Special leave!

The High Court has granted Calidad special leave to challenge the rules for parallel importing patented products.

Seiko’s Epson inkjet printers require print cartridges fitted with a chip which stores information about the model and the number of prints made. The chip on the cartridge interacts with the printer so that, amongst other things, each time a print is made, the chip memory is updated. When the number of prints stored on the chip reaches a number indicating that the ink has been used up, the printer is unable to print until a new print cartridge is inserted.

Seiko’s patent relates to the configuration of the cartridge in a particular way to achieve this proces.[1]

Calidad imported into Australia Epson printer cartridges. It had obtained the cartridges from Ninestar in Malaysia. Ninestar acquired genuine used Epson printer cartridges and “refilled” them. There was no dispute that the imported cartridges were genuine Epson products. The issue came down to whether what Ninestar did to “refill” the cartridges constituted “repair” or “making”.

At first instance, Burley J found that Calidad’s importation and sale of products imported before April 2016 infringed, but those imported after April 2016 did not.

The Full Court, however, upheld Seiko’s cross-appeal and found all imported products infringed.

In some respects, this is a rather “odd” case to be given special leave.

First, the rule about parallel imports and implied licence has been in place for almost 150 years.[2] Recently, however, the United States Supreme Court has affirmed that American patent law applies a doctrine of exhaustion rather than implied licence for imported as well as domestic products. The case also involved refilled printer cartridges – laser toner rather than inkjet. The US Supreme Court explained the difference between exhaustion and implied licence:

The problem with the Federal Circuit’s logic is that the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is a limit on the scope of the patentee’s rights. The Patent Act gives patentees a limited exclusionary power, and exhaustion extinguishes that power. A purchaser has the right to use, sell, or import an item because those are the rights that come along with ownership, not because it purchased authority to engage in those practices from the patentee.

The High Court’s questioning on the special leave application focused on the fact that the Privy Council decision in Menck in 1911 (before the Australia Act 1986) overturned the High Court’s adoption of the US domestic exhaustion doctrine. And the use of IP rights to enforce territorial restrictions has been the subject of regulatory comment.[3]

Secondly, the doctrine of exhaustion is predicated on marketing of the patented products by or with the consent of the patentee. As we have seen with attempts to adopt exhaustion for both copyright and trade marks, however, it has been necessary for legislation to enact extended definitions of “consent” to enable prospective parallel imports to act confidently.

For example, to override the decisions in Sporte Leisure and Lonsdale, Parliament introduced section 122A into the Trade Marks Act which embraces within “consent” trade marks applied by or with the consent of not just the trade mark owner in Australia but also related bodies corporate, associated persons and anyone having “significant influence” over the use of the trade mark in Australia, regardless of where those persons are located or act.

Moreover, it appears from section 122A(2) and (3) that it should not matter whether a licensee or distributor was actually acting within the scope of its licence.[4]

Furthermore, Parliament felt it necessary to shift the risks from the parallel importer to the trade mark owner as it does not appear the goods actually have to be genuine. Section 122A(1)(c) requires only that a reasonable person would conclude from the reasonable inquiries that have been made that the trade mark was applied by or with the consent of a relevant person.

I don’t know whether territorial division is as prevalent for patents as it appeared to be for trade marks or copyright. For starters, there don’t seem to have been the same number of cases. And it used to be the case that American patentees in particular were nervous about potential anti-trust liability. But, the potential role of limited consents is certainly a live issue: as long ago as 1883, the English Court of Appeal allowed a patentee to block imports put on the market by its French licensee on the basis that the French licensee’s licence did not extend to selling in England.[5]

Thirdly, the Calidad decision might not be thought to raise the question of exhaustion or implied licence. The “real” question seems to be whether what Ninestar did was just “repair” or involved “making” (in effect) a new product.

