Epson Wins Against Aftermarket Calidad in Australia

Epson Wins Against Aftermarket Calidad in Australia

Calidad, which sells remanufactured inkjet cartridges imported from Ninestar, has lost its appeal before three judges of the Federal Court of Australia.

Calidad and Epson Seiko were both appealing against the decision handed down by Justice Burley in December 2017. RT Media reported on that trial where Calidad’s case was successfully defended in part.

It should be noted that the December 2017 decision is the first in Australia to consider a number of legal principles relating to repaired/remanufactured products.

Dr Mark A Summerfield wrote about the case exclusively for RT Media and said, “The question is therefore not whether the refurbishment is an infringement of the patents, but rather whether modifications performed on the cartridges in the course of refurbishment and refilling extinguish the implied licence that undoubtedly attached to the original sales. As Justice Burley explained: “The proper question is accordingly not based on a repair or making analysis, but rather whether the implied licence can be said to apply in circumstances where one owner of the product, Ninestar, has modified it and then passed title in it to [Calidad]. The relevant question then becomes; at what point has an owner of the embodiment made changes to it such that the implied licence arising from a sale sub modo is extinguished? No authority appears to have directly addressed this topic.”

According to mondaq.com, the rights of the patentee in a patented product in a number of jurisdictions (including Europe and the U.S.), “are said to be ‘exhausted’ upon the first authorised sale of the product within the jurisdiction. The exhaustion of rights doctrine has never explicitly been recognised in Australia. Instead, the sale of a patented product is said to give rise to an ‘implied licence’ from the patentee to the purchaser (and any subsequent owner) to deal with the product in certain ways.”

At the conclusion of that initial trial, Justice Burley identified seven categories of remanufactured Epson cartridges. In each case, Ninestar had undertaken different steps to enable the cartridges to be re-used. It was found, in the case of four of the seven categories, the modifications undertaken by Ninestar were so significant that the cartridges could no longer be said to be subject to an implied licence from Seiko. For the remaining three categories, his Honour found that the modifications had little impact on the essential features of the claimed invention, and accordingly, that the cartridges were still subject of the implied licence.

Appeal Ruling

The full bench of three judges of the Federal Court, known as the Full Court, gave their decision on July 5, 2019. Justices Greenwood, Jagot and Yates found that all the categories of remanufactured Epson cartridges fell outside the scope of a licence. This means that Calidad’s actions related to importing, promoting, marketing and sale of these cartridges were found to infringe Seiko-Epson’s patent rights.

There are real differences between ‘exhaustion’ and ‘implied licence’ doctrines. In the Impression Products Inc v Lexmark International case back in 2017 the U.S. Supreme Court found Lexmark had exhausted all of its patent rights in its printer cartridges at the time of the first sale irrespective of where in the world the cartridge was first sold. Impression Products was found not to be infringing Lexmark’s patents. In Calidad v Seiko, however, the three judges based their judgment on the basis that the ‘exhaustion of rights’ doctrine does not apply in Australia.

It is noted Calidad has preserved its rights to appeal this point to the High Court.

Calidad was not exercising a right to repair. Calidad also argued that the remanufactured Epson cartridges were the product of a legitimate right to repair or refurbish a patent-protected article. The Court found this argument unconvincing, principally because the cartridges acquired by Ninestar were not worn or broken. Rather, they had reached the end of their useful life as a consequence of their intended use.

Calidad was established by Managing Director Robin Kenyon in 1975. Its products are available in over 2,000 dealers across Australia including large stationery retail stores. Its products are also distributed in more than 20 countries across Europe, the Middle East, Africa and the Americas.

Related:

• Will Epson and Calidad Go Back to Court in Australia?

Comment:

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