Repair, recycling, reprocessing or infringement?

Date: 2020-10-16
Authors: Tracey Hendy & Robbie Boukarroum

Who should read this?

You should read this if:

  • you or your clients sell goods which can be reconditioned anywhere and sold in Australia;
  • you or your clients sell single-use medical devices which can be reprocessed anywhere and sold in Australia;
  • the goods/medical devices are patented in Australia.

This views in this article are based upon the Full Federal Court decision in Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115. This decision has been appealed Calidad Pty Ltd v Seiko Epson Corporation [2020] HCA 41. Stay tuned for our new article in 2021.

Are your assumptions about infringement wrong?

Patentees may think that they have no power to stop third parties from “recycling” their used products by “restoring” them and selling them on the market in direct competition with their own products. However, in Australia, this is not necessarily the case.

Depending on the nature of the third party’s actions to restore the recycled product, such restoration may in fact constitute infringement. This article is designed to help patentees identify when actions of a competitor cross the line into patent infringement. There are also steps that the patentee can take to increase the prospects of the court finding infringement.

What about exhaustion of rights?

The exhaustion of rights doctrine is a concept of patent law whereby, upon a first authorised sale of a patented good by or with the approval of a patentee, all patent rights in the subject matter of the invention are exhausted. This approach is adopted in several jurisdictions, most notably the United States. Currently, Australia does not have such an exhaustion of rights doctrine.

Implied licence

Australia has adopted an “implied licence” approach from UK authorities. Under an implied licence construct, the patentee implicitly provides a licence to the purchaser to use a product, unless the patentee imposes conditions at the time of sale1. tThese are effectively the rights we would ordinarily expect with owning an ordinary product, including the right to use or sell the purchased product.

This implied licence construct is necessary because the Australian Patents Act sets out exclusive rights to the patentee to “exploit” the patented product including the right to make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things. If not for the implied licence, the purchaser would infringe the exclusive rights of the patentee.

However, not all downstream actions of the purchaser or subsequent acquirer of goods are permissible. Repair is permissable. The making and remaking of patented goods by a purchaser or subsequent acquirer are carved out of the implied licence2.

Repair

The case law treats the act of repair inconsistently, in some cases expanding the scope of an implied licence to encompass the right to repair a patented product and in other cases regarding the act of repair as being outside the exclusive rights of the patentee and thus not constituting infringement of the patent in any case3.

Irrespective of which of the above approaches is ultimately correct, the key point is that repair of a product is permissible and not considered an infringing act.

This article considers the boundary between actions that constitute repair and those that cross the boundary into remaking. The acts of refurbishment, reconditioning and reprocessing must be examined for what they are and ascribed as either an allowable repair or infringing remaking4.

Repair vs. Making

The courts have stated that the question of whether certain restorative actions on a patented product by a third party reconditioner amount to repair or remaking is a “matter of fact and degree”5.

Two relatively recent UK cases are instructive because the actions of the reconditioner sit close to the borderline between repair and remaking and thus illuminate the difficulties in characterising the actions of the reconditioner. The cases are thus helpful in identifying the criteria to evaluate which side of the repair/making dichotomy the action of a reconditioner fall.

The following decisions were recently cited with approval by the Australian Full Federal Court in the decision6 discussed below. Whilst UK cases are not necessarily binding on Australian courts, they can be persuasive.

United Wire Ltd v Screen Repair Services (Scotland) Ltd7 

This decision involved sifting screens used to recycle drilling fluid in the oil drilling industry. The sifting screen is a replaceable part that is installed in a vibratory sifting machine. The screen itself has a frame with two layers of wire mesh which are held at different tensions.

In this case, there were two patents involved. In the first patent, the claimed invention related to the sifting screen having two layers of mesh, which are intended to strike each other in use to remove blockages in the mesh. This action tended to wear out the meshes more quickly than the frame.

In the second patent, the frame of the sifting screen was flexible so that it could be flattened out on being fitted into the sifting machine to restore the tension in the meshes.

Once the meshes were spent, the defendant acquired the used frames from the plaintiff’s customers and reconditioned them by:

1. Stripping them down to the bare metal and recoating;

2. Adding the two layers of mesh, bonding the mesh to the frame and trimming the excess mesh.

The House of Lords held that the question raised was “one of fact and degree”, and ultimately found that the defendants actions were not actions of repair, but of re-manufacture (i.e. re-making). One of the contributing factors was that the patented product ceased to exist once the meshes were removed and then a screen was then re-made.

Schütz (UK) Ltd v Werit (UK) Ltd8

This is a decision of the Supreme Court of the United Kingdom in 2013 concerning international bulk containers otherwise known as IBCs which are used for transporting a wide range of liquids in bulk.

The claimed invention for the IBC had three parts: a pallet, a replaceable bottle, and an outer cage. Of particular importance to this case was the fact that the inventiveness lay in the features of the cage.

Werit provided the bottle to a reconditioner named Delta who replaced the bottle inside the cage and did some minor repairs to the cage.

The UK Court of Appeal held that there was remaking because the IBC ceased to exist once the bottle was removed. However, on appeal, the UK Supreme Court overturned the lower court’s decision and characterised the actions as repair. Thus, the mere fact of a patented product “ceasing to exist” is not solely determinative of whether or not re-making, and hence infringement, has occurred.