The products Burley J found did not infringe involved “only” drilling holes in the cartridges to clean and refill them, sealing the holes up and reprogramming the chip already installed on the cartridge. Burley J considered at [240] – [243] that reprogramming the chip, in particular, did not interfere with the patent as the claim was directed to the chip only, not the content stored on it. Similarly, “the minor physical” changes to the cartridges were not the subject of features of a claim.[6] The products which his Honour found did infringe at [271] – [277] involved similar acts but, in addition, involved Ninestar removing and replacing the computer chip so that the ink cartridges would communicate their “new” status to the printer.

In contrast, the Full Court (in three separate judgments) considered that what Ninestar did was so substantial as to be making a new product. Accepting that whether what was done involved “repair” or “making” was a question of fact and degree in any particular case, Jagot J explained at [166]:

It cannot be doubted that on the facts as found by the primary judge, none of the Calidad products are the product as sold by Seiko. The products which Seiko sold all embodied the claimed invention including that part of the first integer consisting of a “printing material container”. Step 2 of the process for all categories of container involved creating a new hole in the container to enable the container to be filled with fresh ink and then sealing both the new hole and the original hole with plastic by applying heat and pressure: [240]. While the primary judge described this at [240] as a “minor physical alteration” with no relationship to the claimed invention, as Seiko submitted, at the moment the new hole was created, there was no longer an essential integer of the claimed invention, a “printing material container”, as unless and until the new seals were applied, the purported container could not contain printing ink. Nor do I see how it could be concluded that the implied licence which arose on sale enabling the purchaser to use and repair the original Epson printer cartridge could be thought to extend to re-purposing the cartridge once it was empty of ink by creating a new injection hole for ink to enable the cartridge to be re-filled and sealing the original and new holes so that the cartridge, which had ceased to be a printing material container, was made into a new printing material container. That is not a use of the patented article as sold at all; it is the making of a new article within the scope of the patent. As sold, the patented article could not be re-used at all for two reasons. One, the container was empty of ink. Two, the memory recorded that the container was empty of ink so it would no longer function. As re-purposed, the product was still an embodiment of the invention but was capable of re-use. Of itself, these facts indicate to us that the modifications involved the making of a new embodiment of the invention, outside of any implied licence arising on sale and outside any notion of repair of the original cartridge.

and at [172] in relation to reprogramming the memory:

…. I am unable to agree with the primary judge that the claim involves the mere physical existence of the memory chip. Integer [2] claims a memory “driven by” a memory driving voltage. The only thing which is driven by the memory driving voltage is the memory in the sense of the information stored on the chip. The fact that the chip has information on it which is able to be changed (driven by) the memory driving voltage is an essential part of the claimed invention. 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.

At [180], Jagot J summarised her Honour’s conclusions:

In the present case, every purchaser purchased an embodiment of the invention which, in the form it was purchased, permitted a single use only. To render the cartridge capable of re-use, the acts described above were required. In the context of the invention as embodied in the product sold, I am unable to accept that what was done was other than an infringement of the patents. It was outside the scope of any implied licence which could have arisen on sale and outside any reasonable concept of repair. (emphasis supplied)

See also Yates J at [276] “On no reasonable view can it be said that the modifications carried out by Ninestar to the original Epson cartridges constitute “repair”.” and Greenwood J at [85].

Before Jagot J embarked on the detailed reasoning summarised above in terms of the scope of the implied licence and the right to repair, her Honour noted that the European doctrines of exhaustion did not extend to “making” a new product. At [164], Jagot J explained:

… none of the English cases suggest that the Privy Council’s decision in Menck altered the fact that a purchaser has no right to make a new embodiment of the invention. The implied licence arising on unrestricted sale could never extend so far. Nor could the doctrine of exhaustion of patent rights result in the loss of the right to prevent the making of new embodiments of the invention, whether or not the new embodiment involved starting from scratch or re-using and modifying parts of the patented product as sold. I accept that in the latter case questions of fact and degree will be involved, with the necessary focus being the nature of the patented product as sold and the nature of the acts done to that product, but I do not consider any aspect of the present case lies at the “borderline” between repair and making. (emphasis supplied)

In the Lexmark case, however, the US Supreme Court upheld Impression Products’ right to import the toner cartridges even though it seems Impression Products installed “unauthorised” replacement chips on at least some of the imported cartridges to circumvent the re-use restriction.[7]

The parties’ written submissions are due to be completed by the end of February 2020. Brave New Year indeed!

