartridge. It states that the cartridge and printer could be electronically connected through terminals. Where a cartridge has two or more devices, such as a memory and high voltage circuit, there is a risk that shorting could occur between the terminal for each device. The patents propose a solution which involves a particular layout of the electrical terminals to reduce this risk.
Original Epson cartridges contain a memory chip which is mounted on or connected to an integrated circuit board. Printers with which the original Epson cartridges are compatible are able to read and process the data in the memory chip. The primary function of the memory chip is to keep track of how much ink remains in the cartridge. When the printer determines from the memory chip that the ink has fallen below a threshold amount it prevents printing from taking place. For so long as the data stored in the memory chip indicates an inadequate ink supply in the cartridge, a compatible printer would treat the cartridge as empty and would not print.
When the ink in a printer cartridge runs out it is usually necessary for the cartridge to be replaced. Seiko supplies replacement Epson cartridges for its printers. Third party suppliers obtain original Epson cartridges which are empty from a number of sources, including the original purchasers and recycling facilities, and supply them to Ninestar, which modifies them for re-use.
In order that the cartridges may be used again they must be refilled with ink. A needle is used to create a small hole in the side of the cartridge, replacement ink is injected through that "injection port" and the port and the outlet hole through which the ink was originally disposed are resealed using thin plastic and heat. The information on the memory chip is modified to indicate that the ink is not exhausted, either by rewriting the information on the memory chip or by replacing the chip with a generic memory chip. Some of the categories of cartridges were subject to further modifications such as the removal of the "interface pattern", which comprises a series of protruding "ribs" on the exterior surface of the cartridge, so that the cartridge could be made compatible with other printers. A small cut was also made to the gas membrane of some cartridges in order to improve the gas exchange within the cartridge. And in some cartridges the integrated circuit assembly was removed and placed in another cartridge.
The decisions below
The primary judge
The primary judge (Burley J) correctly described the effect of the decision in Menck (Privy Council) to be that the first owner of patented goods obtained without restrictions on their use, and any person into whose hands the products subsequently come, is entitled to assume that a "full licence" has been given so that they may do with them as they think fit[49]. Nevertheless his Honour considered that the licence was subject to an inherent limitation arising from the sale of the product. His Honour reasoned that as the licence related only to the particular product sold[50] the modifications made by Ninestar to the original Epson cartridges put the continuation of the licence at risk. The question to be addressed, in his Honour's view, was whether the implied licence "survive[d]" the modifications made to them[51] or was extinguished[52].
[49]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1 at 30 [115].
[50]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1 at 39 [166].
[51]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1 at 38 [158].
[52]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1 at 38 [163].
His Honour eschewed an approach which enquired whether the modifications amounted to a repair of the product, on the one hand, or a making of a new product, on the other. The question, his Honour said, is not whether the product is altered, made or repaired, but rather whether the implied licence can be said to apply to the modifications made by Ninestar[53]. The issue is whether the product, "insofar as it is an embodiment of the invention as claimed, was materially altered, such that the implied licence can no longer sensibly be said to apply"[54].
[53]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1 at 38-39 [162]-[164].
[54]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1 at 39 [164].
The primary judge assigned the modified cartridges into nine categories, based on the different steps undertaken by Ninestar in order for them to be rendered capable of re-use. His Honour held that in five of the categories the modifications were such as to extinguish any implied licence. The licence was terminated before Calidad imported the products[55]. As to the remaining four categories, his Honour considered that the modifications were not material[56].
[55]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1 at 38 [160]-[161].
[56]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1 at 52 [238], 54 [256], 55 [264], 56 [267].
The Full Court
Calidad appealed the primary judge's findings regarding the five categories found to infringe and Seiko cross-appealed regarding the other four categories. A Full Court (Greenwood, Jagot and Yates JJ)[57] allowed Seiko's cross-appeal and dismissed Calidad's appeal, holding that in none of the nine categories were the modifications made to the original Epson cartridges authorised by the implied licence and that the changes effected to them constituted a making of a new embodiment of the invention claimed in the patents[58].
[57]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572.
[58]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 590 [85]-[87] per Greenwood J, 591 [91], 618 [165] per Jagot J, 642-643 [290], [295] per Yates J.
The Full Court agreed with the primary judge that the implied licence was one only to use the patented product in the form in which it was sold. Jagot J, with whom Greenwood J generally agreed, said the "product" referred to in s 13(1) of the Patents Act 1990, read together with the definition of "exploit", that is the subject of the exclusive rights of use and sale is the product embodying the claimed invention[59]. Yates J said that the implied licence does not extend beyond the use of the patented product in the form in which it comes into the hands of the first owner[60].
[59]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 615 [153].
[60]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 642-643 [288]-[289], [292].
The Full Court did not agree with the question identified by the primary judge. The correct question, in their Honours' view[61], was not whether the licence was terminated by the unauthorised modifications, but rather what was the scope of the licence. That question was to be determined, at least in part, by reference to the nature of the article sold[62]. As sold, it was a product which had a certain lifespan[63]. It could never have been within the contemplation of Seiko and any purchaser that a printer cartridge exhausted of ink would be repurposed in the manner of the Calidad products, Jagot J accepted[64].
[61]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 588 [68] per Greenwood J, 616 [154]-[155] per Jagot J, 628 [206], 642 [291] per Yates J.
[62]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 616 [156] per Jagot J, 642-643 [292] per Yates J.
[63]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 622 [177].
[64]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 613 [142]-[143], 621-622 [175].
Jagot J held that Ninestar's actions recreated or remade the product altogether in new embodiments of the invention[65]. Her Honour rejected Calidad's argument that it had repaired the cartridges because they no longer worked[66]. No part of the cartridge was damaged or worn, her Honour observed[67]. When a cartridge ran out of ink it had merely exhausted its function and this was precisely how it was designed to work[68].
[65]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 622 [177].
[66]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 620 [169].
[67]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 622 [177].
[68]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 620 [168]-[169].
Jagot J also rejected Calidad's contention that not all of its modifications fell within the patent claim. In her Honour's view the changes made by Ninestar involved essential integers of the invention the subject of the patents, which included the unmaking and then remaking of a feature of the invention[69]. The products Seiko sold all embodied the claimed invention including the first integer, consisting of a "printing material container". While the primary judge described the making of a hole in it to enable it to be filled with ink and its resealing as a minor physical alteration, her Honour considered that at the moment the new hole was created there was no longer an essential integer of the claimed invention. It ceased to be a printing material container as it could no longer contain printing ink. When the original and new holes were sealed it was made into a new container. That is not the use of the patented article as sold, her Honour said; it is the making of a new article within the scope of the patent. When sold to Ninestar the patented container could not be used for two reasons: the container was empty of ink and the memory recorded this state of affairs. As repurposed the product was still an embodiment of the invention but was now capable of re-use. These facts alone indicated to her Honour and Greenwood J that the modifications involved the making of a new embodiment of the invention, outside of any implied licence for use[70].
[69]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 622 [179].
[70]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 586 [56]-[57], 590 [85] per Greenwood J, 619 [166] per Jagot J.
Jagot J did not accept the primary judge's view that the reference to "a memory driven by a memory driving voltage" in integer [2] involves a reference only to the mere physical existence of the memory chip. Although her Honour accepted that the information and content of the memory as to the level of ink present in the cartridges was not part of the patent claim, she did not think it was irrelevant. The fact that repurposing a cartridge involves reprogramming to change the memory tended to confirm that the modified cartridges were outside the scope of the implied licence[71]. In some of the categories of cartridges the memory chip was substituted altogether, not merely reprogrammed, and this required removal of the printed circuit board and the substitution of memory chips, Jagot J noted[72]. Here too, her Honour said, the original Epson product as sold ceased to exist, probably at the moment the printed circuit board was removed. The product was no longer that sold by Seiko.
[71]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 620 [172]-[173].
[72]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 619 [167].
The removal of the interface patterns from some of the cartridges, in order to make them compatible with Australian printers, had been described as "borderline" by the primary judge, although his Honour concluded it served to terminate the licence[73]. Jagot J characterised the removal as enabling a new kind of adaptation for attachment and therefore a new embodiment[74]. The removal of the integrated circuit assembly from one cartridge and its placement in another also involved the making of a new embodiment of the invention outside the scope of the implied licence, her Honour found. The assembly was central to the invention as claimed, including in the layout of the terminals described in integers [4] to [11]. It too could not have been within the scope of the implied licence to use the patented product as it was purchased from Seiko[75].
