Seiko Epson Corporation (‘Seiko’) manufactured ink cartridges for printers, selling them under the name Epson. Seiko held two patents (“the patents”) for the inventions relating to the Epson cartridges. A third party obtained the cartridges and modified them to make them reusable and the modified cartridges were subsequently acquired by Calidad Pty Ltd (‘Calidad’) and imported into Australia for sale. Seiko considered this to be an infringement of the patents, and brought infringement proceedings against Calidad in accordance with section 13(1) of the Act, 2.
At trial, the Primary Judge reviewed the doctrine of implied licence that states that when a patented product is sold with the consent of the patentee, it provides an implied licence to the purchaser to use the product as they see fit. However, the Primary Judge held that the modifications which were made to the original Epson cartridges had extinguished the implied licence for Calidad to use and sell the patented product and therefore, infringement of the patents was found.
On appeal, the Full Federal Court found that the modifications did not fall within the scope of the implied licence and therefore Calidad had infringed the patents. Calidad appealed to the High Court arguing that the exhaustion doctrine should have been applied instead of the doctrine of implied licence. The exhaustion doctrine is defined as the principle that a patentee’s rights to use and sell a patented product are ‘exhausted’ after those products are sold without any restrictions on how they should be used.
The High Court agreed with Calidad that the exhaustion doctrine should be applied instead of the implied licence doctrine, and on this basis, found that Calidad’s actions did not constitute infringement of the patents.
This decision illustrates the distinct differences between the doctrines of implied licence and exhaustion, noting that the latter coincides with the notion of ensuring market economy efficacy under section 2A of the Act.3 In particular, whereas the doctrine of implied licence assumes that patentee’s rights survive the sale of patented products and is enforced through common sense rather than common law, the exhaustion doctrine assumes that the patentee’s rights do not survive sale of the patented product and are exhausted after the first sale.
The key takeaway of the High Court’s decision is that a patentee’s monopoly rights in relation to a patented product are now governed by the exhaustion doctrine, replacing the previously applied implied licence doctrine.
1 Patents Act 1990 (Cth) s 13(1).
3 Ibid s 2A.