Under the Patents Act 1990 (Cth), a patentee (a person who holds a patent over a product) will usually have the exclusive rights to exploit an invention through making, hiring, selling or otherwise disposing of the product and through using it.
For years however, the extent of patent rights of a patentee after sale of a patented product, has been the subject of much judicial debate.
Recently, in the case of Calidad Pty Ltd v Seiko Epson Corporation, the Court had the opportunity to determine the question of whether the patentee’s rights with regard to the sale and use of a particular product are exhausted at the time the product is sold or whether such patentee’s rights continue. The other question that the Court had to decide is whether modifications made to product to permit its re-use will amount to the making of a new product which would infringe the patentee’s rights.
The context in which these questions arise are as follows. Epson manufactures and sells printer ink cartridges. The cartridges contain inventions claimed in two patents. The original Epson cartridges are designed to be single-use. Thus, it is necessary to replace the cartridges once the ink runs out. Ninestar collects the empty original Epson Cartridges and makes modifications to the cartridges so as to be refilled and reused. Calidad acquired the modified cartridges from Ninestar and imported them to Australia to sell them to the public.
The extent of a patentee’s rights after a patented product is sold
The Court commenced its analysis by emphasising that, on the sale or resale of a patented product, the purchaser becomes the owner of such product. The Court took this stance by reference to the common law governing chattels.
The Court then alluded to a doctrine, according to which, a patentee’s monopoly right of use and sale with respect to a product are exhausted on sale (the “exhaustion doctrine”). This doctrine was applied by the Court in 1908 in Mneck (High Court).
The Court also referred to the notion that, a patentee may impose conditions on the sale or use of products at the time of their sale to a purchaser. Any conditions so imposed will continue to apply after sale only if persons taking title to such products have notice of the imposed conditions. If a person is notified of express restrictions in relation to a patented product, such person is not permitted to use such product in breach of the conditions set by a patentee. The Court held that presenting a product as being capable of single use does not amount to notification of express restriction. The expectations as to the limited functionality of the catridges, are not, according to the Court, relevant to the question of infringement.
However, if no such conditions were imposed, the law implies that the owner of a product has ordinary rights of ownership by virtue of an implied licence (the “implied licence doctrine”). This doctrine was applied in Mneck by the Privy Council.
After a careful consideration of doctrines, the exhaustion doctrine, had the balance tilted in its favour by the High Court the Court tilted towards the exhaustion doctrine.
Whether modifications made to product to permit its re-use will amount to the making of a new product which would infringe the patentee’s rights
Despite opting for the exhaustion doctrine, the Court has made it clear that none of the doctrines play a part in determining whether there has been an infringement of a patent through a new product embodying the claimed invention.
The Court laid emphasis on the fact that the sale of a patented product does not entail an implied licence to make another product. The Court also held that there is a distinction to be drawn between the right to make a product and the right to use or sell it.
In order to establish infringement by way of embodiment of invention, it is necessary for a patentee to show that the new product takes each of its essential features by reference to the description of the invention. The question that the Court had to decide is whether the modifications resulted in a new product being made. The Court accepted the argument presented by Calidad contending that the refilled cartridges were merely modified versions of the products sold by Seiko.
The Court further observed that what has been done does not involve the replication of the combination of integers that describe the invention and as such, it cannot be said that what has been done is the making of it.
The Court offered a number of examples of changes made to a patented product, which does not amount to making a product a new. This includes, the making of a small hole in the printing material contained of the original cartridge to enable it to be refilled with ink, the sealing of two holes, the substitution of a memory chip, the reprogramming of the memory ship, the removal of the interface patterns, the substitution of an integrated circuit assembly. The substitution of the “integrated circuit assembly” was undertaken to enable the replacement of the data in the memory chip and the reuse of the cartridge. Such substitution did not change the layout of the terminals which were part of the invention.
In short, the Court said that all of the modifications made to Epson cartridges did not involve the replication of parts and features of the invention claimed. Calidad did not manufacture a cartridge which embodied the features of the patent claim. The modifications were thus consistent with the exercise of the rights of an owner to alter an article to improve its usefulness and enable its reuse. In other words, prolonging the life of a patented product or making it more useful, is said to be within an owner’s rights of use of a patent product.
The Court’s steps in reasoning explained
- The starting point is that a patentee had no rights with respect to a patented product after such product is first sold.
- The Court then considers the rights of an owner with respect to a chattel and whether the modifications made to a patented product were consistent with those ordinary rights – to adapt a chattel to improve its usefulness and extend its life. In other words, the Court will determine whether or not the modifications amount to a manufacture. Furthermore, 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 patented product. Likewise, only until sale of a patented product, 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.
Main takeaways that patentees should take note of:
Your rights as a patentee to “make” a product according to the patented invention and to exclude others from doing so are unaffected by the sale of a patented product.
However, as a patentee, you may not, after sale of a patented product, exclude others from the “use” of a patented product where that use would be inconsistent with your exclusive right to use it.
If as a patentee, you wish to preserve the monopoly of your rights in relation to a patented product at the time of its sale, you may want to consider imposing conditions on the sale and use of the patented product by way of a contract.
Imposing such conditions will not be sufficient as the owner of the patented product will need to have notice of such conditions. The fact that you decide to present your product as being capable of one use only will not constitute such notification. Further, according to the authorities relied upon by the Court, a downstream purchaser is deemed to have been notified of conditions if such purchaser has been told verbally, at the time of sale, by the patentee words to the effect that “I only give you this licence on this condition”. A downstream purchaser will also be notified if the contract states the conditions on which the product is sold. However, a purchaser will not be on notice if conditions were only made known to them after the time of sale. For instance, if a purchaser becomes aware of the conditions imposed by reason of a label affixed to a box containing the patented product, this will not constitute notice.
In order to establish infringement by way of embodiment of invention, it is necessary for you as a patentee to show that the new product takes each of its essential features by reference to the description of the invention.
By Samar Ashour
Paralegal, The IP House Lawyers