Calidad Pty Ltd & Ors v Seiko Epson Corporation & Anor [2019] HCATrans 225


  1. Claim 1 of AU 2009233643 for example has 11 integers and reads: “[1] A printing material container adapted to be attached to a printing apparatus by being inserted in an insertion direction, the printing apparatus having a print head and a plurality of apparatus-side terminals, the printing material container including: [2] a memory driven by a memory driving voltage; [3] an electronic device driven by a higher voltage than the memory driving voltage; [4] a plurality of terminals including a plurality of memory terminals electrically connected to the memory, and a first electronic device terminal and a second electronic device terminal electrically connected to the electronic device, wherein: [5] the plurality of terminals each include a contact portion for contacting a corresponding terminal of the plurality of apparatus-side terminals, [6] the contact portions are arranged in a first row of contact portions and in a second row of contact portions, the first row of contact portions and the second row of contact portions extending in a row direction which is generally orthogonal to the insertion direction, [7] the first row of contact portions is disposed at a location that is further in the insertion direction than the second row of contact portions, [8] the first row of contact portions is longer than the second row of contact portions, and, [9] the first row of contact portions has a first end position and a second end position at opposite ends thereof, [10] a contact portion of the first electronic device terminal is disposed at the first end position in the first row of contact portions and [11] a contact portion of the second electronic device terminal is disposed at the second end position in the first row of contact portions.”  ?
  2. Betts v Willmott [1871] 6 Ch App 239. The continued validity of the rule was acknowledged by the High Court a mere 40 years ago in the Time-Life case – admittedly, a copyright case.  ?
  3. In addition to the introduction of Trade Marks Act 1995 s 122A, see e.g. At What Cost? IT pricing and the Australia Tax.  ?
  4. See also Explanatory Memorandum para. 26. For copyright, see the definitions of “non-infringing copy” of sound recordings, computer programs, electronic literary or music items and [accesories][access].  ?
  5. Société Anonyme des Manufactures de Glaces v Tilghman’s Patent Sand Blast Co. (1883) 25 Ch. D. 1  ?
  6. In all his Honour was required to consider 9 different categories of imported products and there were a range of variations to Ninestar’s interventions depending on the category.  ?
  7. The US Supreme Court does not directly refer to this, but see Lexmark International Inc. v Impression Products Inc 816 F 3d. 721 (Fed. Cir. 2016) at 727. Lexmark had previously attempted to argue [unsuccessfullystatic the replacement microchips violated copyright and the DMCA.  ?

US Supreme Court adopts international exhaustion for patents

Last week, in Impression Products v Lexmark the US Supreme Court declared that an authorised sale of a patented product abroad exhausts the patentee’s rights within the United States of America. This follows on from 2013’s Kirtsaeng ruling adopting international exhaustion for copyright.

There is lots of analysis already, including Patently-O and Scotusblog, so this will be brief:

The underlying issue is printer manufacturers’ ongoing attempts to extract value according to usage of the printer by “metering” usage through charges on toner cartridges.

Lexmark has a number of patents over its toner cartridges. It offered patented toner cartridges for sale in two ways: at full price, with no restrictions or, for a 20% discount in return for a signed contractual condition that the customer would not refill the cartridge but return it to Lexmark.

Remanufacturers (vendors of refilled toner cartridges) had been acquiring Lexmark toner cartridges, circumventing the microchips preventing refilling then and reselling them.[1]

In this action, Lexmark had sued two groups of remanufacturers . The first group had obtained the cartridges they refilled within the United States (presumably the original owner of the cartridges was in breach of its contract by passing its used (empty) cartridges along). The second group had acquired their cartridges outside the United States and imported them into the United States for resale.

In summary, the majority of the Supreme Court[2] held:

We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.

