Calidad Pty Ltd v Seiko Epson Corporation  HCA 41 (12 November 2020)
This case concerned the modification of patented printer ink cartridges for re-sale in Australia. Spent EPSON branded single use ink cartridges with a memory chip (covered by the relevant patents) were modified and re-filled overseas by a Malaysian third party, Ninestar and then imported and re-sold in Australia by Calidad.
Burley J held that the sale of a patented article carries an implied licence to the purchaser which may be extinguished where contractual obligations are imposed on the purchaser (which is rare) or where the purchaser refurbishes the article to the extent that it results in a material alteration to the product, insofar as it is an embodiment of the invention as claimed. Here, there were some modifications which amounted to patent infringement when those refurbished ink cartridges were imported into Australia and sold by Calidad.
Trade Mark Infringement
Calidad’s use of EPSON on the printed circuit board of two refurbished ink cartridges did not amount to trade mark infringement. In each case the word EPSON was partly obscured and extremely small such that it was only faintly visible. His Honour found that this manner of use was not use of EPSON as a trade mark. It is probable that a consumer will purchase the Calidad product with an appreciation that it is a product of Calidad that will replace an Epson cartridge. After opening the outer packaging and inner plastic wrap, a consumer is unlikely to discern the word Epson on the circuit board of the cartridge and, if they did, would not regard it to be used as a trade mark.
The process of obscuring the word EPSON on the refurbished cartridges did not constitute an offence under s148 of the Trade Marks Act (which involves altering, defacing, adding to, wholly or partly removing, erasing or obliterating a registered trade mark on the goods). Burley J construed this provision as requiring the reference to “a registered trade mark on the goods” meaning a registered trade mark used as a trade mark on the goods. Here, the EPSON trade mark was never used on the Calidad products as a badge of origin. The process of blacking out this word did not take place on an original Epson cartridge but on a Calidad product and, before this word was obscured, its presence was an artefact of the process by which it was manufactured. Consequently, there was never any removal of a trade mark that could serve as a badge of origin. His Honour also commented that Calidad could not rely on material published on Seiko’s US website for the purpose of Seiko giving consent to the sale of re-filled cartridges in Australia. In any event, s148 is a criminal penalty provision and Burley J considered it does not confer a private right of action. A trade mark owner may display a notice of prohibition on the goods and has a remedy for infringement if those restrictions (which includes altering, partially removing or obliterating its trade mark) are breached.
Australian Consumer Law
Finally, Seiko alleged that Calidad’s website reference to certain of its refurbished cartridges as being new products was misleading or deceptive under the Australian Consumer Law because it is an implied representation that the relevant products are not made from recycled Epson cartridges, when in fact they are. However, Burley J rejected this and found that, in the context of the relevant webpage as a whole, a reasonable consumer would understand the word “new” to be an assertion of a recently available Calidad product.
Full Federal Court
The appeal to the Full Court (Greenwood, Jagot and Yates JJ) was confined to the patent infringement aspects with the Full Court finding that the modifications to the single use ink cartridges went beyond a mere repair and resulted in them being remade and re-purposed by Ninestar which constituted patent infringement. Calidad also infringed by subsequently selling these cartridges.
Significantly, the Full Court found that the conduct of Ninestar was outside of the scope of the implied licence, rather than conduct which extinguished that implied licence. The implied licence does not extend to the right to make the relevant product and Ninestar’s modifications could be properly characterised as making a new embodiment of the invention claimed in Seiko’s patents.
The High Court, by a 4:3 majority, upheld Calidad’s appeal. In doing so, the High Court rejected the legal fiction of the implied licence doctrine and held that a patent owner’s rights are exhausted on the first sale of a product embodying the invention to a consumer. The exhaustion principle does not prevent a patent owner from imposing restrictions on post-sale use of its patented products by contract (although it remains to be seen the extent to which contractual limitations will be effective).
The High Court also overturned the Full Federal Court and took a narrower view of what amounts to making, in finding that the modifications made by Ninestar were for the purpose of re-using the cartridges to improve or extend their usefulness and did not involve making a new embodiment of the patented invention. The relevant patents were not directed to the cartridges being intended for single use. Ninestar’s modifications reprogrammed, but did not alter the layout of, the memory chips.
The case also confirms the ‘right to repair’ remains and a consumer may, subject to any post-sale contractual restrictions, modify a product to extend its useful life. This is so irrespective of whether the exhaustion principle or doctrine of implied licence is applied. Even the minority judges reversed several findings of infringement made by the Full Federal Court and found that many of the modified cartridges were covered under the implied licence doctrine, but some modifications changed the form and function of the cartridges thereby amounting to making a patented product.
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