Rather, it is a question of degree. The various factors which influenced the court included:

  • the fact that the bottle was a replaceable part of the IBC with a shorter life expectancy; and
  • importantly the bottle had no connection with the claimed inventive concept which related to the cage.

In contrast, the court distinguished United Wire, where infringement was found on the basis of:

  • in United Wire, the work required to recondition the screens included an element of demolition; and
  • in United Wire, the inventive concept resided in the replaced part (the mesh) as distinct from Schütz where the replaceable bottle was unrelated to the inventive concept9.

Calidad Pty Ltd v Seiko Epson Corporation10

In the decision of Australia’s appeal court11 concerning Calidad’s importation and sale of “refurbished” Seiko printer cartridges, the Court unanimously regarded the set of actions undertaken to refurbish the cartridges as remaking and thus infringement. This was not regarded as a borderline case12.

The original printer cartridges had been manufactured and sold by Seiko outside Australia, and after use and disposal by the consumer, the cartridges were collected and modified outside Australia by Ninestar, (a company unrelated to Calidad) to enable reuse of the cartridges which were then sold to Calidad who imported them into Australia for sale to consumers.

While many of the modifications were model specific, the vast majority of the recycled printer cartridges were modified by:

  • creating an injection port in the printer cartridge container for re-filling the container with ink, followed by sealing the port; and
  • reprogramming/replacing the memory chip which after initial consumption registered “empty”. This inbuilt redundancy was intended to preclude reuse of refilled cartridges in Seiko printers. Replacement of the memory chip circumvented Seiko’s inbuilt redundancy.

Even the most minimal changes performed on a subset of the printer cartridges by merely creating an injection port and reprogramming the memory chip were regarded by the Court as remaking the cartridges and thus outside the scope of the implied license.

Other model specific modifications performed on another subset of the printer cartridges included:

  • cutting off an “interface pattern” of the original cartridge to allow it to interface with printers in use in the Australian market; and
  • making a small slit in the gas membrane of the cartridge (using a knife) which is then resealed with glue. This was done in order to improve the gas exchange within the cartridge when it is used in the printer.

These further actions only added to the modifications 1 and 2 above and so only strengthened the case of infringement.

While the outcome was unanimous, the judges were far from consistent in their reasoning. For instance, the previous decisions of Schütz, United Wire and the decision of the primary judge13 referenced claim 1 to determine whether the modifications affected features recited in claim 1. Only one of the judges in the appeal court decision appeared to reference claim 114. In Justice Jagot’s somewhat narrow approach, the mere act of creating a hole in the container meant that the container “ceased to exist”15 and she rejected other factors which had influenced the court in Schütz16In Justice Yates’ view, the correct question was whether the modified cartridges were in substance, different articles to those which Seiko had put on the market and rejected the approach of referencing claim 117. Any suggestion that the cartridges were broken was rejected by Yates J. In fact, the inbuilt redundancy contributed to a finding of infringement18.

While the appropriate test to determine the extent of changes that amount to infringement is left in doubt, what seems clear is that currently, only a low level of modifications are needed to cross from repair into infringement. Furthermore, the patentee can coordinate their design and patent strategy to enhance the prospect of infringement by reconditioners and reprocessors. Please contact the authors for further guidance in this respect.

Appeal to Australia’s High Court

The case is on appeal to Australia’s highest court which heard the matter in August 2020 with a decision expected in November 2020.

Whether or not Australia should adopt a doctrine of exhaustion was left untouched by the courts below. Calidad have retained this argument all along in order to appeal this ground to the High Court.

It is open to the High Court to adopt a doctrine of exhaustion. Based on the previous decision in Myriad19

we can expect the High Court to have regard to public policy considerations such as

  • the effect of an overreaching monopoly in subsequent dealings; and
  • the wastefulness of not being able to recycle.

At the very least, we hope that the High Court will settle the test to more clearly demarcate the boundary between repair and remaking.

Stay tuned for our further article once the High Court issues its decision.  


1 Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115 - not discussed in this article but see [29 - 73] of the Full Court decision

2 Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115 - see in particular the comments of Greenwood J at [84] and Yates at [289]

3 See for instance the discussion by Jagot J Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115 [154 - 163]

4 For instance, “refurbishment was regarded as an embellishment of UK cases by Yates J at [275]  Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115

Schütz (UK) Ltd v Werit (UK) Ltd [2013] UKSC 16 

 Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115

7 United Wire Ltd v Screen Repair Services (Scotland) Ltd   [2001] RPC 2

8 Schütz (UK) Ltd v Werit (UK) Ltd   [2013] UKSC 16  

9 Although take note that Jagot J in Calidad Pty Ltd v Seiko Epson Corporation   [2019] FCAFC 115 indicates that considering inventive concept is foreign to Australian law [163]

10 Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115

11 the Full Court of the Federal Court of Australia

12 Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115 - see Jagot at [164]

13 Seiko Epson Corporation v Calidad Pty Ltd  [2017] FCA 1403

14 Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115 - although whether or not Jagot J was purposely referencing claim 1 is far from clear

15 the view of Jagot J in applying the words of the House of Lords in United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 2

16 Jagot J in Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115 indicates that considering other factors such as inventive concept is foreign to Australian law [163]

17 Yates J at [292]

18 Yates at [276]

19 D'Arcy v Myriad Genetics Inc [2015] HCA 35