[73]Seiko Epson Corporation v Calidad Pty Ltd (2017) 133 IPR 1 at 58 [281].
[74]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 620 [170].
[75]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 620 [171].
Making a new embodiment?
Regardless of whether the exhaustion doctrine or the implied licence doctrine is to be preferred, neither doctrine has any part to play in determining whether there has been an infringement of a patent by reason that a new product embodying the claimed invention has been made. The sale of a patented product cannot confer an implied licence to make another and it cannot exhaust the right of a patentee to prevent others from being made[76]. The right to make a product is a separate and distinct right from the right to use or to sell. The definition of "exploit" in the Patents Act 1990 makes this plain.
[76]United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 458 [70] per Lord Hoffmann.
To establish infringement by making a new embodiment of the invention it is of course necessary for Seiko to show that the new product takes each of its essential features[77] by reference to the description of the invention[78]. Calidad submits that some of the modifications relate to features which are not the subject of the patent claim and that not all the features claimed can be regarded as essential to the invention because they either are a generic component or were the subject of common usage before the priority date of the patents.
[77]Rodi & Wienenberger AG v Henry Showell Ltd [1969] RPC 367 at 383 per Lord Hodson, 391 per Lord Upjohn; Olin Corporation v Super Cartridge Co Pty Ltd (1977) 180 CLR 236 at 246; Populin v HB Nominees Pty Ltd (1982) 41 ALR 471 at 476, 480.
[78]D'Arcy v Myriad Genetics Inc (2015) 258 CLR 334 at 370-371 [87]-[88] per French CJ, Kiefel, Bell and Keane JJ, 373 [94], 387-388 [144]-[145] per Gageler and Nettle JJ.
In the latter respect the "printing material container" referred to in integer [1] describes an article previously commonly used to hold ink. It was also common practice to equip ink cartridges with a memory such as that referred to in integer [2]. Calidad points out that the claim distinguishes between the memory chip and its contents, which is to say that which is stored on it, as the primary judge found. A device such as a high voltage circuit to detect ink levels was also commonly used. The interface pattern, which was removed from some cartridges, either was a generic feature or was not claimed.
Whatever view is taken of other features, there can be little doubt that those the subject of integers [4] to [11] were essential to the invention and that modifications involving replacement of the integrated circuit assembly were directed to an aspect of them. Calidad's submission that the substance of the invention resides in the particular layout of the electrical terminals defined by integers [4] to [11], which is the means by which the problem of shorting is resolved, accepts as much. Its answer is that the integrated circuit assemblies were merely replaced with an equivalent assembly from another Epson cartridge and the layout of the terminals was not changed.
That answer directs attention to the real issue in relation to infringement, namely whether the modifications resulted in a new product being made. The conclusion for which it contends, that the refilled and restored cartridges were merely modified versions of the products sold by Seiko, should be accepted.
In D'Arcy v Myriad Genetics Inc[79] it was observed that the idea of something which can be "made" by human invention is central and of long standing in patent law. The word "manufacture" in the Statute of Monopolies 1623 (21 Jac I c 3) connotes the making of something. It may be observed at the outset that ordinarily it would not be said that an article which has been purchased and altered in such a way that it retains much of its essential features but is now able to be re-used is "made". It is much the same article with improved functionality.
[79](2015) 258 CLR 334 at 344 [16] per French CJ, Kiefel, Bell and Keane JJ.
The modifications which were made in the present case may be contrasted with what was undertaken in United Wire Ltd v Screen Repair Services (Scotland) Ltd[80]. The patent there in question concerned improvements to sifting screens used to recycle drilling fluid in the offshore oil-drilling industry. The screen was described in the first claim of the patent as a sifting screen assembly, comprising a frame to which mesh screens were secured, for use in a vibratory sifting machine. The defendants stripped down the screen to its frame and then secured new mesh screens to it. This was regarded by Aldous LJ, in the Court of Appeal[81], as equivalent to purchasing the frames on the open market and then using them to produce an assembly[82]. The House of Lords[83] held that the Court of Appeal was entitled to conclude that the totality of the work amounted to "making" a new article because the removal of the meshes and the stripping down and repairing of the frame resulted in a mere component of the patented article remaining "from which a new screen could be [and was] made".
[80][2001] RPC 24.
[81]United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 450 [28].
[82]See also United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 458 [67] per Lord Hoffmann.
[83]United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 459 [73] per Lord Hoffmann.
In United Wire an argument that the defendants had merely prolonged the life of the machine by its repair was rejected. Lord Hoffmann observed[84] that while the concepts of repair and making can overlap in ordinary usage, in the context of patent law they are mutually exclusive. It may therefore be preferable to ask whether the product in question was "made". Further, the notion of there being a licence to repair is apt to confuse and to distract attention from the statutory question whether the defendant has made the patented product. That observation is apposite in the present case because the Full Court appears to have reasoned from the premise that there was no licence to modify the cartridges as sold to a conclusion that what was thereby achieved was the making of something new.
[84]United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 459 [71].
Lord Hoffmann[85] viewed an owner's right to repair a patented article not as an independent right conferred by licence, but as a residual right forming part of the right to do whatever does not amount to making the product. There are two matters to which his Lordship referred in part of his speech which might imply acceptance of a wider notion of "repair" in this context. "Repair", he said, "is one of the concepts (like modifying or adapting) which shares a boundary with 'making' but does not trespass upon its territory." His Lordship also approved the statement attributed to Lord Halsbury, in a case decided not long before the Menck decisions[86], that "you may prolong the life of a licensed article but you must not make a new one under the cover of repair".
[85]United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 458-459 [70]-[71].
[86]Sirdar Rubber Co Ltd v Wallington, Weston & Co (1907) 24 RPC 539 at 543.
In Schütz (UK) Ltd v Werit (UK) Ltd[87], Lord Neuberger appears to have accepted that, whilst the focus should be on the question whether a new article is made, a consideration of whether an alleged infringer is repairing rather than making an article may sometimes be useful. It is reflected in the approach, his Lordship observed, which is taken by German courts to infringement. His Lordship gave as an example the mere replacement of a part of an article, which does not necessarily mean that a "making" is involved.
[87][2013] RPC 16 at 410-411 [48]-[51].
The jurisprudence of courts of the United States has employed the dichotomy of "permissible repair" and "impermissible reconstruction" to resolve questions of infringement by making a new article having the features of the claimed invention. It has consistently been held that for an infringement to be established there must be a true reconstruction so as to in fact make a new article[88]. The replacement of individual unpatented parts may involve a right to repair where what is done bears on the usefulness of the old combination of the product[89]. Modifications of this kind tend to be characterised on the spectrum closer to repair than to reconstruction or making[90].
[88]Aro Manufacturing Co Inc v Convertible Top Replacement Co Inc (1961) 365 US 336 at 346; Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc (1997) 123 F 3d 1445 at 1451.
[89]Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc (1997) 123 F 3d 1445 at 1451-1452.
[90]Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc (1997) 123 F 3d 1445 at 1452.
In Impression Products[91], the issue whether the ink cartridges in question had been "made", "remade" or "reconstructed" does not appear to have been raised and was not the subject of discussion by the Supreme Court. But the repurposing of single-use products to enable their re-use had been the subject of earlier decisions in other courts in the United States.
[91]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523.
The patent in Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc[92] was directed to an ink jet pen, which is an ink cartridge, that was designed to be non-refillable. Repeat-O-Type purchased them as new, rather than spent, and modified and sold them as refillable cartridges. Hewlett-Packard argued that the modifications created new cartridges because as modified they had different properties and different performance characteristics compared with those as sold by it[93]. This argument has something in common with the approach of the Full Court in this case.
[92](1997) 123 F 3d 1445.
[93]Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc (1997) 123 F 3d 1445 at 1450.
The Court of Appeals, Federal Circuit, held that the modifications were not impermissible reconstruction. Whilst accepting that they were not a conventional repair, since the parts replaced or modified were not broken or defective, the Court found that the modifications nevertheless did not amount to a reconstruction; they were closer to "repair"[94]. The Court approved the proposition that the mere replacement of individual unpatented parts is no more than the exercise of the lawful right of an owner to repair their property[95].
[94]Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc (1997) 123 F 3d 1445 at 1452.
[95]Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc (1997) 123 F 3d 1445 at 1451, 1454.