In the majority opinion, Robert CJ noted that the 1890 decision of Boesch v Graff – the Supreme Court’s only previous consideration of this issue, did not concern parallel imports, but products made in Germany legally by someone other than the US patentee.

Given Lexmark itself appears to have sold the cartridges overseas, Prof. Wasserman Rajec notes that the Supreme Court’s decision does not settle what qualifies as an sale abroad authorised by the patentee.

Ginsburg J dissented

As her Honour did in Kirtsaeng, Ginsburg J dissented from the adoption of international exhaustion:

Because a sale abroad operates independently of the U. S. patent system, it makes little sense to say that such a sale exhausts an inventor’s U. S. patent rights. U. S. patent protection accompanies none of a U. S. patentee’s sales abroad—a competitor could sell the same patented product abroad with no U. S.-patent-law consequence. Accordingly, the foreign sale should not diminish the protections of U. S. law in the United States.

Her Honour also considered that patent law and copyright law were sufficiently different that the rule applicable in copyright (in the USA) should not apply to patent law:[3]

the two “are not identical twins,” id, at 439, n. 19. The Patent Act contains no analogue to 17 U. S. C. §109(a), the Copyright Act first-sale provision analyzed in Kirtsaeng. See ante, at 13–14. More importantly, copyright protections, unlike patent protections, are harmonized across countries. Under the Berne Convention, which 174 countries have joined, members “agree to treat authors from other member countries aswell as they treat their own.” Golan v. Holder, 565 U. S. 302, 308 (2012) (citing Berne Convention for the Protection of Literary and Artistic Works, Sept. 9, 1886, as revised at Stockholm on July 14, 1967, Arts. 1, 5(1), 828 U. N. T. S. 225, 231–233). The copyright protections one receives abroad are thus likely to be similar to those received at home, even if provided under each country’s separate copyright regime.

What’s the position in Australia?

Until the High Court makes another one of its ex cathedra policy declarations,[4] the position in Australia is different.

First, when a patentee sells a patented product in Australia, the purchaser gets an implied licence to exercise all the rights in the patent: National Phonograph Co v Menck.[5] Being an implied licence, it could be excluded by appropriate contractual terms.

Secondly, where a patentee itself sells the product in an overseas market, there is also an implied licence to import it into Australia.[6] If the sale in the overseas market was made by a licensee from the patentee which did not also have a licence to sell in Australia, however, parallel importing would infringe.[7]

Impression Products Inc v Lexmark International Inc (30 May 2017)


  1. Lexmark had previously failed to stop these types of practices using the anti-circumvention provisions of the Digital Millennium Copyright Act.  ?
  2. Ginsburg J dissented from that part of the Court’s ruling relating to international exhaustion.  ?
  3. In International Parcel Express v Time Life, the High Court considered that copyright law involved different considerations to patent law and distinguished the patent law treatment in the context of parallel importing of books.  ?
  4. See for example iceTV and D’Arcy v Myriad.  ?
  5. The Time Life decision affirmed the continuing validity of National Phonograph v Menck, albeit in dicta.  ?
  6. Betts v Wilmott (1871) LR 6 Ch App 239.  ?
  7. Société Anonyme des Manufacturers de Glaces v Tilghman’s Patent Sand Blast Co Ltd (1883) 25 Ch D 1.  ?

Trade marks, un-parallel imports and the emerging concept of use as a trade mark

The Full Court has rejected another attempt by Paul’s Retail to invoke s 123 against allegations it was infringing LONSDALE trade marks.

Background

Lonsdale Sports Limited (Lonsdale UK) had a number of registered trade marks in Australia and elsewhere for LONSDALE.

In May 2008, it licensed Punch GmbH to use the LONSDALE trade marks in a number of countries, mostly in Europe. As part of the licence, Punch was permitted to get its LONSDALE goods made in China.

In June 2011, Lonsdale UK assigned its Australian trade marks to Lonsdale Australia. Both Londsdale Sports Limited and Lonsdale Australia were members of the same corporate group, having Sports Direct as their ultimate holding company.

