Landmark ruling overturns century-old Australia doctrine
The doctrine of patent exhaustion has been recognised by the High Court of Australia, overturning more than a century of law and bringing the country into line with the US.
In a majority ruling, handed down yesterday November 12, the High Court held that the patentee’s rights to “make, hire, sell or otherwise dispose of the product” and to “use” it had been exhausted
Case background
The appeal, Calidad v Seiko Epson Corporation, concerned the scope of Epson’s exclusive statutory rights to exploit its printer ink cartridges, and whether modifications made to the cartridges to enable its re-use amount to making a new product and so infringe Epson’s exclusive rights.
After Epson’s cartridges had been used, a third party had obtained them and modified them, allowing them to be refilled and re-used. Calidad acquired the modified cartridges and imported them into Australia for sale to the public.
Initially a judge of the Federal Court of Australia found that some of Calidad’s printer cartridges infringed Epson’s Australian patents, but others did not.
On appeal, before the Full Court of the Federal Court, the judges found that all of Calidad’s printer cartridges were infringing under the implied licence doctrine.
According to the doctrine, an implied licence is granted to the purchaser (who obtains the goods without restriction on their sale or use) to use and dispose of the patented goods as they wish.
However, the subsequent modifications to the cartridges were not authorised by the implied licence and actually constituted a making of a new embodiment of the invention claimed in the patents.
Calidad appealed against the decision and asked the High Court to hold that the exhaustion doctrine should be applied instead of the implied licence doctrine.
The exhaustion doctrine holds that a patentee's monopoly rights of use and sale with respect to a product are exhausted upon the first sale of that product.
The court’s decision
Allowing Calidad’s appeal, a High Court majority found that the modifications to the cartridges didn’t not amount to an impermissible making of a new product and that the exhaustion doctrine should be accepted.
“The result reached by the Full Court of the Federal Court would likely have been different if that court had been in a position to apply the exhaustion doctrine,” said a summary from the High Court.
In adopting the exhaustion doctrine over the implied licence doctrine, the court looked back to the origins of both.
The exhaustion doctrine had been adopted by the High Court in National Phonograph Co of Australia Ltd v Menck (1908), but this was subsequently overturned by the Privy Council on appeal, which took the implied licence doctrine approach.
In this case, the proceedings in the Federal Court were conducted by reference to the Privy Council approach in Menck.
“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,” said the High Court yesterday.
It added: “This court has not been bound by decisions of the Privy Council for some time. 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 court cited Impression Products v Lexmark International, a US Supreme Court decision issued in 2017, as a clear example of the application of the exhaustion doctrine and a case which “bears a striking similarity to the facts of this case”.
Impression Products concerned Impression’s refilling of toner cartridges made by Lexmark. A majority of the Supreme Court held that Lexmark had exhausted its patent rights in the cartridges “the moment it sold them”.
The court subsequently discussed which doctrine was preferable, noting that the exhaustion doctrine has the “virtues of logic, simplicity and coherence with legal principle” while the implied licence doctrine is “complicated in its operation and effects”.
And, according to the court, the provisions of the Patents Act 1990 do not recognise the implied licence doctrine.
“Continued adherence to the implied licence doctrine is an unjustifiable gloss on the statutory language that confers monopoly rights on a patentee. The decisions of the courts below show the danger of distraction from the language of the statute that is encouraged by that doctrine,” warned the High Court.
Did you enjoy reading this story? Sign up to our free daily newsletters and get stories sent like this straight to your inbox
Today’s top stories
UKIPO sides with Big Easy in TM dispute with easyGroup
Nirvana sues artist over rights to smiley face TM
EPO makes videoconferencing mandatory for hearings until September 2021