In Jazz Photo Corporation v International Trade Commission[96], the Commission had determined that a number of respondents had infringed the patents of Fuji Photo Film Co with respect to single-use cameras. The discarded cameras were purchased and refurbished for re-use. The steps taken included removal of the cardboard cover, cutting open the plastic casing, inserting new film and a container to receive it, replacing the winding wheel, replacing the battery, resetting the counter, resealing the outer case and adding a new cardboard cover. The Court of Appeals, Federal Circuit, held that the purchaser of a patented item had the rights of an owner to preserve the useful life of the original article[97]. So long as a new article was not in fact made it was a right of repair. The decided cases treated as repair the replacement of unpatented parts that were worn or spent, in order to preserve the utility of the article. Reconstruction required a more extensive rebuilding[98].
[96](2001) 264 F 3d 1094.
[97]Jazz Photo Corporation v International Trade Commission (2001) 264 F 3d 1094 at 1102.
[98]Jazz Photo Corporation v International Trade Commission (2001) 264 F 3d 1094 at 1103-1104.
The wide scope given to alterations to a purchased product which improve the usefulness of it is evident from a decision of the Supreme Court of the United States[99] which was discussed in Hewlett‑Packard[100]. In that case the purchaser resized or relocated six of the 35 elements of a patented fish-canning machine so that the machine could pack fish into smaller cans. The Supreme Court held that the purchaser had merely adapted the old machine to a related use. Whilst that was more than "repair" in the ordinary sense, it was akin to repair for it "bore on the useful capacity of the old combination" for which the royalty had been paid[101].
[99]Wilbur-Ellis Co v Kuther (1964) 377 US 422.
[100]Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc (1997) 123 F 3d 1445 at 1452.
[101]Wilbur-Ellis Co v Kuther (1964) 377 US 422 at 424-425.
The approach of the courts in these cases recognises the rights of an owner of a chattel to the full use and control of it. The first error made by the Full Court was to restrict the use to which the original Epson cartridges could be put, not by reference to what the patentee had claimed, but by reference to a characteristic of the product. And that led the Full Court into error concerning the question of whether a new article was made, as will shortly be explained.
Even according to Menck (Privy Council) a person acquiring a patented product is intended to have all the rights of an owner unless those rights are subject to express restrictions notified to the person, and here there were none. The fact that a product presents as capable of a single use is not a notification of this kind. Moreover, single usage is not a feature of the invention claimed.
The expectations of Seiko or the original purchasers as to the limited functionality of the cartridges are not relevant to the question of infringement. In Aro Manufacturing Co Inc v Convertible Top Replacement Co Inc[102], it was said that the question whether a new article is "made" cannot depend on what the patentee's or the purchaser's intentions were at the time of sale. In Schütz[103], Lord Neuberger agreed with the view expressed by the German courts[104], that how a party views or markets its products is irrelevant to whether those products should be characterised as repaired or made. And in Hewlett-Packard[105], an argument that the boundary between repair and reconstruction turns on the intention of the patentee, that the product be used only once, was rejected. The Court held that unless such a term was embodied in an enforceable contract, it was no more than a hope or wish.
[102](1961) 365 US 336 at 354 per Black J.
[103]Schütz (UK) Ltd v Werit (UK) Ltd [2013] RPC 16 at 410 [47].
[104]Flügelradzähler (Impeller Flow Meter), Bundesgerichtshof [German Federal Court of Justice], X ZR 48/03, 4 May 2004; Palettenbehälter II, Schütz v Mauser (Pallet Container II), Bundesgerichtshof [German Federal Court of Justice], X ZR 97/11, 17 July 2012.
[105]Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc (1997) 123 F 3d 1445 at 1453.
The error made by the Full Court, as to the scope of the implied licence, led it to adopt an incorrect approach to the question of whether a new product containing the embodiments of the patented invention had been "made". Treating the licence as restricted by the usefulness of the product in the form in which it was sold led the Full Court to characterise the modifications made by Ninestar as the manufacture of new cartridges. The Full Court reasoned, in effect, that because the original Epson cartridges were sold for a single use and were modified to be re-used, they became new products. This impermissibly elides infringement by use and infringement by making.
A failure to observe the distinction drawn by the Patents Act1990 between infringement by use and infringement by making renders the task of discerning the difference between modification of a product (an aspect of use) and the making of a new embodiment of the invention an unguided and impressionistic exercise, which is apt to allow the undue expansion of the patentee's monopoly to the detriment of consumers and competitors. Indeed, as the decision of the Full Court in the present case shows, to fail to appreciate the boundary drawn by the Patents Act 1990 between modification of a product by the purchaser of the product and the making of a new embodiment of the patented invention is to risk the ironic outcome that the patent right becomes a brake on the very kind of innovation that patent rights are meant to encourage.
In Solar Thomson Engineering Co Ltd v Barton[106] it was said that the "cardinal question" whether what has been done by the alleged infringer can fairly be termed repair has regard "to the nature of the patented article". Such an approach is not consistent with the Patents Act 1990. The question of infringement under the Patents Act 1990 is not addressed to the nature of the article but rather to the invention described by the integers of the claim[107]. Where what has been done does not involve the replication of the combination of integers that describe the invention it cannot be said that what has been done is the making of it.
[106][1977] RPC 537 at 555 per Buckley LJ.
[107]Kimberly-Clark Australia Pty Ltd v Arico Trading International Pty Ltd (2001) 207 CLR 1 at 14 [19], [21]; D'Arcy v Myriad Genetics Inc (2015) 258 CLR 334 at 339-340 [6], 343-344 [13]-[14]; Catnic Components Ltd v Hill and Smith Ltd [1981] FSR 60 at 65; Schütz (UK) Ltd v Werit (UK) Ltd [2013] RPC 16 at 407 [28].
When a small hole was made in the printing material container of the original Epson cartridge to enable it to be refilled with ink, the cartridge did not cease to exist, and it was not made anew when the two holes were sealed. The product did not cease to exist when the memory chip was substituted. An argument that an article has been "unmade" and then "remade" might have some weight in a circumstance such as United Wire[108]. However, it is somewhat artificial in cases where parts are changed so as to permit continuation of use. In Wilson v Simpson[109], referred to with approval in Aro Manufacturing[110], the Court refused to accept that a tangible machine could be said to have ceased to have a material existence because a part that had become inoperative was repaired or replaced.
[108]United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24.
[109](1850) 50 US 109 at 123.
[110]Aro Manufacturing Co Inc v Convertible Top Replacement Co Inc (1961) 365 US 336 at 352 per Black J.
The reprogramming of the memory chip in the original Epson cartridges and the removal of the interface patterns did not constitute the making of a new embodiment of the patented product. It may be accepted that the substitution of an "integrated circuit assembly" was a substantive modification which included the layout of the electrical terminals, but it did not constitute a making. The particular layout of the electrical terminals as defined by integers [5] to [11] was not affected by this action. Moreover, as Calidad submits, it was an action undertaken to enable the data in the memory chip to be replaced and the cartridge to be re-used, not to change the layout of the terminals in any way.
When all of Ninestar's modifications to each of the categories of cartridges were completed what remained were the original Epson cartridges with some modifications which enabled their re-use. The modifications did not involve the replication of parts and features of the invention claimed. There was no true manufacture or construction of a cartridge which embodied the features of the patent claim.
The modifications to the original Epson cartridges were consistent with the exercise of the rights of an owner to alter an article to improve its usefulness and enable its re-use. Both English[111] and United States authority accept the prolonging of the life of a product to be within an owner's rights of use of a patented product. Regardless of whether it is said to be something done which is closer to "repair" than "making", it clearly does not involve a manufacture or making. And this is so regardless of whether the exhaustion doctrine or the implied licence doctrine is applied.
The preferable doctrine?
[111]United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 458-459 [70] per Lord Hoffmann, quoting Sirdar Rubber Co Ltd v Wallington, Weston & Co (1907) 24 RPC 539 at 543.
The fundamental difference
The idea of treating a patentee as granting an implied licence, the approach adopted in Menck (Privy Council), is largely attributed[112] to the decision in Betts v Willmott[113]. There Lord Hatherley LC observed that when a person purchases an article "he expects to have the control of it"[114]. The problem was how it might be said that a purchaser could use or dispose of a patented article without the need for the patentee's consent. The answer, he said, was that the purchaser could be said to do so by a licence implied by the law.
[112]See eg United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 458 [68]; see also Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534 at 540 per Gibbs J.
