Calidad Pty Ltd v Seiko Epson Corporation

• Jurisdiction: Australia Federal only
• Judge: Kiefel CJ,Bell,Keane JJ.,Gageler J.,Nettle,Gordon,Edelman JJ.
• Judgment Date: 12 November 2020
• Neutral Citation: [2020] HCA 41
• Court: High Court
• Docket Number: S329/2019
• Date: 12 November 2020

[2020] HCA 41

HIGH COURT OF AUSTRALIA

Kiefel CJ, Bell, Gageler, Keane, Nettle, Gordon and Edelman JJ

S329/2019

Calidad Pty Ltd & Ors

Appellants

and

Seiko Epson Corporation & Anor

Respondents

Representation

D Shavin QC with P J T Creighton-Selvay for the appellants (instructed by Gilbert + Tobin)

A J L Bannon SC with C L Cochrane and D Larish for the respondents (instructed by Quinn Emanuel Urquhart & Sullivan)

Patents Act 1903 (Cth), s 62.

Patents Act 1990 (Cth), ss 2A, 13, 135, 144, Sch 1.

Patents — Infringement — Where printer ink cartridges embodied inventions claimed in two patents — Where used cartridges acquired by third party and modified for re-use — Where modified cartridges imported into Australia for sale to public — Where patentee alleged infringement of patent rights — Where s 13(1) of Patents Act 1990 (Cth) provides patentee has exclusive rights to exploit invention — Where “exploit” includes make, hire, sell or otherwise dispose of product and to use it — Whether modifications to cartridges constituted impermissible “making” of new product — Whether doctrine that patentee's exclusive rights with respect to product are exhausted on first sale (“exhaustion doctrine”) should be accepted — Whether doctrine that implied licence arises on sale of patented goods to purchaser (“implied licence doctrine”) should continue to be applied.

Words and phrases — “conditions as to use”, “embodying the claimed invention”, “essential features”, “exclusive statutory rights”, “exhaustion doctrine”, “exhaustion of rights”, “exploit”, “implied licence”, “implied licence doctrine”, “infringement”, “invention”, “make, hire, sell or otherwise dispose of”, “make, use, exercise, and vend”, “making”, “manufacture”, “modifications”, “monopoly”, “monopoly rights”, “patent”, “patent rights”, “personal property”, “product”, “repair”, “re-use”, “single use”, “use”.

ORDER

• 1. Appeal allowed with costs.

• 2. Set aside the orders made by the Full Court of the Federal Court of Australia on 5 July 2019 and the declaration and orders made by the Full Court of the Federal Court of Australia on 29 October 2019 and, in lieu thereof, order that:

  • (a) the appeal to that Court be allowed with costs and the cross-appeal to that Court be dismissed with costs;

  • (b) declaration 1 and orders 2 to 8, 10 and 11 of the orders made by the primary judge on 16 February 2018 be set aside and, in lieu thereof, it be ordered that:

    • (i) the applicants' originating application, including the applicants' claims of patent infringement, breach of cl 2(a)(ii) of the settlement deed, breach of statutory duties under ss 145 and 148 of the Trade Marks Act 1995 (Cth) and contravention of ss 18 and 29 of Sch 2 to the Competition and Consumer Act 2010 (Cth), otherwise be dismissed; and

    • (ii) subject to order 9 of the orders made by the primary judge on 16 February 2018, the applicants pay the respondents' costs of the proceeding; and

  • (c) the matter be remitted to the primary judge for determination of the respondents' claim for pecuniary relief for breach of cl 2(a)(i) of the settlement deed.

1 Kiefel CJ, Bell and Keane JJ. The exclusive statutory rights of a patentee to exploit an invention which is a product include the rights to “make, hire, sell or otherwise dispose of the product” and to “use” it 1. The question of principle which arises on this appeal concerns the scope of those rights and whether a patentee's rights with respect to the sale and use of a particular product should be regarded as exhausted when that product is sold or whether they continue. It requires consideration of the approach taken by this Court in National Phonograph Co of Australia Ltd v Menck 2 (“ Menck (High Court)”) and that of the Privy Council on appeal 3 (“ Menck (Privy Council)”).

2 The other question that arises is no less important. Accepting that a patentee retains the exclusive right to make a product embodying the essential features of the invention, the question is whether modifications made to a product to enable its re-use amount to a making of a new product and infringe on that account.