Between December 2011 and April 2012, the appellants bought and imported into Australia 293,329 products bearing the LONSDALE trade marks. The way the goods were sourced plainly gave rise to considerable skepticism in the courts.

The goods were in fact made and marked by Punch in China. Punch sold them to Unicell. Punch invoiced Unicell and shipped them to Unicell in Sri Lanka, part of Punch’s territory, and bought them from Punch. . Unicell then engaged in ‘certain “pre-retailing” activities (such as splitting, tagging and pricing) and shipped them to the appellants via the intermediary of  TMS LLC (a US company).

Punch paid royalties to Lonsdale UK on the goods it shipped to Unicell. It appears from Gordon J’s reasons, however, that there were some differences between at least 2 of the trade marks registered in Australia and those licensed to Punch by Lonsdale UK. Although not licensed to it by Lonsdale UK, Punch nonetheless arranged to have those 2 trade marks put on the products the appellants imported and sold.

The Full Court (Keane CJ, Jagot and Yates JJ) has affirmed Gordon J’s ruling that the appellants infringed the registered trade marks in Australia for LONSDALE, but not for the reasons you, or the trial judge, might think.

The trial judge, Gordon J, held there were 3 reasons why Paul’s infringed:

32 There are three complete answers to this submission. First, for the reasons stated at [16]-[18] above, this construction of the Champagne Heidsieck principle should not be accepted. The reference to “registered owner” in the High Court’s statement of the principle should be understood to mean the registered owner of the Australian registered trade marks in question, consistently with the proper construction of the TM Act. Accordingly, the principle will only assist the respondents if they can show that Lonsdale Australia consented to the application of the Lonsdale Australia Trade Marks. Secondly, Lonsdale Australia (being the registered owner of the Lonsdale Australia Trade Marks) did not affix any mark to the Paul’s Goods. Thirdly, as stated at [27] above, it cannot be said that “a manufacturer [has put] a trade mark on his goods and [sent] them into the course of trade on the billowing ocean of trade … not telling any lies or misleading anyone in any way at all”: cf Atari 50 ALR 274 at 277. Here, the “manufacturer” of the goods (Punch) did not legitimately apply at least two of the three marks to the Paul’s Goods.

That is, Lonsdale Australia as the registered owner of the trade marks in Australia:

(1) did not apply the trade marks to the imported goods;

(2) did not consent to Punch applying the trade marks to the imported goods,

and Punch had no authority to apply at least two of the trade marks to any goods.

The Full Court – why s 123 did not apply

The Full Court, however, considered it was unnecessary to even address those questions. Instead, it said at [37]:

The consent given by [Lonsdale UK] to Punch on which the appellants rely was limited in its terms to “the non exclusive right to promote, distribute and sell Products bearing the Trade Marks in the Territory”. Whether one looks at the issue through a strict legal analysis of the Punch licence and the Punch-Unicell sales agreement, or from a broader commercial perspective, the use of the Lonsdale marks for the purposes of the sale by Punch to Unicell cannot be seen to be within the limited consent given by the Punch licence.

That is, as Punch had a licence limited only to selling LONSDALE products in Europe, s 123 was not even engaged. It was unnecessary to enquire whether the trade marks had been applied by or with the consent of the trade mark owner.

By dealing with the issue in this way, the Full Court avoided having to deal with the question (1) whether the common ownership of both Londsdale UK and Lonsdale Australia as members of the same corporate group was a sufficient basis to infer consent to the application of the LONSDALE trade marks to the goods imported by Paul’s.

Given (absent imputed consent through the corporate relationship) at least some of the trade marks applied by Punch to the Paul’s goods were not licensed to Punch by Lonsdale UK, one may wonder why the Full Court took its approach. If Punch’s licence had not been limited territorially, would the Full Court have imputed consent on the basis of the corporate relationship?

