In Calidad Pty Ltd v Seiko Epson Corporation the Full Court has addressed the extent of ownership rights held by the purchaser of goods protected by patents and whether any Right of Repair which may exist extends to any subsequent owners of the patented goods.
The Appellants had asserted the consequence of a patentee selling a patented article is that all rights in the article are completely exhausted. However, the appeal was dismissed and the cross-appeal allowed.
The Full Court clarified that patentee’s rights extend to a purchaser’s attempt to re-make or refurbish a product that goes beyond repair of a defect in that product. It addressed whether the scope of the implied licence which arises upon sale included the right to make – being the exclusive right reserved to the patentee. The Full Court found  that the:
[s]cope and content of the licence simply did not comprehend an implied licence in the buyer … to subject the original Epson cartridges to a sequence of modifications so as to bring into existence a new article of manufacture the result of which, properly characterised, is a “making” of a product the subject of Seiko’s invention
The case concerned the restoration of printer ink cartridges manufactured and sold by Seiko Epson Corporation. Seiko Epson’s cartridges are patented in Australia and are designed as a consumable product. A feature of the patented cartridges is a programmable chip that recognises a specific type of Epson printer and notifies the printer when the ink is depleted. This prevents the cartridges from being refilled and reused by a purchaser. The cartridges were designed to have a set lifetime and were to be un-repairable.
Epson have faced some consumer criticism in the past for adopting a business practice based on the sale of non-refillable ink and toner consumables. This has prompted a number of generic printer ink manufacturers to sell their own cartridges, by reverse-engineering the popular products.
A Malaysian company, Ninestar, built a large and successful business manufacturing generic printer consumables. Ninestar obtained quantities of used Seiko Epson cartridges and restored them to working condition. Ninestar achieved this by emptying, cleaning, refilling and sealing the cartridge, followed by reprogramming the chip. Ninestar also replaced the chip on some cartridges to allow them to be used on a wider range of Epson printers.
Calidad imported and sold the Ninestar cartridges into the Australian market.
There was no dispute that the Ninestar cartridges imported and sold by Calidad fell within the scope of claim 1 of Seiko Epson’s cartridge patents. The Full Court found Ninestar’s modifications infringed the patents, as Ninestar had remade the products as specified in the patents. Calidad had also infringed by importing and selling the infringing cartridges. Both Ninestar and Calidad had exercised Seiko Epson’s exclusive right to make the patented product.
The Full Court said that the Seiko Epson cartridges had been sold without any explicit restrictive conditions imposed on the purchaser, or subsequent purchaser, at the time of sale. The cartridges were still subject to an implied licence that authorised their importation, use and further disposal.
However, the implied licence only applied to the cartridges as they were sold by Seiko Epson. The licence was extinguished by the refurbishment of the cartridges by Ninestar, as these were effectively new embodiments of the patented invention.
Notably, the Full Court declined to comment on the existence of a Right to Repair in Australia. The Right to Repair is a concept long recognised in UK and now EU Law that impliedly allows a purchaser to repair some defect requiring rectification to enable a purchased article to function as intended, or to prolong its life.
The Full Court said, if the Right to Repair did exist in Australia, it would not extend to Ninestar’s modifications to the cartridges here. Seiko Epson had designed their product specifically such that they ceased to function in an irreversible way when they ran out of ink. To rectify or repair this ‘defect’ in the cartridges meant making a new product that embodied the existing patented invention.
For businesses that replace or refurbish parts: Business practices that extend the useful life of a patented product that go beyond mere repair of damaged or broken parts may infringe any patent over those goods.
For businesses that sell patented goods: Limitations of use imposed on patented products will not bind subsequent purchasers unless expressly stated and brought to the subsequent purchaser’s attention. However, the difficulties this presents can be overcome by a thorough licence agreement, including conditions imposed on a purchaser that protect your goods once on-sold and that protect your future patent commercialisation strategy.
For both: When entering into a contract to deal with patented products, a carefully considered and well-drafted licence agreement is essential to protect your rights.