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.
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. 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.
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.
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.
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  –  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. The products which his Honour found did infringe at  –  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 :
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: . While the primary judge described this at  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  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  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 , 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  “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 .
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 , 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.
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  HCATrans 225
- Claim 1 of AU 2009233643 for example has 11 integers and reads: “ 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:  a memory driven by a memory driving voltage;  an electronic device driven by a higher voltage than the memory driving voltage;  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:  the plurality of terminals each include a contact portion for contacting a corresponding terminal of the plurality of apparatus-side terminals,  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,  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,  the first row of contact portions is longer than the second row of contact portions, and,  the first row of contact portions has a first end position and a second end position at opposite ends thereof,  a contact portion of the first electronic device terminal is disposed at the first end position in the first row of contact portions and  a contact portion of the second electronic device terminal is disposed at the second end position in the first row of contact portions.” ?
- Betts v Willmott  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. ?
- In addition to the introduction of Trade Marks Act 1995 s 122A, see e.g. At What Cost? IT pricing and the Australia Tax. ?
- 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]. ?
- Société Anonyme des Manufactures de Glaces v Tilghman’s Patent Sand Blast Co. (1883) 25 Ch. D. 1 ?
- 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. ?
- 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. ?