The relevant facts within which the questions in issue arise
18 I will attempt to synthesise the material findings of fact as much as possible.
19 Seiko, the first respondent, is a manufacturing company which sells printer products including printer cartridges (including cartridges for inkjet printers) under the trade mark "Epson". It sells or authorises the sale of these printer cartridges (described by the primary judge as the "original Epson cartridges") worldwide. The original Epson cartridges embody the invention claimed in two patents in suit described as the "643 patent" and the "239 patent". Eleven different types of original Epson cartridges are relevant to the proceedings. Each cartridge is compatible with one or more Seiko printers. When the ink in an ink cartridge runs out, the cartridge must be replaced. Seiko has a worldwide business that supplies replacement cartridges for its printers: PJ at [1] and [3].
20 Ninestar Image (Malaysia) SDN BHD ("Ninestar") is one of the world's largest manufacturers of generic printer consumables which includes toner and inkjet printer cartridges. It has been operating for over 13 years and supplies products to over 100 countries. Ninestar, for a fee, obtains used original Epson cartridges from third party suppliers who have collected them. The primary judge observes that it is unclear on the evidence whether the third party suppliers acquired the cartridges from the original consumers of the original Epson cartridges or otherwise obtained them. The primary judge found it likely that a portion of the original Epson cartridges have been sold or given, by the original consumers, to third party suppliers and that otherwise the used original Epson cartridges have come into the hands of third party suppliers by a variety of means including "perhaps, collection from recycling facilities": PJ at [67]. Ninestar's products include Epson printer cartridges originally sold by Seiko and which, once used and discarded by the customer, are collected (by whatever means) and restored by Ninestar to working condition. Ninestar also restores cartridges originally made by other original equipment manufacturers including HP, Canon, Brother, Lexmark and Dell: PJ at [64].
21 Ninestar has modified 11 different original Epson cartridges used and discarded by a Seiko customer to produce five different products imported into Australia and sold by Calidad Distributors Pty Ltd ("CDP"), the third appellant. CDP operates a business that competes with Seiko in the supply of replacement cartridges for Seiko's printers in Australia. CDP sells five different restored cartridges described as the Calidad cartridges. They are the 250 cartridges; the 253 cartridges; the 258 cartridges; the 260H cartridges (high capacity volume); and the 260S cartridges (standard capacity volume). These products are promoted in Australia as "remanufactured Epson cartridges": PJ at [3], [70] and [71].
22 Eleven different original Epson cartridges were modified by Ninestar to produce these five Calidad products. These five Calidad products are compatible with particular Epson printers sold by or with the permission of Seiko. The primary judge notes at [71] that the parties accepted that in broad terms there are four steps undertaken by or with the approval of Ninestar in the modification of the 11 original Epson cartridges so as to make these five Calidad products. The four steps are these (PJ at [71]):
(a) the preparation of the cartridge for ink refill (preparation);
(b) the refilling of the printer cartridge with ink not supplied by Seiko or with Seiko's approval (refilling processes);
(c) the replacement, reprogramming or resetting of the memory chip (memory replacement/reprogramming);
(d) the research and development work in order to make alterations to the contents of the memory chip when it is in either "normal mode" or "test mode".
23 The primary judge observes that some of the steps have changed over time for each of the Calidad cartridges and there are some variations to the steps applied to different models. In the result, although there are five Calidad products as earlier described, the proceedings addressed nine different categories of the Calidad products, each reflecting particular work performed so as to create a category of Calidad product. At [73], the primary judge sets out a table which identifies the nine categories of Calidad product. The first four categories (categories 1, 2, 3 and A) are concerned with cartridges sold after April 2016 (excluding the Calidad 260H product which was the original Epson cartridge described as T200XL), otherwise called the current products. The table as to those four categories identifies each of the steps taken to produce the particular Calidad category. The second part of the table sets out the Calidad cartridges sold by CDP before April 2016 (categories 4, 5, 6, 7 and B), otherwise called the former products. The table sets out the steps taken by Ninestar to produce each of those particular Calidad product categories. I will return to the table at [73] of the primary judgment later in these reasons.
24 There was (and remains) no dispute that each of the former and current Calidad products imported into and sold by CDP in Australia "fall within the scope of claim 1 of each patent": PJ at [4]; appellants' submissions at para 4.