[113](1871) LR 6 Ch App 239.
[114]Betts v Willmott (1871) LR 6 Ch App 239 at 245.
The unstated premise, that a patentee's monopoly rights respecting the use of a patented article continue after its sale, was to emerge more clearly in Incandescent Gas Light Co Ltd v Cantelo[115], where it was held that a patentee could condition or restrict the licence conferred on a purchaser and the conditions or restrictions could be enforced as a matter of "common sense" and not contract law. The decision in Menck (Privy Council) appears to have amalgamated these ideas. Lord Shaw spoke of giving effect to the line of authority to which he referred[116], which consisted of largely single-judge decisions. It does not appear that any consideration was given to an alternative solution, that applied by the Supreme Court of the United States, by which the scope of patent rights with respect to a product was limited by the fact of sale. And unlike the approach taken by Griffith CJ, no process of statutory construction was undertaken by the Privy Council. Rather it was assumed that the negative nature of the monopoly right carried with it the power to impose conditions on subsequent owners of a patented product[117].
[115](1895) 12 RPC 262 at 264.
[116]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 28; [1911] AC 336 at 353.
[117]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 22; [1911] AC 336 at 347; see also Grain Poolof Western Australia v The Commonwealth (2000) 202 CLR 479 at 513 [83].
In United Wire[118], Lord Hoffmann acknowledged that the exhaustion doctrine is an alternative explanation for why a patentee cannot be heard to complain about a purchaser's use of a patented product and he observed that it is adopted in European patent systems. The difference between the two theories, his Lordship suggested, is that an implied licence "may be excluded by express contrary agreement or made subject to conditions while the exhaustion doctrine leaves no patent rights to be enforced".
[118]United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24 at 458 [69].
A qualification is necessary with respect to this last-mentioned observation. It is that the exhaustion doctrine leaves no patent rights to be enforced with respect to the particular product sold. Under the exhaustion doctrine a patentee's rights to make and to sell another product embodying the claimed invention remained unaffected. So too does the patentee continue to have the right to use a product so made and to prevent others from doing so, at least until the product is sold.
The exhaustion doctrine does not accept the premise that a patentee's rights of use with respect to the particular product survive its sale. That is the fundamental difference between the two doctrines. According to the exhaustion doctrine the purchaser of a patented product buys "'the use of the whole' of the combination"[119], as would result from an ordinary sale. The exhaustion doctrine accepts that a patentee has special rights deriving from the patent which are given statutory effect, but holds that they are exhausted when the reward which is the object of those special rights is achieved by the patentee. The sale takes the product outside the scope of the patentee's monopoly rights.
[119]Aro Manufacturing Co Inc v Convertible Top Replacement Co Inc (1961) 365 US 336 at 342-343, quoting Wilson v Simpson (1850) 50 US 109 at 123.
Operation and effect
The exhaustion doctrine has the virtues of logic, simplicity and coherence with legal principle. It is comprehensible and consistent with the fundamental principle of the common law respecting chattels and an owner's rights respecting their use. At the same time, it does not prevent a patentee from imposing restrictions and conditions as to the use of a patented product after its sale but simply requires that they be obtained by negotiation in the usual way and enforced according to the law of contract or in equity.
The implied licence doctrine is complicated in its operation and effects. It can achieve only a partial alignment with the fundamental principle of the law and then only when it is clear that no restrictions have been imposed at the point of first sale. It may give rise to difficult questions concerning whether restrictions were imposed and whether an owner many times removed from the first sale had notice of them. The prospect that restrictions might be imposed on the further use or sale of a patented product after its first sale may be more theoretical than real now. Even if such restrictions were acceptable to consumers, they would face the hurdle of modern statutes concerned with anti-competitive conduct in the market. It may well be that the practice of patentees upon which the doctrine is founded has less relevance today.
It should not be overlooked that the licence upon which the doctrine depends is a fiction. It is not a licence in fact granted by a patentee to a purchaser or later owner of a patented product[120]. It is not implied to give business efficacy to the sale agreement. It is imposed by the courts in an endeavour to resolve a perceived tension in the law. In Pyrenees Shire Council v Day[121], GummowJ remarked that a legal fiction, such as trespassers being treated as having been upon a defendant's land under an imputed licence, may "operate to reconcile a specific legal outcome or result with a premise or postulate involving unexpressed considerations of social and economic policy". His Honour considered that the modern preference for substance over form did not favour the preservation of legal fictions. In that regard it may also be said that greater emphasis would now be given to the maintenance of fundamental legal principle. Any adjustment of rights arising according to fundamental legal principle with statutory rights would not be undertaken without first determining the scope of the statutory rights, by a process of construction.
[120]cf Interstate Parcel Express Co Pty Ltd v Time-Life International (Nederlands) BV (1977) 138 CLR 534 at 542 per Gibbs J.
[121](1998) 192 CLR 330 at 387 [163].
The implied licence doctrine is likely to cause confusion in part because it combines a fictional licence with the possibility of real restrictions. Whilst it seeks to provide the purchaser of patented goods with the full rights of ownership, it leaves open the possibility that there may be other restrictions which have been notified by the patentee. It engenders uncertainty.
That confusion is evident in the approach that the Full Court felt compelled to take in this case. It sought in the first instance to determine the scope of the licence by reference to the characteristic of the cartridges being single-use. The confusion was compounded when the Full Court then treated the limited permission to use the product as pivotal to the question whether a new product had been made.
The result reached by the Full Court with respect to infringement is likely to have been very different had the Court been in a position to apply the exhaustion doctrine. The starting point would have been that Seiko had no rights with respect to the cartridges after they were first sold. Attention would then have been directed to the rights of an owner with respect to a chattel and whether the modifications made to the cartridges were consistent with those ordinary rights – to adapt a chattel to improve its usefulness and extend its life. A conclusion that the modifications did not thereby amount to a manufacture would more likely have been reached.
The implied licence doctrine is not consistent with the certainty demanded by trade and commerce or with consumer expectations. The need for certainty requires the maintenance of the fundamental principle of the law which recognises that an owner has full rights as to the use and disposal of a chattel. It is not met by treating a restriction on the use or sale of a product as running with the product, which, contrary to the view of Lord Shaw[122], is the effect the implied licence doctrine has where there is notice of that restriction. The example given by Roberts CJ in Impression Products[123], of the position which would prevail if the exhaustion doctrine were not applied, is apposite. His Honour pointed to the circumstance of businesses restoring and selling second-hand cars and asked what would be the position if each of the companies that make the thousands of parts which go into a motor vehicle could keep their patent rights after the first sale.
[122]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 23, 28; [1911] AC 336 at 348, 353.
[123]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523 at 1532.
The United States cases and those of the Court of Justice of the European Union recognise that the maintenance of patent rights with respect to a product after sale is not conducive to the free flow of goods in a market. That understanding informs their acceptance of the exhaustion doctrine, as does their view that that doctrine correctly accepts the statutory object of the right of exploitation by sale as having been met upon first sale. The implied licence doctrine is not founded upon considerations of this kind.
Conclusion – the exhaustion doctrine
The matters which inform the adoption of a policy of the law as to the scope of the patent rights to sell and use a product, as they affect a patentee and owner of a chattel, point strongly to an acceptance of the exhaustion doctrine and away from the implied licence doctrine. Indeed there seems little to be said in favour of the latter unless consistency with the statute which grants the patent rights requires a different outcome. This, it will be recalled, was not the conclusion arrived at by Griffith CJ in Menck (High Court) by a process of orthodox construction.
The exhaustion doctrine and the Patents Act 1990
The nature of the rights
It is well understood, and was in both of the Menck decisions[124], that the monopoly rights given by statute do not confer a "positive authority" on a patentee[125]. The rights granted are better understood as negative in nature, a right to exclude others from exploiting the patent[126]. This is what the exclusive or monopoly rights granted by statute are and no more. It was observed in Steers v Rogers[127] that a patent does not confer on a patentee the right to use the invention or the right to manufacture according to it. Those are rights the patentee already has even absent a patent. The patent confers the right to exclude others from manufacturing in a particular way and using a particular invention. According to the exhaustion doctrine the right to exclude an owner from the full use of a product comes to an end when that product is sold.
[124]National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 508 per Griffith CJ; National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 22; [1911] AC 336 at 347.
[125]Grain Pool of Western Australia v The Commonwealth (2000) 202 CLR 479 at 514 [85].