3 The questions arise in this context. The first respondent manufactures and sells computer printers and printer ink cartridges under the brand name “Epson” (“the original Epson cartridges”). The original Epson cartridges embody the inventions claimed in two patents of which the first respondent is the patentee. The original Epson cartridges are manufactured and sold in a form which permits only a single use. When the ink in the cartridge runs out it is usually necessary to replace the cartridge. Empty original Epson cartridges are obtained by a third party, Ninestar Image (Malaysia) SDN BHD (“Ninestar”), from various sources. Ninestar makes modifications to the cartridges which enable them to be refilled and re-used (potentially on multiple occasions). The appellants (together “Calidad”) acquire the modified cartridges from Ninestar and import them into Australia for the purpose of sale to the public.

4 In proceedings in the Federal Court of Australia 4 the respondents (together “Seiko”) alleged that by doing so Calidad infringed the first respondent's rights as patentee. In those proceedings Seiko did not contend that any contractual conditions restricting the use to which the original Epson cartridges could be put were imposed at the time of the sale to the original purchaser.

5 It is not disputed that on the sale or resale of a patented product the purchaser becomes the owner of that item of property. It is a principle of the law of personal property that the owner of chattels has an absolute right to use or dispose of them as they think fit. This principle was applied by a majority of this Court in 1908 in Menck (High Court), where it held that conditions on resale could only be imposed as a matter of binding agreement. The Court applied a doctrine that a patentee's monopoly rights of use and sale with respect to a product arising from statute are exhausted on sale (the “exhaustion doctrine”).

6 In Menck (Privy Council) it was held that a patentee may impose conditions on the sale or use of patented goods at the time of their sale to the original purchaser. Any conditions so imposed continue to apply to the goods after sale so long as persons later obtaining title to them have notice of the conditions. If no conditions are imposed, the owner of the goods has the ordinary rights of ownership, but only because in such a case the law implies a full licence 5 (the “implied licence doctrine”).

7 The proceedings in the Federal Court were conducted by the parties by reference to the approach taken in Menck (Privy Council). A Full Court 6 held that the implied licence did not extend to the modifications made by Ninestar. Further, the modifications amounted to a “making” of a new patented product or a remaking of the original and infringed the patentee's rights.

8 In the Full Court Calidad reserved its right to argue on any appeal to this Court that the decision in Menck (High Court) was correct and that Menck (Privy Council) should not be followed. It now asks this Court to hold that the exhaustion doctrine should be applied in cases of this kind. Seiko contends to the contrary and further argues that regardless of which doctrine is applied the modifications amount to a “making” of the patented product.

9 The modifications made to the original Epson cartridges are within the scope of the rights of an owner to prolong the life of a product and make it more useful. They do not amount to an impermissible making of a new product. This Court has not been bound by decisions of the Privy Council for some time 7. The rule, that a patentee's rights with respect to a particular product are exhausted once

that product is sold without conditions as to use, should be accepted. The appeal should be allowed, for the reasons which follow

Menck (High Court) and the exhaustion doctrine

10 The plaintiffs in Menck (High Court) manufactured and sold products of which they were patentees to purchasers on whom restrictions as to resale were imposed. The plaintiffs claimed an injunction against the defendant, a retail seller who had bought the products from the original purchaser. It was alleged that he had obtained the goods from the purchaser contrary to the terms of the restrictions, of which he had notice, and resold them at a price lower than that permitted by the plaintiffs. This was a use of the plaintiffs' invention without their permission and therefore an invasion of their monopoly rights. The plaintiffs claimed to be entitled to condition the future use or sale of the patented products following their initial sale, not by reference to any contract but by reference to the patent itself and the rights given by s 62 of the Patents Act 1903 (Cth) to “make, use, exercise, and vend the invention”.

11 Griffith CJ, with whom Barton and O'Connor JJ agreed, rejected the plaintiffs' claim of an invasion of their patent rights. Griffith CJ and Barton J referred with approval to decisions of the Supreme Court of the United States in the mid-19th century which held that when a patentee sells a patented machine to a purchaser, the machine is “no longer within the limits of the monopoly” 8. The patentee having received on sale the royalty for their invention in that particular product, “it is open to the use of the purchaser without further restriction on account of the monopoly of the patentees” 9.

12 Griffith CJ 10 described as “an elementary principle of the law of personal property”, that:

“the owner of chattels has an absolute right to use and dispose of them as he thinks fit, and that no restrictions can be imposed upon this right, except by positive law or by his own contract”.

13 That being the state of the common law, the right asserted by the...