25 Notwithstanding that concession, the primary judge notes at [4] that CDP contended that it had a complete answer to Seiko's allegation (and that of its exclusive distributor, Epson Australia Pty Ltd) of patent infringement. The answer was said to be that Seiko released the original Epson cartridges "on the market" and, upon their sale, Seiko authorised, or is taken to have authorised, any purchaser or subsequent owner of the cartridges to treat them as an "ordinary chattel" and that Seiko "implicitly authorised Ninestar to refill and modify the original Epson cartridges, after which Ninestar was free to sell them to Calidad who was then free to import them into Australia and sell them": PJ at [4]. That answer is said to derive from the application of Menck PC to the facts of the case. Alternatively, CDP contended that Seiko's exclusive right to exploit the invention does not include the right to prevent the owner of the patented product from repairing or refurbishing it or from having subsequent dealings in that refurbished product including importing the product into Australia for sale.
26 At [200], the primary judge set out the integers of claim 1 of the 643 patent in these terms:
200. The 643 patent has 40 claims. Claim 1 provides as follows (for convenience, integer numbers have been added):
[1] 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:
[2] a memory driven by a memory driving voltage;
[3] an electronic device driven by a higher voltage than the memory driving voltage;
[4] 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:
[5] the plurality of terminals each include a contact portion for contacting a corresponding terminal of the plurality of apparatus-side terminals,
[6] 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,
[7] 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,
[8] the first row of contact portions is longer than the second row of contact portions, and,
[9] the first row of contact portions has a first end position and a second end position at opposite ends thereof,
[10] a contact portion of the first electronic device terminal is disposed at the first end position in the first row of contact portions and
[11] a contact portion of the second electronic device terminal is disposed at the second end position in the first row of contact portions.
27 There is no dispute that if CDP makes good its contention at [25] of these reasons, that answer holds good for the claims of the 239 patent. The primary judge concluded that CDP infringed both patents in relation to the former Calidad products but not the current Calidad products. CDP appeals from the orders of the primary judge consequent upon those findings. The primary judge reached those conclusions by first identifying the legal principles to be applied in resolution of the dispute. The primary judge then isolated the questions that his Honour considered needed to be answered and then answered those questions having regard to the particular findings of fact.
28 The primary judge observed that:
(1) Section 13(1) of the Act confers an exclusive right on the patentee during the term to exploit the invention (and authorise others to do so) and that right, where the invention is a product, includes the right "to use it".
(2) The exclusive right to use a product means that upon sale (or resale) the patentee "will have continuing control of the use" of a product the subject of a patent: PJ at [81].
(3) Thus, the patentee could "impose limitations" on the buyer's use of such a product: PJ at [81]. Such a buyer could "never" consider himself or herself "entitled to all the usual incidents of ownership": PJ at [81].
(4) However, this notion of a statutory right (by reason of the scope of the grant conferred by s 13(1) of the Act) to impose limitations upon the use of a patented product creates a "tension" between the normal attributes of ownership of goods and an entitlement in the patentee to exercise continuing control over "any use" of the patented product after the point of first sale: PJ at [81].
(5) One method of resolution of this tension is a construction of the scope of the statutory grant of the term "exploit" in relation to an invention where the invention is a product (as here, and as a matter of consistency where the invention is a method or process) that exhausts all things (rights) falling within the definition of exploit (which, of course, is an inclusive definition), at the point of "first authorised sale": PJ at [82]. However, an exhaustion of rights doctrine is not part of the law of Australia.
(6) The tension is otherwise resolved according to the principles adopted in Menck PC.
29 As to those principles, the following matters should be noted.
30 The starting point is put this way in Menck PC at 22:
To begin with, the general principle, that is to say, the principle applicable to ordinary goods bought and sold, is not here in question. The owner may use and dispose of these as he thinks fit. He may have made a certain contract with the person from whom he bought, and to such a contract he must answer.
