Exhausted parties heading to High Court

Exhausted parties heading to High Court

In a welcome development the High Court has agreed to revisit a long-standing authority on whether the rights of a purchaser of a patented product arise under an implied licence or an “exhaustion of rights” approach. The grant of special leave provides an opportunity to potentially depart from the implied licence approach, or at least clarify some of the licensing issues that it creates (particularly the impact on any “exclusive licensee”).

Jeff Bergmann discusses Calidad Pty Ltd & Ors v Seiko Epson Corporation & Anor [2019] HCATrans 225 (15 November 2019) and Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115 (5 July 2019)

In 2017 the Federal Court found that certain re-purposing of toner cartridges constituted infringement of patents covering those cartridges, whilst certain other re-purposing did not. The court considered that the relevant distinction was whether the effect of the repurposing was properly characterised as repair of the cartridge or manufacturing.

In mid-2019 the Full Federal Court held that all of the repurposing activity was properly characterised as manufacturing, and none was properly characterised as repair.

In each instance the courts followed the principles laid down in 1911 by the Privy Council in National Phonograph Company of Australia Limited v Menck, that the proper characterisation of a purchaser’s rights to use a patented article purchased from the patentee is under an implied licence rather than an “exhaustion of rights” analysis.

These principles have been explained as follows:

the law treats the sale [of a patented good] without express restriction as involving the grant of a licence from the patentee authorising such future use of the goods as the owner for the time being sees fit. The law does this because, without such a licence, any use or dealing with the goods would constitute an infringement of the patentee’s monopoly in respect of the use, exercise and vending of the patent.

Under this approach, the Full Federal Court held that the relevant question in the current case was:

what exactly is the scope and content of any licence enjoyed by the buyer (and each and every subsequent intermediate buyer of the patented product), implied by law? In other words, the licence implied by law (if any) is a licence to do what exactly?

The Full Court further held that the scope of the implied licence is understood by reference to “all the normal rights of an owner” or the “absolute right” to deal with the product as the buyer thinks fit (except to the extent that the patentee communicates express restrictions on the scope of that licence at the time of sale). This in turn includes certain of the rights which would fall within the statutory description of “exploit” – namely to “hire, sell, otherwise dispose of the product, offer to sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things”.

However the Full Court also held that:

[t]he scope of the implied licence, however, does not include a right to “make” the product being a right exclusively reserved to the patentee. The “owner” of a product, where the invention defined by a claim or claims, is that product, does not enjoy, by reason of ownership, a right to make an infringing product.

The Privy Council decision in Menck was an appeal from a High Court decision in 1908 where the High Court preferred an analysis under which sale of the patented article exhausts the patentee’s rights (an approach which the United States Supreme Court has recently adopted in litigation also concerning toner repurposing). 

In November 2019 the High Court granted special leave to appeal, and indicated interest in revisiting the Privy Council decision in Menck