[126]Grain Poolof Western Australia v The Commonwealth (2000) 202 CLR 479 at 513 [83], quoting National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 22; [1911] AC 336 at 347.
[127][1893] AC 232 at 235.
Section 13(1) of the Patents Act 1990 is expressed to give the patentee "the exclusive rights" to "exploit the invention" (and to authorise another to do so) during the term of the patent. The words "during the term of the patent" refer to the period during which the rights may be exercised and do not bear upon the question of whether each of the monopoly rights continues to exist for the whole term regardless of legal transactions entered into by the patentee.
That question is largely resolved by the nature of the right and what it entails. It is generally accepted that a patentee's rights to "make" a product according to the patented invention and to exclude others from doing so are unaffected by the sale of a particular manufactured product. A patentee may proceed to make other products embodying the invention and prevent others from doing so. Likewise a patentee may exclude others from the "use" of a manufactured product where that use would be inconsistent with the patentee's exclusive right to use it. That would be for so long as it was retained by the patentee for use, but it could not be said to be kept for use after it was sold.
It is not without significance that the definition of "exploit"[128] concludes with the words "or keep [the product] for the purpose of doing any of those things". It would be necessary to keep the product in order to "use" it (and perhaps to "hire" it out). It would be necessary to keep a patented product until the point of sale, when it is disposed of. After a sale of the product has occurred a patentee could hardly be said to "keep" the product, let alone to keep it in order to use it.
[128]Patents Act 1990, Sch 1 (definition of "exploit").
Griffith CJ in Menck (High Court) considered that to "vend" an article conveyed a product being sold into the market and that the rights of ownership of it as a chattel pass from the patentee[129]. That is surely correct. The terms of the Patents Act 1990 convey an even stronger sense of finality than does the ordinary meaning of the verb "sell". The words "or otherwise dispose of" qualify "sell". It would not be sensible to read the words "sell or otherwise dispose of" as conveying that the patentee who does so is intended to have a continuing and exclusive right to "use" or "sell or otherwise dispose of" the article.
[129]National Phonograph Co of Australia Ltd v Menck (1908) 7 CLR 481 at 512.
Nothing in the definition of "exploit" suggests that the sale of the product there referred to is different from a sale as ordinarily understood or that it is intended to have different consequences so far as concerns a purchaser. It may be accepted that a patentee's rights respecting sale and use are properly to be understood as excluding others from doing the same with respect to an embodiment of the invention so as to protect the patentee's rights of exploitation. But an exploitation by selling and using is completed on that first sale.
An approach to the construction of s 13(1) which accepts that an exploitation by selling concludes with the first sale is consistent with its objects. It is therefore to be preferred[130]. The objective discernment of statutory purpose is integral to contextual construction[131].
[130]Acts Interpretation Act 1901 (Cth), s 15AA.
[131]Thiess v Collector of Customs (2014) 250 CLR 664 at 672 [23].
It may be taken from the object stated in s 2A that one component of that object is to ensure the efficiency of the market economy. This topic has been dealt with earlier in these reasons[132]. Another is to encourage innovation. This latter objective is achieved by ensuring that a patentee is rewarded for the often considerable efforts and expense which have contributed to a useful invention. That reward is obtained on the sale of a product on terms for which the patentee has negotiated. There is nothing in the Patents Act 1990 to suggest that a patentee is to be rewarded more than once.
[132]See [82] above.
When the provisions of the Patents Act 1990 are read, it is not at all apparent that Parliament has adopted, or otherwise acted in any way on, the assumption that the implied licence doctrine is the explanation for why a purchaser of a patented product may use or sell the product as the purchaser wishes without any further consent from the patentee.
Sections 135 and 144
Seiko argued that s 135, which initially appeared as an amendment to s 87 of the Patents Act 1903 but has since been repealed[133], may be taken to have assumed the operation of the implied licence doctrine. Section 135(1)(b) provided that one condition for the grant of a compulsory licence might be satisfied if "a trade or industry in Australia is unfairly prejudiced by the conditions attached by the patentee … to the purchase, hire or use of the patented product".
[133]Patents Act 1909 (Cth), s 14; Intellectual Property Laws Amendment (Productivity Commission Response Part 2 and Other Measures) Act, Sch 4 item 13.
The fact that this provision was introduced in 1909, before the decision in Menck (Privy Council), may be put to one side. To take proper account of that circumstance would require consideration of the extent to which the implied licence doctrine was settled law prior to that decision or whether, as Lord Shaw implied[134], the authorities did not go quite that far. The submission is met more simply. Section 135(1)(b), in its reference to conditions which might be attached by a patentee, could only be said to reflect the implied licence doctrine if it was construed to apply to cases other than express conditions agreed to by a purchaser, hirer or user of the product. Seiko's argument therefore begs the question.
[134]National Phonograph Co of Australia Ltd v Menck (1911) 12 CLR 15 at 22; [1911] AC 336 at 346-347.
Seiko also argued that the implied licence doctrine may be said to be recognised in s 144 of the Patents Act 1990. Section 144(1) provides, in general terms, that a condition in a contract relating to the sale of a patented invention is void if its effect includes the restriction of the buyer from using a product supplied or owned by a person other than the seller. Section 144(4) provides that it is a defence to proceedings for infringement that the patented invention was the subject of a contract containing such a provision. Sub-section (5) provides that where a new contract is offered by the patentee, without such conditions, sub‑s (4) ceases to apply but the patentee is not entitled to damages or an account of profits for an infringement committed before the offer of a new contract.
Seiko argued that the defence contained in s 144(4) is consistent only with the implied licence doctrine since it would be superfluous if the Patents Act 1990 assumed that a patentee's rights were exhausted upon first sale. Likewise s 144(5) was said to assume the entitlement of a patentee to damages or an account of profits for infringement of a patent where there has been a breach of a restrictive condition in a contract of sale.
Section 144 neither gives effect to nor recognises the implied licence doctrine. The original provision[135], like s 135, was introduced into the Patents Act 1903 in 1909[136]. In any event, the evident purpose of s 144 is to prohibit oppressive tying contracts[137], then prevalent in certain manufacturing industries in the United States. To that end, s 144 does not restrict a purchaser's use of a patented product; rather it prohibits conditions in a contract of sale that have the effect of extending a patentee's monopoly beyond the patent.
[135]Patents Act 1903 (Cth), s 87B.
[136]Patents Act 1909, s 15.
[137]Australia, Senate, Parliamentary Debates (Hansard), 11 August 1909 at 2261-2263; Australia, Senate, Parliamentary Debates (Hansard), 26 August 1909 at 2610-2611.
Extrinsic materials
Seiko also referred to materials extrinsic to the Act which, it submitted, support the implied licence doctrine. In the report of the Industrial Property Advisory Committee on "Patents, Innovation and Competition in Australia" ("the IPAC report") it was said[138]:
"This principle [of exhaustion of rights] is already part of the existing Australian law, subject to a qualification that importation of the patented article put into circulation outside Australia by the Australian patentee will be an infringement if, at the time of first putting the article into circulation, that patentee attached an express stipulation against bringing it into Australia." (emphasis added)
[138]Industrial Property Advisory Committee, Patents, Innovation and Competition in Australia (1984) at 34.
It may be observed that the report was concerned largely with economic considerations. More to the point is the statement in the Explanatory Memorandum to the Patents Bill 1990, which relevantly provided[139]:
"It is intended that the question whether such a resale or importation constitutes an infringement in a particular case will continue to be determined as it is now, having regard to any actual or implied licences in the first sale and their effect in Australia, and to what is often known as the doctrine of 'exhaustion of rights' so far as it applies under Australian law." (emphasis added)
[139]Australia, Senate, Patents Bill 1990, Explanatory Memorandum at 5 [24].
Seiko contends that the words emphasised are a reference to the IPAC report and that the reference in the Explanatory Memorandum to infringement being determined having regard to any actual or implied licences in the first sale is a clear indication of an expectation that the position established by Menck (Privy Council) was intended to continue to apply under the Patents Act 1990.
The extrinsic materials do not suggest that that Act was premised on either doctrine. Rather they, and more clearly the Explanatory Memorandum, leave the adoption of either doctrine open, presumably to the courts.