[emphasis added]
31 However, a buyer simply in his or her "capacity as owner" is not bound by any restrictions in regard to the use or sale of the goods "and it is out of the question to suggest [as Isaacs J suggests] that restrictive conditions run with the goods": Menck PC at 22. Further, "[i]t would be contrary to the public interest and to the security of trade, as well as to the familiar rights attaching to ordinary ownership, if any other principle applied": Menck PC at 22. The "real point of difficulty" is the "enforcement of that principle" without impinging upon the grant by the State of a right of property in the form of a patent monopoly "to make, use, exercise, and vend the invention … in such manner as to him seems meet". This point of difficulty is described in this way:
This is, of course, with reference to the grant of the right as a sole right, that is to say, put negatively, with a power to exclude all others from the right of production, etc, of the patented article, and also with reference to the imposition of conditions in the transactions of making, using and vending, which are necessarily an exception by Statute to the rules ordinarily prevailing: Menck PC at 22.
[emphasis added]
32 The "doctrine" (adopted by Isaacs J and (probably) Higgins J in Menck HC in rejecting the majority view of an exhaustion of rights), to the effect that conditions imposed on the buyer by the patentee run with the goods would, if adopted, effect a radical change in the law of personal property: Menck PC at 23 and 24.
33 However, if the restriction upon alienation, use or otherwise of the goods purchased arises from the fact that the person has become the owner "with the knowledge brought home to him of the limitation of his rights of alienation or otherwise" [emphasis added], then "there seems to be no radical change whatever". Such limitations "are merely the respect paid and the effect given to those conditions of transfer of the patented article which the law, laid down by Statute, gave the original patentee a power to impose" [emphasis added]: Menck PC at 24.
34 These principles were said (Menck PC at 24) to "harmonize" the rights of the patentee with the rights of the owner. One of those harmonizing principles is put this way (Menck PC at 24):
[W]here a patented article has been acquired by sale, much, if not all, may be implied as to the consent of the licensee to an undisturbed and unrestricted use thereof. In short, such a sale negatives in the ordinary case the imposition of conditions and the bringing home to the knowledge of the owner of the patented goods that restrictions are laid upon him [or her].
[emphasis added]
35 These harmonized principles are restated in this way (Menck PC at 28):
In their Lordships' opinion, it is thus demonstrated by a clear course of authority, first, that it is open to the licensee, by virtue of his statutory monopoly, to make a sale sub modo [without restrictive conditions], or accompanied by restrictive conditions which would not apply in the case of ordinary chattels; secondly, that the imposition of these conditions in the case of a sale is not presumed, but, on the contrary, a sale having occurred, the presumption is that the full right of ownership was meant to be vested in the purchaser; while thirdly, the owner's rights in a patented chattel will be limited if there is brought home to him the knowledge of conditions imposed, by the patentee or those representing the patentee, upon him at the time of sale.
36 The reference in that passage to "a clear course of authority" is a reference to the observations of the Lord Chancellor, Lord Hatherley, in Betts v Willmott (1871) L.R. 6 Ch. App., 239 at 245. That case concerned a circumstance where a patentee had a manufacturing facility in England and in France. The defendant sold in England a product embodying the integers of the patent. The product had not been manufactured by the patentee in England and the patentee could not prove that the product was not made in the patentee's facility in France. If made in the patentee's facility in France, could it be sold in England? Lord Hatherley L.C. said this at 245:
[W]here a man [or woman] carries on the two manufactories himself, and himself disposes of the article abroad, unless it can be shewn, not that there is some clear injunction to his agents, but that there is some clear communication to the party to whom the article is sold, I apprehend that, inasmuch as he has the right of vending the goods in France or Belgium or England, or in any other quarter of the globe, he transfers with the goods necessarily the licence to use them wherever the purchaser pleases. When a man [or woman] has purchased an article he [or she] expects to have the control of it, and there must be some clear and explicit agreement to the contrary to justify the vendor in saying that he has not given the purchaser his licence to sell the article, or to use it wherever he pleases as against himself. He cannot use it against a previous assignee of the patent, but he can use it against the person who himself is proprietor of the patent, and has the power of conferring a complete right on him by the sale of the article.
[emphasis in bold added]
37 It is also a reference (at Menck PC at 25 and 26) to the remarks of Cotton LJ in Société Anonyme des Manufactures de Glaces v Tilghman's Patent Sand Blast Co. (1883) 25 Ch. D., 1 at 9 ("Tilghman's case") in these terms:
When an article is sold without any restriction on the buyer, whether it is manufactured under one or the other patent, that, in my opinion, as against the vendor gives the purchaser an absolute right to deal with that which he so buys in any way he thinks fit, and of course that includes selling in any country where there is a patent in the possession of and owned by the vendor.
