On 12 November 2020, the High Court handed down a landmark judgment affecting the rights of Australian patent owners.
Up until this judgment, the position in Australia for over a century had been that anyone obtaining a patented product from the patentee had an implied licence to use it in accordance with ordinary rights of ownership of goods (the implied licence doctrine), and subject to any conditions imposed by the patentee. Breach of the implied licence was actionable as patent infringement (as well as any contract law rights the patentee might have).
By a 4:3 majority, the High Court held that the implied licence doctrine no longer applies in Australia and instead, a patentee’s rights of use and sale are “exhausted” once the patentee supplies the patented product to the purchaser.
The facts
Seiko Epson (Seiko) manufactures and sells printer ink cartridges (original cartridges). Seiko owns two patents regarding the original cartridges.
After Seiko’s original cartridges had been used, a third party (Ninestar) obtained them from a number of sources and modified them to be refilled and reused. Calidad then obtained the modified cartridges from Ninestar and imported them into Australia for sale.
Seiko said that this infringed its patents because the implied licence did not permit the modifications made by Ninestar and that those modifications actually constituted the making of a new cartridge.
Neither the exhaustion doctrine nor the implied licence doctrine removes a patentee’s right to prevent a purchaser from making a new product. The question then was: Were the modifications ordinary repairs designed to prolong the useable life of the product (which would not be an infringement), or the making of a new product (which would be an infringement)?
The findings
The Full Federal Court, agreeing with the Judge at first instance, held that the implied licence was only to use the patented product in the form in which it had been sold.
Overturning that decision, the High Court majority found that, as a result of its application of the implied licence doctrine, the Full Court was led into error concerning the question of whether a new article was made. The High Court remarked that the result reached by the Full Court with respect to infringement is likely to have been very different had the Court been in a position to apply the exhaustion doctrine.
That majority held that “when all of Ninestar’s modifications to the cartridges were completed, what remained were the original cartridges with some modifications which enabled their re-use. The modifications did not involve the replication of parts and features of the invention claimed. There was no true manufacture or construction of a cartridge which embodied the features of the patent claim.”
What does this mean for patentees?
Patentees can no longer rely on the Patents Act 1990 to enforce any conditions imposed on the sale or use of patented products they’ve sold to customers.
However, subject to any competition law considerations, patentees can still impose conditions on the use of patented products in Australia. Any breach of those conditions would need to be actioned in contract.
A problem arises where the first purchaser on-supplies the patented products to a third party. That third party would not be directly contracted to the patentee, so it would be more difficult to enforce those conditions against any purchaser other than the purchaser who obtained the goods directly from the patentee (or its licensee).
This decision also seems to pave the way for the recycling industry to recondition patented products with a lower risk of patent infringement (although each case will still turn on the level of changes made to the product).