Section 13(2)
Seiko also submitted that the exhaustion doctrine, affirmed in Impression Products[140] to be that "the patentee does not retain patent rights in [an item sold by the patentee]", is inconsistent with s 13(2) of the Patents Act 1990. Section 13(2) provides that "[t]he exclusive rights", that is, those referred to in s 13(1), are "personal property and are capable of assignment and of devolution by law". The relevant provision in the United States[141] is not materially different. It is that "patents shall have the attributes of personal property" and "shall be assignable in law by an instrument in writing".
[140]Impression Products Inc v Lexmark International Inc (2017) 137 S Ct 1523 at 1532-1533.
[141]35 USC § 261.
Category 5 cartridges were modified in the same way as Category 4 cartridges but with the addition of cutting off the "interface pattern". The interface pattern was part of the exterior shape of one of the short sides of the original Epson printer cartridge and was the means by which Seiko physically limited the range of Epson printers to which the cartridges could be fitted.
The primary judge held that because integer [1] of the patent requires that the printing material container be adapted to be attached to a printing apparatus by being inserted into it, the interface pattern formed part of the mechanism by which Seiko's embodiment achieved that function, and although the modifications made might be regarded as "borderline", in the context of "the present analysis" they fell on the wrong side of the line of the implied licence.
Like Category 4 cartridges, Category 6 cartridges had not been sold since April 2016. The processes used to modify these cartridges were the same as for Category 2 and 3 cartridges but with the addition of cutting off the interface pattern in the manner described in the case of Category 5 cartridges. The primary judge held that, as with Category 5 cartridges, cutting off the interface pattern led to the conclusion that Category 6 cartridges were beyond the scope of the implied licence.
Category 7 cartridges consisted of cartridges that fell within Category 5 (ie, Category 4 cartridges with the interface pattern cut off) or Category 6 (ie, Category 2 or 3 cartridges with the interface pattern cut off) that had also had the integrated circuit assembly replaced. The primary judge held that they were beyond the scope of the implied licence.
Category B cartridges consisted of cartridges that fell within Category 5, 6 or 7 which had not had their gas membranes cut. The primary judge did not consider that cutting the gas membrane was a material modification to the embodiment as claimed, but, for the reasons given in relation to Categories 5, 6 and 7, his Honour held that Category B cartridges were beyond the scope of the implied licence.
Proceedings before the Full Court of the Federal Court
Each member of the Full Court of the Federal Court of Australia held that the primary judge erred, but for different reasons. Greenwood J considered[399] that the primary judge failed to examine the "true scope and content" of the implied licence. His Honour posited[400] that the implied licence included "all the normal rights of an owner" or the "'absolute right' to deal with the product as the buyer thinks fit", and so included the right to "hire, sell, otherwise dispose of the product, offer to sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things". But, his Honour said, the implied licence did not include the right to make the product, and, in his Honour's view, the modifications made to each category of cartridge constituted making an article embodying the integers of a claim defining Seiko's invention[401].
[399]Calidad Pty Ltd v Seiko Epson Corporation (2019) 270 FCR 572 at 588 [68] (emphasis in original).
[400]Calidad (2019) 270 FCR 572 at 590 [83].
[401]Calidad (2019) 270 FCR 572 at 590 [84]‑[85].
Jagot J reasoned similarly but in more detail. Her Honour noted that step 2 of the process for all categories of cartridges involved drilling a new hole in the ink container to enable it to be filled with fresh ink, and then sealing both the new hole and the original hole by the application of plastic with heat and pressure. Her Honour stated that, although the primary judge regarded that as but a "minor physical alteration" with no relationship to the claimed invention, in her Honour's view it was more, because, at the moment that the new hole was created, there was no longer an essential integer of the claimed invention, namely, a "printing material container", and that remained so until the new seals were applied[402]. And in her Honour's view, the modifications carried out by Ninestar in refilling and resealing the ink container could not be regarded as a repair because the original Epson printer cartridges as sold and ultimately acquired by Calidad could not be re‑used (since the ink container was empty and the memory chip recorded that the container was empty of ink), but the product as "repurposed" was capable of re‑use. Her Honour regarded that as the making of a new embodiment of the invention and thus beyond the scope of the implied licence[403].
[402]Calidad (2019) 270 FCR 572 at 619 [166].
[403]Calidad (2019) 270 FCR 572 at 619 [166].
Jagot J considered that, in the case of Category 4 cartridges, because the memory chip was substituted (which required removal of the printed circuit board from each cartridge and the attachment of a new substitute chip to each of the printed circuit boards), and because the printed circuit boards with substitute chips installed were supplied in bulk separately from the cartridges from which they had been removed and were then refitted to different cartridges to those from which they had been removed, the original Epson product as sold necessarily ceased to exist either at the moment its printed circuit board was removed or by the time the new chip was attached to a printed circuit board and that printed circuit board was inserted into a different cartridge. In her Honour's view, the functional equivalence of the substituted memory chips was beside the point. The product was no longer the product that Seiko had sold[404].
[404]Calidad (2019) 270 FCR 572 at 619 [167].
Jagot J also considered that the same was true of Category 5 cartridges, and, contrary to the primary judge's conclusion, that the cutting off of the interface pattern on Category 5 cartridges was not just "borderline" but rather enabled "a new kind of adaption for attachment to the printer"[405]. For that reason, her Honour said, it was clearly a new embodiment of the claimed invention containing all of the integers of the claim.
[405]Calidad (2019) 270 FCR 572 at 620 [170].
Jagot J was further of the opinion that the same conclusion applied to Category 7 cartridges because the reconditioning process involved the removal of the integrated circuit assembly from one cartridge, which, in her Honour's view, was "central to the invention as claimed and which includes within it the layout of the terminals which are described in integers [4]-[11]", and the replacement of the integrated circuit assembly in another cartridge as necessary resulted in the creation of a "new embodiment of the invention" beyond the scope of the implied licence[406].
[406]Calidad (2019) 270 FCR 572 at 620 [171].
Finally, with respect to changes made to cartridge memory, Jagot J stated that she was unable to agree with the primary judge that the memory claim of the patent involved the mere physical existence of the memory chip. In her Honour's view, integer [2] claimed a memory "driven by" a memory driving voltage, and the only thing that was driven by the memory driving voltage was the memory "in the sense of the information stored on the chip"[407]. It followed, in her Honour's view, that the fact that the chip had information on it that was able to be changed (driven) by the memory driving voltage was an essential part of the claimed invention[408]. Her Honour concluded[409]:
"It may be accepted that the actual status of the memory (that is, whether it shows the cartridge as full, empty or anywhere in between) is not part of the claim, but the fact that the claim involves a memory driven by a memory driving voltage is not irrelevant. Considered in the context of the product as sold, which is essential to the scope of the implied licence to use the product without infringement of the patents, the fact that the re‑purposing of the cartridges, as a minimum, involves re‑programming the chip to change the memory supports the conclusion that the imported Calidad cartridges are outside the scope of any possible implied licence or any concept of repair."
[407]Calidad (2019) 270 FCR 572 at 620 [172].
[408]Calidad (2019) 270 FCR 572 at 620-621 [172].
[409]Calidad (2019) 270 FCR 572 at 621 [172].
Yates J reasoned[410] that, whereas the primary judge's analysis of Calidad's cartridges was confined to the materiality of the modifications made to the claimed features of the invention, the correct approach was to ask whether, in each particular category, the modifications that Ninestar made to the original Epson printer cartridges altered them in such a way that they were, in substance, different articles from those Seiko had put into the market. And in his Honour's view, the modifications made in each category of cartridge materially altered the original Epson printer cartridges that Seiko had put into the market and amounted to remanufacture of the discarded original Epson printer cartridges to produce reborn printer cartridges that could not be said to have been of Seiko's making.
[410]Calidad (2019) 270 FCR 572 at 643 [293]‑[294].
Repair and modification
In cases of this kind, where the question is whether steps taken to recondition or restore a used patented article constitute an infringement of the patent, the principle is clear. Consistently with the release that an implied licence in the contract of sale effects from the exclusive rights in s 13 of the Patents Act 1990, the purchaser has the liberty to "use" or "sell" the article but not to "make" a new article. The implied licence therefore permits a purchaser to repair and restore the article which embodies the patented invention, or otherwise to use the article, but not to make a new one. As Lord Halsbury famously observed in Sirdar Rubber Co Ltd v Wallington, Weston & Co[411]:
"The principle is quite clear although its application is sometimes difficult; you may prolong the life of a licensed article but you must not make a new one under the cover of repair."
[411](1907) 24 RPC 539 at 543.