[emphasis added]
38 As to the power to impose restrictions on the use of a patented article, the following remarks of Wills J in Incandescent Gas Light Co. Ltd v Cantelo 12 RPC 262 also formed part of that line of authority mentioned in Menck PC at 28:
The sale of a patented article carries with it the right to use it in any way that the purchaser chooses to use it, unless he knows of restrictions. Of course, if he knows of restrictions, and they are brought to his mind at the time of the sale, he is bound by them. He is bound by them on this principle: the patentee has the sole right of using and selling the articles, and he may prevent anybody from dealing with them at all, inasmuch as he has the right to prevent people from using them, or dealing in them at all, he has the right to do the lesser thing, that is to say, to impose his own conditions. It does not matter how unreasonable or how absurd the conditions are. It does not matter what they are if he says at the time when the purchaser proposes to buy, or the person to take a licence, "Mind, I only give you this licence on this condition", and the purchaser is free to take it or leave it as he likes. If he takes it, he must be bound by the condition.
[emphasis added]
39 The following observations of Dowsett J in Austshade Pty Ltd v Boss Shade Pty Ltd (2016) 118 IPR 93 at [80] are, in my respectful view, a useful distillation of the principles derived from Menck PC. There are three propositions identified by his Honour.
40 The first proposition is this:
• [T]he principle applicable to ordinary goods bought and sold is that the owner may use and dispose of those goods as he or she thinks fit. Notwithstanding any agreement which such owner may have made with the person from whom he or she bought the goods (by which he or she is bound contractually), he or she is not bound, in his or her capacity as owner, by any restrictions concerning the use or sale of the goods. Hence it is, "out of the question" to suggest that any such restrictive conditions run with the goods. The rights of an intermediate owner in that "capacity" are to be distinguished from the contractual arrangements which may bind him or her in dealing with the person from whom the goods were acquired. The point is that the intermediate owner may give to his or her purchaser, good title to the goods, notwithstanding any contractual restriction imposed upon the intermediate owner at the time of his or her acquisition of the goods.
41 The second proposition is this:
• [T]he general doctrine of absolute freedom in the disposal of chattels of an ordinary kind is, in the case of patented chattels, subject to the restriction that the person purchasing them, having knowledge of the conditions attached by the patentee, which knowledge is clearly brought home to him at the time of sale, is bound by that knowledge and accepts the situation of ownership subject to the limitations. In other words, a patentee may bind the power of a purchaser to deal with the goods, but such limitation will only bind a subsequent purchaser from that purchaser if the former has, at the time or purchase, actual knowledge of the limitations.
42 The third proposition is this:
• [I]n the case of such a resale, it is not presumed that conditions imposed on the vendor by the patentee will bind the subsequent purchaser. Rather, the sale will be presumed to have vested the full right of ownership in the subsequent purchaser unless the conditions imposed by the patentee have been brought home to him or her at the time of sale. Hence it is not sufficient that the ultimate purchaser may know of the patent and its application to the goods acquired. There must be actual knowledge of the limitations imposed by the patentee at the time of the first sale.
43 In Time-Life at 541, Gibbs J thought it odd to describe the sale of an article as importing a licence in the buyer to use it. It seemed to his Honour "a misuse of words" to say that a person who sells an article consents to its being used "in any way that the buyer wishes". However, his Honour also observed that the statement that a patentee who sells a patented article gives the buyer his licence to use it has often been repeated by distinguished judges and that Menck PC affirms that the consent or licence of the patentee to use an article might be implied from the sale of the patented article. His Honour at 541-542 also regarded the following statement of Buckley J in Badische Anilin und Soda Fabrik v Isler [1906] 1 Ch. 605 at 610 as "a correct statement of the patent law":
If a patentee sells the patented article to a purchaser and the purchaser uses it, he, of course, does not infringe. But why? By reason of the fact that the law implies from the sale a licence given by the patentee to the purchaser to use that which he has bought. In the absence of condition this implied licence is a licence to use or sell or deal with the goods as the purchaser pleases: Thomas v Hunt; Betts v Willmott. If the patentee sells, imposing no restriction or condition upon his purchaser at the time of sale, he cannot impose a condition subsequently by delivery of the goods with a condition indorsed upon them. … Unless the purchaser knows of the condition at the time of purchase and buys subject to the condition, he has the benefit of an implied licence to use free from condition.