The Full Court’s approach to the scope of Punch’s consent is similar to the way the Courts deal with implied consent in the context of patents.[1] Accordingly, before one even considers whether the consent of the registered owner of the trade mark may be invoked under s 123, it will be necessary for a prospective parallel importer to ascertain the scope of the licence given to the licensee from whom the goods are sourced.

That this is a deliberate choice by the Full Court is reinforced by the Court’s express denial at [51] of any relevance to the interpretation of s 123 by reference to the doctrine of exhaustion. That rejection may be thought somewhat surprising as s 123 was enacted to implement the recommendation of the Working Party to give statutory force to the doctrine of exhaustion:

A majority of the comments received were in favour of the exhaustion of rights doctrine.. Questions were raised as to whether or not the mark was applied with or without the consent of the proprietor and whether the goods were materially different form the local goods. It was considered preferable that argument on these issues take place in the context of statutory recognisiton of the legality of parallel importation.

The Champagne Heidsieck principle

The Full Court also rejected the appellants’ attempted reliance on the so-called Champagne Heidsieck[2] principle. As re-formulated by the High Court in Gallo at [34]:

a trade mark is not infringed by a third party importing, offering for sale and selling, without the owner’s consent, goods to which the registered owner (or its licensee) has affixed the mark….

Gordon J’s reasoning at first instance avoided this principle since the registered owner, Lonsdale Australia, had never consented to anything Punch did or arranged.

Having noted there were difficulties in articulating how the Champagne Heidsieck[2] principle could apply in the context of the Act and particularly s 123, the Full Court at [64] considered that, if s 123 did not save the appellants, there was no other principle that could help them. However, the Full Court went on to reject the argument that:

the importation and sale of goods marked with the consent of the owner of the trade mark or its licensee does not involve a use of the trade mark by the importer or seller.

The Full Court rejected this argument at [65]:

If this argument were correct, an importer would not infringe the trade mark merely by acts of importation and sale even if the mark had been applied to the goods without the consent of the owner of the trade mark. This Court has previously expressed the view that “…absent s 123 the mere sale by an importer of goods already marked would be an infringing use of the mark by the importer”: See E & J Gallo Winery v Lion Nathan Australia Pty Ltd (2009) 175 FCR 386 at [58]; quoted in Paul’s Retail Pty Ltd v Sporte Leisure Pty Ltd (2012) 202 FCR 286 at [66]; see also Transport Tyre Sales at [94].[3]

Although the Full Court appears to treat this part of the appellants’ argument separately to the Champagne Heidsieck[2] principle, it is with respect difficult to see any difference between the two arguments.

It could be argued that the situation addressed by the Champagne Heidsieck principle is very different to that where the goods imported are not genuine. As the Full Court noted at [66], however, support for the view taken by, now, 3 Full Courts can be found in the observation of Aickin J in Pioneer,  which itself seems difficult to reconcile with s 7(3).

It therefore appears clear, failing intervention by the High Court, that the Champagne Heidsieck[2] principle is no longer applicable in Australian law.

One consequence of this appears to be that a provision intended to entrench the rights of parallel importers may well have made it much more difficult to engage in parallel importing.

More importantly, the Champagne Heidsieck[2] principle can be seen as an emanation of what US trade mark lawyers call “nominative use” or “nominative fair use”: one did not use a trade mark as a trade mark by using it to identify the goods or services marked with the trade mark by the trade mark owner. So, for example, under the old Act the Full Court held it was not use the trade mark ROLLING STONES as a trade mark to sell bootleg recordings of the Rolling Stones performing by reference to the name ROLLING STONES. Does the enactment of s 123 mean that principle is no longer applicable?

Paul’s Retail Pty Ltd v Lonsdale Australia Limited [2012] FCAFC 130


  1. Société Anonyme des Manujactures de Glaces v. Tilghman’s Patent Sand Blast Company (1883) 25 Ch. D 1 (CA).  ?
  2. Champagne Heidsieck et Cie Monopole Societe Anonyme v Buxton [1930] 1 Ch 330.  ?
  3. In Gallo, the High Court had refrained at [53] from expressing a view about the correctness of this view.  ?