By Malcolm McBratney, Partner, and Teneille Meyer, Lawyer
The Full Federal Court’s recent decision in Calidad Pty Ltd v Seiko Epson Corporation  FCAFC 115 has clarified the rights of businesses when acquiring and selling patented products. The Full Court affirmed that modifications made to patented products that go beyond merely ‘repairing’ the products, may give rise to claims of patent infringement.
The Full Federal Court’s recent decision was an appeal from a Federal Court decision handed down in 2017.
The 2017 case concerned Seiko Epson Corporation (Seiko), a manufacturer and distributor of patented inkjet printer cartridges for Epson printers, and Calidad, a company that imported the Epson inkjet cartridges into Australia for re-distribution.
The particular cartridges involved in this case were single-use cartridges with memory chips that were able to assess the levels of ink remaining in the cartridges.
After Seiko sold the Epson cartridges in the open marketplace, a foreign third party manufacturer and supplier of ink cartridges and related printing products, Ninestar Image (Malaysia) SDN (Ninestar), ‘repurposed’ or ‘remanufactured’ the used Epson cartridges by refilling them with ink and reprogramming the memory chip to display a ‘full’ ink level reading. Calidad subsequently imported the remanufactured cartridges into Australia for sale and marketed them as ‘remanufactured Epson cartridges’.
Seiko argued that Calidad’s importation and sale of the remanufactured cartridges infringed Seiko’s Australian patents under section 13 of the Patents Act 1990 (Cth).
Calidad accepted that it had infringed Seiko’s Australian patents, however, argued that as Seiko had first sold the cartridges overseas in an open market without any express limitations on the sale and use of the cartridges, Seiko had granted to purchasers of the cartridges an implied licence to (amongst other things) “refurbish” or “repair” the cartridges.
At first instance, although the primary judge accepted that an implied licence existed between Seiko and initial purchasers of the cartridges to use, maintain, import/export, resell or otherwise dispose of the cartridges, his honour found that the implied licence was subsequently extinguished when Ninestar remanufactured the cartridges and sold them to Calidad.
The Full Federal Court held that the modifications to the cartridges constituted ‘remaking’ the cartridges, which amounted to patent infringement by Ninestar. By extension, Calidad was also found to have infringed Seiko’s patent by later selling the re-manufactured cartridges.
Relevantly, the Full Court found that the extent of Ninestar’s modifications to the ink cartridges contributed to the finding that the cartridges were ‘remade’, rather than ‘repaired’. For example, the cartridges were intended to be single-use cartridges only; by re-filling the cartridges for additional uses, Ninestar re-created and re-purposed the products. The Full Court also found that as there were no clear defects in the cartridges, there was no need for Ninestar to ‘repair’ the products.
Importantly, while the primary judge found that Ninestar’s conduct resulted in the extinguishment of the implied licence, the Full Federal Court held that Ninestar’s conduct simply fell outside of the scope of the implied licence and the licence remained on foot (although, the exact scope of the implied licence was not made entirely clear).
Ultimately, the Full Court held that by importing and selling the re-manufactured cartridges, Calidad infringed the exclusive rights of the patentee under s 13 (1) of the Patents Act 1990 (Cth).
- If acquiring goods for use in your business or to on-sell, consider before signing the contract:
- what intellectual property rights exist in the goods (e.g. patents, trade marks, design rights, copyright, etc.) and do IP searches if needed; and
- what contractual promises are being made by the seller in relation to the goods (e.g. warranties and indemnities that the seller owns the IP and the goods and your use or sale of the goods doesn’t infringe anyone else’s IP rights).
- If selling patented goods, be clear about the IP rights in relation to those goods. Specify upfront in writing any terms of and restrictions on use by the buyer and end users.
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