[emphasis added]
[citations omitted]
44 In Time-Life, Stephen J at 549 regarded the principles derived from Betts v Willmott and Tilghman's case (as explained in Menck PC) as being:
… confined to the quite special case of the sale by a patentee of patented goods and as turning upon the unique ability which the law confers upon patentees of imposing restrictions upon what use may after sale be made of those goods. If the patentee, having this ability, chooses not to exercise it and sells without imposing any such restrictions, the purchaser and any successors in title may then do as they will with the goods, for they are then in no different position from any purchaser of unpatented goods. But, to ensure that consequence despite the existence, albeit in the instance unexercised, of this power on the patentee's part, the law treats the sale 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. A sale of goods manufactured under patent is thus a transaction of a unique kind because of the special nature of the monopoly accorded to the patentee; the licence, whether absolute or qualified, which arises upon such a sale is attributable to the existence and character of that monopoly. Absent that monopoly, peculiar to patents, there is no occasion for any licence.
[emphasis added]
45 Before turning to the way in which the primary judge framed the questions to be answered in resolving the controversy at trial, it is necessary to note some features of the original Epson cartridges as sold by Seiko (or its agents or its exclusive distributor) and some aspects of the facts.
46 The original 11 Epson cartridges contained an "integrated circuit" (otherwise generally described as a "chip") mounted on or connected to an "integrated circuit board": PJ at [46]. One of the things a user (consumer) wants to know when using an inkjet printer and a printer cartridge is the progressive use of ink from the cartridge. Typically, the printer has a number of sensors to detect whether the cartridge is installed; the ink level in the cartridge; whether paper is in the tray; whether a paper jam has occurred etc. Typically, at the priority date (and as at the trial date) the common way to store information about the remaining level of ink in a printer cartridge was by means of an integrated circuit on the printer cartridge itself: PJ at [37].
47 Integrated circuits (of varying kinds) are commonly interchangeably called "chips". They are simply a collection of electronic components arranged on semi-conductor material (typically silicon) so as to enable the circuit to control the flow of one or more electrical currents through the circuit to express some particular functionality. These integrated circuits called, relevantly, EEPROMs enable the stable storing of data ("non-volatile memory family" of integrated circuits) even when the power source to them is switched off. Storing information about the volume or level of ink contained in a cartridge in the memory in the integrated circuit on the cartridge itself allows a range of cartridges to be used (containing a small, medium or large volume of ink) interchangeably on the same printer. However, the only function of the memory on the printer cartridge is to store information and communicate it to the main processor in the computer when prompted. Storing information about ink levels on an integrated circuit (EPPROM) on a printer cartridge requires a communication protocol to be established between the cartridge EPPROM and the main processor in the printer. The instructions over a data line between the processor and the integrated circuit on the cartridge enables the processor to read the binary values stored on the chip on the cartridge. Similarly, the processor can "write data" to the memory chip on the cartridge over a data line by causing a "charge pattern" to be altered by changing the binary values (011010, for example) stored in the integrated circuit on the cartridge.
48 The particular relevance of these communications between the printer processor and the integrated circuit on the cartridge is that once the ink reservoir in the cartridge is below a threshold level, firmware in the processor will recognise the level and prevent the printer from printing the print job. The printer processor will not allow the print task to occur until an ink cartridge is installed whose integrated circuit (containing the relevant sequence of binary charges) affirms, to the processor, a level of ink in the cartridge to enable the print job to be completed: PJ at [44].
49 The primary judge (at [44]) observes that:
This means that, even if the ink cartridge is refilled, if the data stored on the memory on the cartridge still indicates an inadequate ink level, the main processor will recognise the ink cartridge as empty and will prevent the print job from occurring.
50 And at [45] the primary judge observes that:
In addition to storing binary code about the ink levels, the memory on the cartridge may also have fields that relate to other information that is communicated to and interpreted by the main processor in a similar manner to that described above. This could include, for example, the type of ink, the colour of ink, the brand of the cartridge, the date of manufacture etc. The memory could also contain a field relating to the serial number of the cartridge, which would enable the main processor to determine when a cartridge has been changed.