Likewise, in Solar Thomson Engineering Co Ltd v Barton[412], Buckley LJ (with whom Orr and Goff LJJ agreed) endorsed the observations of Swinfen Eady J at first instance in Sirdar Rubber[413], where his Honour stated that:
"The purchaser of a patent article has a right to prolong its life by fair repair, but he has not a right to obtain ... a substantially new article made in accordance with the invention, retaining only some subordinate part of the old article so that it may be said that the combination is not an entirely new one."
[412][1977] RPC 537 at 554‑555.
[413]Solar Thomson [1977] RPC 537 at 554‑555, quoting Sirdar Rubber (1905) 22 RPC 257 at 266.
And, in Buckley LJ's view[414]:
"The cardinal question must be whether what has been done can fairly be termed a repair, having regard to the nature of the patented article."
[414]Solar Thomson [1977] RPC 537 at 555.
Subsequently, in United Wire, Lord Hoffmann observed[415]:
"Repair is one of the concepts (like modifying or adapting) which shares a boundary with 'making' but does not trespass upon its territory. I therefore agree with the Court of Appeal that in an action for infringement by making, the notion of an implied licence to repair is superfluous and possibly even confusing. It distracts attention from the question raised by section 60(1)(a) [of the Patents Act 1977 (UK)], which is whether the defendant has made the patented product. As a matter of ordinary language, the notions of making and repair may well overlap. But for the purposes of the statute, they are mutually exclusive. ...
In Solar Thomson ... Buckley LJ quoted the remark of Lord Halsbury LC ... [and] said that the question was one of fact and degree and ... that the 'cardinal question' was whether 'what has been done can fairly be termed a repair, having regard to the nature of the patented article'. The context shows that Buckley LJ saw no difference between this question and the question of whether, having regard to the nature of the patented article, the defendant could be said to have made it. Speaking for myself, I prefer the latter formulation."
[415][2001] RPC 439 at 459 [71]‑[72], quoting Solar Thomson [1977] RPC 537 at 555.
But more recently, in Schütz (UK) Ltd v Werit (UK) Ltd, Lord Neuberger (with whom Lord Walker, Lady Hale, Lord Mance and Lord Kerr agreed) confirmed the utility of the distinction between repair of a patented item and the making of a new one[416]:
"The approach of Buckley LJ [in Solar Thomson] supports the notion that, subject to the overriding point that it should not obscure the central issue of whether the alleged infringer 'makes' the patented article, it may sometimes be useful to consider whether the alleged infringer is repairing rather than 'making' the article. ...
The mere fact that an activity involves replacing a constituent part of an article does not mean that the activity involves 'making' of a new article rather than constituting a repair of the original article. Repair of an item frequently involves replacement of one or some of its constituents."
[416][2013] RPC 395 at 410-411 [49]‑[50].
His Lordship then referred to the example of repairing a roof by the replacement of tiles or repairing a house by replacement of the roof and continued[417]:
"In the more directly relevant context of chattels rather than buildings, the normal use of 'making' and 'repairing' demonstrates the same point. Works to a ship or a motor car, which involve removal and replacement of defective significant constituent parts, could be substantial in terms of physical extent, structural significance, and financial cost, without amounting to 'making' a ship or motor car, as a matter of ordinary language: in such a case, they would be 'repair' of the existing ship or motor car."
[417]Schütz [2013] RPC 395 at 411 [50]‑[51].
Although, as has been seen, the law of patent infringement in the United States is affected by its recognition of the exhaustion theory[418], the United States approach to the question of how much a patented item may be changed without making a new item is essentially similar to the Anglo-Australian approach under the implied licence theory, albeit that, in the United States, the distinction between repair and making is described in terms of the difference between modifications, improvements and repairs on the one hand and reconstruction in the sense of making a "substantially new article"[419] on the other. Thus, in Aro Manufacturing Co Inc v Convertible Top Replacement CoInc[420], the United States Supreme Court stated:
"This Court's decisions specifically dealing with whether the replacement of an unpatented part, in a patented combination, that has worn out, been broken or otherwise spent, is permissible 'repair' or infringing 'reconstruction', have steadfastly refused to extend the patent monopoly beyond the terms of the grant. ... [A]lthough there is no right to 'rebuild' a patented combination, the entity 'exists' notwithstanding the fact that destruction or impairment of one of its elements renders it inoperable; and ... accordingly, replacement of that worn-out essential part is permissible restoration of the machine to the original use for which it was bought."
[418]See [196]-[202] above.
[419]See Varex Imaging Corporation v Richardson Electronics Ltd (unreported, United States District Court, ND Illinois, 27 August 2019) at 4.
[420](1961) 365 US 336 at 342.
To the same effect, in Hewlett-Packard Co v Repeat-O-Type Stencil Manufacturing Corporation Inc[421], the United States Court of Appeals, Federal Circuit said this:
"Generally, when a seller sells a product without restriction, it in effect promises the purchaser that in exchange for the price paid, it will not interfere with the purchaser's full enjoyment of the product purchased. The buyer has an implied license under any patents of the seller that dominate the product or any uses of the product to which the parties might reasonably contemplate the product will be put. ...
The authority to use and sell a purchased device, however, does not include the right to make a new device or to reconstruct one which has been spent. Reconstruction, ie, the re‑creation of a patented combination, is an infringement because such activity is beyond the implied authorization to use and sell a patented device. As the Supreme Court has stated:
'The decisions of this Court require the conclusion that reconstruction of a patented entity, comprised of unpatented elements, is limited to such a true reconstruction of the entity as to "in fact make a new article," after the entity, viewed as a whole, has become spent. In order to call the monopoly, conferred by the patent grant, into play for a second time, it must, indeed, be a second creation of the patented entity ... Mere replacement of individual unpatented parts, one at a time, whether of the same part repeatedly or different parts successively, is no more than the lawful right of the owner to repair his property.'
Aro Mfg Co v Convertible Top Replacement Co, 365 US 336, 346 ... (1961) ... (citations omitted)."
[421](1997) 123 F 3d 1445 at 1451; see also Zenith Electronics Corporation v PDI Communication Systems Inc (2008) 522 F 3d 1348 at 1362.
The reasoning in Hewlett-Packard is notable inasmuch as it proceeded from an implied licence conception of patentees' rights later repudiated by the Supreme Court of the United States in Lexmark. But, for present purposes, the significance of the decision in the former case (which relevantly is not affected by the choice between implied licence and exhaustion theories) is twofold. First, it represents a clear recognition that the purchase of used second-hand patented single-use printer cartridges, their modification to render them refillable, and their resale, did not infringe the patent, because the modifications made did not cause the cartridges to cease to exist[422]:
"HP correctly states that ROT's modification is not conventional repair. The caps on the purchased cartridges are not broken or defective. On the other hand, neither is ROT's modification a 'reconstruction' of the patented combination. A reconstruction occurs after the patented combination, as a whole, has been spent, when 'the material of the combination ceases to exist.' Wilson v Simpson, 50 US ... 109, 123 ... (1850)."
[422]Hewlett-Packard (1997) 123 F 3d 1445 at 1452.
Secondly, the Court of Appeals specifically rejected the notion that, because the cartridges were designed and marketed as single‑use cartridges, the modification of them to render them refillable necessarily crossed the boundary of permissible repair and impermissible reconstruction[423]:
"HP also argues that the boundary between 'permissible repair' and 'impermissible reconstruction' turns on the intention of the patentee. HP contends that it has clearly manifested its intent that the ink jet cartridges be ... discarded once they are empty; HP does not sell refillable cartridges, and HP does not sell ink refills. Because it has always manifested an intent that its cartridges be discarded, it argues, the creation of refillable or refilled cartridges are unauthorized acts which constitute an infringement of its patents. HP in effect argues that any change to a patented product that is not intended by the patentee constitutes reconstruction. ... We do not agree ... [A]bsent a restriction having contractual significance, a purchase carries with it the right to modify as long as reconstruction of a spent product does not occur. ... The question is not whether the patentee at the time of sale intended to limit a purchaser's right to modify the product. Rather the purchaser's freedom to repair or modify its own property is overridden under the patent laws only by the patentee's right to exclude the purchaser from making a new patented entity." (emphasis added)
[423]Hewlett-Packard (1997) 123 F 3d 1445 at 1453.
Importantly, the same idea was emphasised by the Privy Council in Canon Kabushiki Kaisha v Green Cartridge Co (Hong Kong) Ltd[424], in which it appears to have been regarded as going without saying that commercial refilling of single‑use cartridges and selling them at less than the price of new cartridges was not an infringement of patent.
