A recent Australian case provides guidelines as to how patentees can effectively restrict after-market competitors from reprocessing and reselling single-use and consumable use devices.
Seiko Epson Corporation v Calidad Pty Ltd  FCA 1403 concerns a patent for printer cartridges but the case is also relevant to patents for single-use medical devices as you will understand from the discussion below.
US Doctrine of Exhaustion of Rights
According to the US doctrine of “exhaustion of rights”, after a patented product has been sold by the patentee or by another having consent of the patentee, the patent rights are said to be exhausted.
Australia – implied license
This contrasts with the situation in Australia. In Australia, patented goods are sold with an implied licence. This implied license arises automatically upon the unconditional sale of the patented goods and confers an unrestricted right to the first purchaser and subsequent acquirer to import, use and dispose of the product. This means that there will be no infringement arising out of subsequent dealings in the patented goods. However, there are 2 situations where the implied license may be subject to restrictions or terminated, which is good news for patentees wishing to extend their monopoly beyond the initial sale.
In the first situation, subsequent modifications to the goods themselves may have the effect of terminating the implied license. A patentee could therefore tailor the product and the patent protection to ensure that any modification required for repurposing has the effect of terminating the implied license. This case (Seiko v Calidad) gives useful guidance about the kind of modifications that have that effect.
In the second situation, the patentee may make the sale subject to limitations, effectively placing restrictions on the implied license. It would appear that a patentee can give effective notice of restrictions to the first purchaser and the second and subsequent acquirers to negate the implied license and thereby prevent re-use of repurposed goods. This path seems more difficult than the first. This case (Seiko v Calidad) clarifies issues regarding the necessary notice.
Seiko Epson Corporation v Calidad Pty Ltd 1
Seiko sold printer cartridges outside Australia. Another company Ninestar acquired the printer cartridges after their initial use and refurbished/modified them outside Australia for resale to Calidad. Calidad then imported the refurbished printer cartridges into Australia. In order for the original Seiko cartridges to be refilled and re-used, it was necessary for Ninestar to make changes to the cartridges including overcoming restrictions programmed in the memory chips. The programmed restrictions were generally intended to preclude reuse of the cartridges by making refilled cartridges incompatible with Epsom branded printers. However, Ninestar succeeded in overcoming these programmed restrictions.
Was there an implied license?
Yes. The Court accepted that the first sale of the original Seiko cartridges carried with it an implied licence. This was despite some of the cartridges having been acquired by Ninestar after disposal by their first users. Further, even though the first and subsequent sales of the cartridges were made outside Australia, the implied licence was still effective in Australia.
Were there any restrictions on the implied license?
No. Seiko sold the cartridges without explicit notice.
Seiko argued that its programmed restrictions physically embodied restrictive conditions on the implied license. The Court rejected this argument and thus any purchaser and subsequent acquirer received the cartridges free from any restriction. The programmed restrictions did not amount to sufficient notice of restrictions on the implied license.
Did the modifications terminate the license?
Seiko also argued that the modifications made to the cartridges by Ninestar had the effect of extinguishing the implied licence. The Court held that modifications only extinguished the implied licence if they were material alterations of features of the original cartridges that are mentioned in the claims of the patents.
For instance, one of the claimed features included “a memory driven by a memory driving voltage”. The Court carefully considered what amounted to “memory” and determined it was the hardware component, not the data contents. A modification which rewrote memory therefore did not amount to a modification of the claimed invention. However, replacing the entire chip comprising the memory did amount to a modification which terminated the implied license. Claim 1 also recited that the printing material container was “adapted to be attached to a printing apparatus”. In the product, this was embodied in the interface rib pattern on the cartridges and so removal of the interface rib pattern was a modification that extinguished the implied licence. Thus, the modification of a feature mentioned in the claim 1 was sufficient to terminate a license.
One matter left unclarified
By agreement between the parties, the Court only considered a single independent claim. It was left unclear whether modification of a feature of the original product mentioned in any dependent claim, no matter how trivial or irrelevant to the invention, would extinguish the implied licence.
How might a patentee extend their monopoly to prevent re-use of single use medical devices?
1. A patentee may impose conditions or limitations on the use of patented goods by either:
a) Contract; or
b) Notice of conditions or limitations to the purchaser and any subsequent acquirer at the time of acquisition e.g. visible marking on the goods. The nature of the limitations must be clear and express and visible to each acquirer at or before acquisition.
Of course, enduring visible marking may be a challenge depending on the nature of the goods, especially to subsequent acquirers. Embossment or moulding of a notice into a body component may be one potentially sufficient approach. This approach is not without its practical difficulties.
2. A patentee can tailor their protection and product design to ensure modification of a claimed feature is required for reuse in a way that terminates the implied license. Thus, even an Australian patent to a trivial feature, not intended to deter direct competitors, may have the effect of preventing after-market competitors dealing second hand in the patentee’s own goods.
The above is intended to provide a high level summary of the law concerning the implied license in Australia and should not be taken as a comprehensive analysis. We recommend that you consult us before making any decisions with respect to the topic discussed in this summary.
1  FCA 1403