51 Returning to the Seiko Epson cartridges specifically, each of the 11 original cartridges contain an integrated circuit (chip) connected to a circuit board although different models have different chips resulting in differing compatibility between printers and cartridges: PJ at [46]. Original Epson cartridges are designed so that a compatible printer is able to read and process data in the chip. The chip stores data such as "volume of ink, the cartridge, date of manufacture and model number": PJ at [47]. Each chip is comprised of an array of individual memory cells each storing a single binary "bit" of information (0 or 1) at a unique location on the chip determined according to the state of the electrical charge according to the absence (binary bit, 1) or the presence (binary bit, 0) of electrons: PJ at [50].
52 When an Epson cartridge is in operation in a printer, the cartridge chip is in "normal mode". After manufacture, the chip is operated in "test mode": PJ at [51]. The primary judge observes at [62] that ultimately the parties were not in substantial dispute about the sequence of steps taken by Ninestar to modify the Epson cartridges. The particular steps taken in relation to the relevant original Epson cartridge to bring into existence each category of Calidad product (the current products: categories 1, 2, 3 and A); the former products: categories 4, 5, 6, 7 and B) are described in detail in the reasons of the primary judge. It is not necessary to set out all of the detail of that analysis here. These things, however, should be noted.
53 As already mentioned, Ninestar "obtains" "used original Epson cartridges" (originally sold by Seiko or its agents) from third party suppliers: PJ at [67]. Those suppliers have either "collected them" by acquiring them from the "original consumers" (original users of the patented product) "or otherwise" (perhaps from recycling bins). The primary judge found that at least some of the original cartridges were sold or given to third party suppliers by those consumers. Some may have been collected from recycling bins. When Ninestar acquires them, the information stored in the memory chip on each cartridge records that the cartridge is "used". Placing the cartridge (with memory cells storing a sequence of 0s and 1s in a charge arrangement determined by interactions between the processor and the cartridge's integrated circuit during the working life of the original Epson cartridge), in a compatible printer, will result in the memory chip in the cartridge telling the printer processor that the cartridge is "empty": PJ at [68].
54 At this point, the printer cartridge, as manufactured, as a product embodying the "invention" exhibiting all of the integers of each patent in suit, has reached the end of its useful life. It is a spent force, as compared with the state of the cartridge during its working life as an original Epson cartridge. The cartridge chip tells its symbiotic printer that it can no longer do its job of providing a reservoir of ink for transmission onto a page to produce the image or text that the consumer wants the printer to produce and the chip in the cartridge disables the printer from performing the print function.
55 Nevertheless, the cartridge, exhausted of ink, remains a "printing material container" adapted to be attached to a printing apparatus as contemplated by integer 1 of each patent and it continues to exhibit each of the integers 2 to 11 as set out at [26] of these reasons. Because it is exhausted of ink, it is no longer capable, notwithstanding the presence of all of the integers of the claims, of enabling the printing function of the processor.
56 However, the cartridge, discarded or sold by the original consumer, once gathered in by Ninestar, is subjected to the steps generally described at [22] of these reasons. Put simply, Ninestar "prepares" the cartridge so as to enable it to be refilled with ink by doing particular things to the physical cartridge/container. It then refills the cartridge with ink not supplied by Seiko or its agents. It then either replaces the memory chip on the cartridge (storing the digital arrangement of bits reading "empty") with a new chip or it resets the existing chip to enable it to function in "normal mode" with refilled ink. It then operates the cartridge in "test mode" and "normal mode" to be satisfied of the alterations made, or to be made, to the content of the memory chip to enable it to operate in either mode (a "research and development" step).
57 All of this results in "a repurposing" of the original cartridge to enable it, in its repurposed form, to function in a way that exhibits each of the integers of the two patents set out at [26] of these reasons even though it may also exhibit other features, as "a product", in addition to those features represented by the integers of claim 1 of each patent. In her Honour's reasons in this appeal, Jagot J has set out the table from [73] of the primary judge's reasons which identifies each Calidad product; the original Epson product from which it was derived; and a summary of the steps taken by Ninestar to "repurpose" the original cartridge so as to produce the Calidad product. Her Honour also sets out the relevant findings of the primary judge concerning the modifications made to the various categories of cartridges. It is not necessary to set those matters out again here. Jagot J also sets out the primary judge's discussion of the two patents. The primary judge recognised, of course, that the parties proceeded on the footing that there is no material difference in the disclosures in the body of the specification of the 643 patent and the 239 patent and there is no material difference between claim 1 of the 643 patent and the content of claim 1 of the 239 patent. Thus, the primary judge's discussion was confined to the 643 patent as a convenient way of describing the patent specification and the integers of claim 1 in each case. Again, it is not necessary to set those matters out here.