[424][1997] AC 728 at 735.
In Jazz Photo Corporation v International Trade Commission[425], the United States Court of Appeals, Federal Circuit applied similar reasoning in concluding that the purchase of used second-hand single-use cameras and their refurbishment by removal of the cardboard outer cover of each camera, opening the sealed body of the camera (usually by cutting at least one weld), replacing the winding wheel or modifying the film cartridge to be inserted, resetting the film counter, replacing the battery in flash cameras, winding new film out of a canister onto a spool or into a roll, and resealing the body using tape or glue and applying a new cardboard outer cover, was not an infringement of patent[426]. As in Hewlett‑Packard, the Court held that it was not to the point that the patentee intended that the cameras be single‑use cameras or that it was manifest that the cameras were intended to be single-use cameras[427]. The Court also rejected a contention that because the cameras were refurbished using assembly-line procedures in which parts were mixed and matched between cameras, the process was reconstruction[428]. Consistently with earlier decisions of the United States Court of Appeals, Federal Circuit in Dana Corporation v American Precision Co Inc[429] (which concerned the mass-production refurbishment of used heavy-duty truck clutches), and of the United States Court of Claims in General Electric Co v United States[430] (which concerned the mass-production refurbishment of patented gun mounts), the Court in Jazz Photo reasoned that the adoption of assembly-line refurbishment and reassembly without regard to where each component had originated was simply a matter of efficiency and economy with the same effect as if each camera had been individually refurbished by disassembly and reassembly of its original components with replacement parts used to replace worn elements[431].
[425](2001) 264 F 3d 1094.
[426](2001) 264 F 3d 1094 at 1101, 1110‑1111.
[427]Jazz Photo (2001) 264 F 3d 1094 at 1106.
[428]Jazz Photo (2001) 264 F 3d 1094 at 1103‑1104.
[429](1987) 827 F 2d 755.
[430](1978) 572 F 2d 745.
[431]Jazz Photo (2001) 264 F 3d 1094 at 1103‑1104.
The reasoning in Jazz Photo was also later referred to with approval in Varex Imaging Corporation v Richardson Electronics Ltd[432]. It was noted[433] there that courts considering whether a defendant had made a new article by refurbishing it after the device has become spent must analyse the nature of the defendant's actions; the nature of the device and how it is designed (namely, whether one of the components has a shorter useful life than the whole); and whether a market has developed to manufacture or service the part at issue.
[432]Unreported, United States District Court, ND Illinois, 27 August 2019 at 5.
[433]Varex Imaging (unreported, United States District Court, ND Illinois, 27 August 2019) at 4.
Given that the Patents Act 1990 is in relevant respects similar to the English legislation, the utility of the distinction between, on the one hand, repair or "use" and, on the other hand, "making" – being a distinction that Lord Neuberger emphasised in Schütz – is just as significant here as it is in England, and given that English, United States and Australian approaches to patent infringement are grounded in comparable techno-economic considerations, there is no reason why the concept of repair and modification falling short of making (or "reconstruction" as it is termed in the United States) should be conceived of in any narrower sense than it is in the United Kingdom or the United States.
The central issue is whether an alleged infringer has "made" a patented article as defined by the integers of the claim[434]. In each case, that is a question of fact and degree to be decided according to the nature of the article as so defined[435]. In making that decision, it assists to ask whether what the alleged infringer has done is to repair the article as opposed to making a new article[436]. It needs also to be borne in mind that "repair" may entail considerable disassembly, the removal and replacement of significant constituent parts, and reassembly on a mass‑production basis, without amounting to "making" a new article. Further, as Windeyer J observed in MP Metals Pty Ltd v Federal Commissioner of Taxation[437], "whether a thing is so different a thing from the thing or things out of which it was made as to be properly described as a new commodity may depend not only upon physical characteristics but also on differences in its utility for some purpose" although, subject to the nature of the article, it is to be borne in mind that the fact that a product may have been intended as a single-use item is largely irrelevant.
[434]See [215]‑[216] above; Schütz [2013] RPC 395 at 406 [25].
[435]See Radiation Ltd v Galliers & Klaerr Pty Ltd (1938) 60 CLR 36 at 46, 51‑52; Olin Corporation v Super Cartridge Co Pty Ltd (1977) 180 CLR 236 at 246; Minnesota Mining and Manufacturing Co v Beiersdorf (Australia) Ltd (1980) 144 CLR 253 at 286; Catnic Components Ltd v Hill and Smith Ltd [1981] FSR 60 at 65‑66; Kirin‑Amgen Inc v Hoechst Marion Roussel Ltd [2005] RPC 169 at 190-191 [50]‑[52]; GlaxoSmithKline Australia Pty Ltd v Reckitt Benckiser Healthcare (UK) Ltd (2016) 120 IPR 406 at 420 [54]; Actavis UK Ltd v Eli Lilly and Co [2017] RPC 957 at 989 [66]. See also Schütz [2013] RPC 395 at 406 [25], 413 [63]‑[67].
[436]Sirdar Rubber (1905) 22 RPC 257 at 266; Sirdar Rubber (1907) 24 RPC 539 at 543; Solar Thomson [1977] RPC 537 at 554‑555; United Wire [2001] RPC 439 at 458‑459 [68]‑[72]; Schütz [2013] RPC 395 at 406 [27], 412 [57]‑[59].
[437](1967) 117 CLR 631 at 638. An appeal to the Full Court was dismissed: MP Metals (1968) 117 CLR 631 at 650.
That being so, the disposition of this appeal is relatively straightforward. The primary judge was correct that the reconditioning processes carried out on Category 1, 2, 3 and A cartridges did not amount to the making of a new or different embodiment of the cartridge[438]. Contrary to the Full Court's reasoning, it was beside the point that Seiko may have designed its cartridges in the hope that they might be used only once or that Seiko sold its cartridges as single-use, throw‑away cartridges. Nor is it to the point that the printer cartridges could not be refilled without drilling a hole. Contrary to the Full Court's reasoning, drilling holes in the ink containers did not make them cease to be ink containers any more than removing the tops from the ink reservoirs in Hewlett‑Packard made them cease to be ink reservoirs, or any more than cutting the welds on the single‑use cameras in Jazz Photo to obtain access to install new film made them cease to be cameras. And reprogramming the memory chips did not make the memory chips cease to be memory chips, or transmogrify them into new and different memory chips, any more than changing the operating system on a computer makes it cease to be a computer or to become a new and different computer as opposed to the same computer running a different program. As the primary judge rightly held, the combination of integers claimed was the existence of the chip as part of the combination and not a monopoly referable to the content of the chip[439].
[438]See [232]‑[234] above.
[439]See [232(3)] above.
Moreover, contrary to the primary judge's findings, Category 4 cartridges were relevantly no different from Category 1, 2 and 3 cartridges. The replacement of the memory chips involved in the refurbishment of Category 4 cartridges is as a matter of substance properly to be viewed as the replacement of but one unpatented part with another – just as in Schütz, Dana Corp, General Electric and Jazz Photo – and the fact that the replacement was effected with mass-production techniques resulting in the mixing and matching of chips with printed circuit boards should no more be regarded as resulting in the manufacture of new articles – as opposed to achieving efficiency and economy with the same effect as if each cartridge had been individually disassembled and reassembled using original components and replacement parts – than the adoption of similar mass‑production techniques was regarded in Dana Corp, General Electric or Hewlett-Packard as resulting in reconstruction. For the same reason, Category A cartridges involved no infringement of Seiko's patents.
The primary judge was, however, correct in holding that Category 5, 6 and 7 cartridges involved the making of new, different cartridges: because the processes used to modify those cartridges[440] included cutting off the interface pattern to make them fit a different printer from that for which they were designed. Relative to each cartridge in its totality, that was such a significant change to the form and function of the cartridges as properly to be viewed as changing each cartridge from the cartridge it had been into a new and different cartridge adapted to a new and different task. When that significant change was combined with the other modifications, there was a making of the patented invention thereby infringing Seiko's patents. For the same reason, Category B cartridges infringed Seiko's patents[441].
[440]See [226], [237], [239]-[240] above.
[441]See [241] above.
Conclusion
In the result, the appeal should be allowed in part and the orders of the Full Court varied accordingly. The respondents should pay the costs of the appeal to this Court.