Seiko Epson Corporation v Calidad Pty Ltd [2017] FCA 1403

As a reminder to readers, here is what John Cleese (playing the part of Mr Praline, the parrot purchaser) had to say to the shop owner who sold him the Norwegian Blue parrot:

“ 'E's not pinin'! 'E's passed on! This parrot is no more! He has ceased to be! 'E's expired and gone to meet 'is maker! 'E's a stiff! Bereft of life, 'e rests in peace! If you hadn't nailed 'im to the perch 'e'd be pushing up the daisies! 'Is metabolic processes are now 'istory! 'E's off the twig! 'E's kicked the bucket, 'e's shuffled off 'is mortal coil, run down the curtain and joined the bleedin' choir invisible!! THIS IS AN EX-PARROT!!'”

It is obvious that the shop owner will not be able to reanimate the parrot, despite an attempt to disguise life by nailing the parrot to its perch. Ultimately to resolve the dilemma, the shop owner convinces Mr Praline to source another parrot from his brother’s pet shop.

How is it that the absurdity of this sketch could have any relationship with ink jet printer cartridges - the subject of this litigation?

Well the fact is that the ink jet printer cartridge patent asserted by Seiko Epson Corporation covered cartridges which once empty, were effectively “dead”. Just like the problem faced by the shop owner, these cartridges could not be “reanimated” in the sense that they could not be restored to functionality. Consequently, an owner of a “dead” printer cartridge would be required, like Mr Praline, to obtain a new printer cartridge.

First court action

At first instance, Seiko Epson Corporation commenced an action in the Australian Federal Court for infringement of claim 1 of its patent number 2009233643 by Calidad Pty Ltd. Claim 1 is directed to:

A printing material container adapted to be attached to a printing apparatus by being inserted in an insertion direction, the printing apparatus having a print head and a plurality of apparatus-side terminals, the printing material container including:

a memory driven by a memory driving voltage;

an electronic device driven by a higher voltage than the memory driving voltage;

a plurality of terminals including a plurality of memory terminals electrically connected to the memory, and a first electronic device terminal and a second electronic device terminal electrically connected to the electronic device, wherein:

the plurality of terminals each include a contact portion for contacting a corresponding terminal of the plurality of apparatus-side terminals,

the contact portions are arranged in a first row of contact portions and in a second row of contact portions, the first row of contact portions and the second row of contact portions extending in a row direction which is generally orthogonal to the insertion direction,

the first row of contact portions is disposed at a location that is further in the insertion direction than the second row of contact portions,

the first row of contact portions is longer than the second row of contact portions, and,

the first row of contact portions has a first end position and a second end position at opposite ends thereof,

a contact portion of the first electronic device terminal is disposed at the first end position in the first row of contact portions and

a contact portion of the second electronic device terminal is disposed at the second end position in the first row of contact portions.

Used Epson printer cartridges were obtained by a third party, Ninestar, who would undertake one of a selection of methods for refilling and restoring the cartridges for use. The restoration process would include the replacement, reprogramming or resetting of the memory chip to enable use of the cartridges in Epson printers. Calidad would then purchase the refilled and restored cartridges from Ninestar, importing them into Australia for sale.

First court decision

In Seiko Epson Corporation v Calidad Pty Ltd [2017] FCA 1403 (29 November 2017) Seiko brought proceedings against Calidad alleging that its importation, offer for sale and sale of the repurposed cartridges infringed its patent. Calidad argued that it was the beneficiary of an implied licence from Seiko to deal with the cartridges, arising from Seiko’s sale of the cartridges on the open market, which would allow Calidad the right to use, maintain, import, export, resell or otherwise dispose of the product.

Seiko submitted that its printer cartridges have inbuilt technical limitations imposed by the memory chip so that any implied licence was ‘restricted’ and gave notice to the purchaser. The judge did not agree with this proposition and noted that Seiko could have elected to provide express and visual wording of the restrictive conditions but chose not to. Nonetheless, for some cartridges, the modifications employed in restoring the cartridge for re-use were considered to terminate the implied licence and therefore these cartridges were found to infringe.

Second court action - full Federal Court appeal

Unsurprisingly, as neither party were clear winners, the case was appealed. Here the court found Calidad’s importation, offer for sale and sale of repurposed cartridges, regardless of the manner of modification used, infringed Seiko’s patent.

In Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115 (5 July 2019) the Full Federal Court noted that the primary judge asked the wrong question – that of whether the implied licence still applied in view of the modification. Rather, the question to be addressed was whether the modifications were outside the scope of any implied licence. It was held that the modifications extended beyond mere repair and instead brought into existence a new article, i.e. making of a product, the exclusive right of the patentee. Such modifications were found to be outside the scope of any implied licence and thus an infringement.

Third court action - High Court of Australia

In Australia, the final appellate court is the High Court of Australia. Special leave of the court is required before an appeal is heard. There are relatively few cases for which special leave is granted. Tellingly, the court rarely grants special leave for patent cases.

This case has proven to be an exception as special leave was granted in late 2019. In doing so, it is apparent that the High Court considers it appropriate to provide clear guidance around exhaustion of patent rights and the right of repair. A review of the transcript of the special leave application does provide some insight as to the possible outcomes of the appeal. For example, it is open to the court to decide that the US Supreme Court in its Lexmark decision is the correct position in Australian law.

In Lexmark (Impression Products Inc. v. Lexmark International, Inc. 137 S. Ct. 1523 (2017)), the US Supreme Court considered a near identical dispute in which Impression purchased used Lexmark cartridges, refilling and repackaging the spent cartridges for subsequent sale. The US Supreme Court found the sale of the refilled cartridges did not infringe Lexmark’s patents as the rights were exhausted at first sale and that, when considering whether a patentee’s rights are exhausted: “restrictions and location are irrelevant; what matters is the patentee’s decision to make a sale”.

Importantly, we think it is an opportunity for the High Court to recognise the importance of waste reduction and product design that permits product reuse. The Seiko Epson cartridges, prior to the Ninestar modifications, were not designed for reuse. In fact, nowhere in patent 2009233643 is there anything to suggest how the cartridges could be reused.

Consequently, in considering the construction of claim 1, it could be argued that the true scope of “A printing material container…” is “A non-reusable printing material container…” because that is all that is enabled by specification. Whilst it could be said that the technical contribution of the patent is the arrangement of the contacts, the same cannot be said for the reuse modifications.

Given that Seiko Epson made no technical contribution on the reuse modifications, it seems somewhat disingenuous to now expect the court to condone wasteful design practices and find patent infringement, which on our construction of claim 1, should not exist.

Society is objectively moving towards products that are capable of repair and/or reuse. Innovators that are aligned with this objective are to be encouraged in their patenting activities.

At this time, the High Court has a pivotal role to play in ensuring the patent system is in harmony with this societal objective.