58 As earlier mentioned, it is common ground that the products imported into Australia, offered for sale and sold by CDP, exhibit each of the integers of claim 1 of the 643 and 239 patents. The acts of infringement relied upon by Seiko for the purposes of s 120 of the Act as an infringement of Seiko's exclusive rights conferred by s 13 are those acts of importing a product (where, as here, the invention is a product), keeping it for sale, offering it for sale and selling the product, all of which fall within the definition of "exploit" in Sch 1, for the purposes of s 13 of the Act. Calidad answers that claim by saying that Seiko sold the Epson cartridges without imposing any restrictive conditions or limitations on the use that might be made of the patented product by the buyer (or, for that matter, without imposing any restrictive limitations concerning any of the acts falling within the definition of exploit). Calidad says that no restrictive conditions or limitations were imposed on it even if Seiko imposed restrictions on its buyer. Calidad says that each of the acts of infringement relied upon by Seiko as falling within s 13 of the Act are comprehended by a licence arising upon the sale of the patented product without restriction. That licence entitles, it is said, CDP to import the article under challenge exhibiting the integers of claim 1 in both patents; to keep the article for sale; to offer it for sale; and to sell it.
59 Seiko says that a licence arising upon a sale by it or its agents of the patented product, without any restrictive conditions or limitations (although it asserts that the very configuration of the cartridge contained "inherent restrictive conditions constituting relevant limitations"), gives rise to a very limited licence in the buyer to "use" the product the subject of the patent, to resell (and probably to import it into Australia) but not to subject the product to the sequence of steps described at [22] of these reasons and also at [73] of the primary judge's reasons which, when properly examined, can only be characterised, it is said, as an act of manufacturing (otherwise called "repurposing") of the original Epson cartridge by Ninestar so as to bring into existence a new article of manufacture which, so made, exhibits all of the integers of claim 1 of each patent.
60 At that point, Ninestar is said to be exercising Seiko's s 13 exclusive right of "making" a product "in relation to the invention" (using the introductory words in the definition of exploit), exhibiting each of the claim 1 integers. Calidad is said to be infringing each patent by importing, keeping for sale, offering for sale and selling that product. Calidad also says that the various steps undertaken by Ninestar also amount to undertaking "repairs" to, or "refurbishment" of, the product sold by Seiko and those acts fall within the licence enjoyed by the buyer of the original Epson cartridge such rights not expressly withheld by Seiko at the time of sale to its buyer.
61 Calidad says that Seiko's grant of exclusive rights, in these circumstances, does not include a right to prevent Calidad from importing, keeping for sale, offering for sale and selling a repaired or refurbished product. Seiko says that the steps undertaken by Ninestar are not properly characterised as repairing or refurbishing the Seiko product and CDP's conduct of importing, keeping, offering and selling the product does not fall within the scope of any implied licence recognised by law.
62 In determining whether CDP enjoyed a licence to import for sale, keep for sale, offer for sale and sell, any of the products in the product categories set out in the table at [73] of the primary judgment, the primary judge was required by Menck PC, to answer the following questions in order to resolve the controversy between the parties.
63 First, did the patentee, Seiko, either by itself or its agents, impose or attach any restrictive conditions on the sale of the patented products in its dealings with its buyer?
64 Second, if so, what is the content of the relevant restriction?
65 Third, if so, was knowledge of the restriction "clearly brought home" to that buyer?
66 Fourth, since any restrictive condition, clearly brought home to Seiko's buyer, does not "run with the goods" and an intermediate owner may give good title to the goods to his or her buyer notwithstanding any restriction imposed on the seller, has, in fact, any restriction adopted by Seiko and clearly brought home to its buyer, also been clearly brought home to CDP?
67 Fifth, if no restriction was imposed on the sale of the patented product by Seiko or its agents, 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?
68 In my respectful opinion, the primary judge asked and answered the first four questions but asked and answered an entirely different question so far as question 5, as required by Menck PC is concerned. Rather than examine the true scope and content of any licence arising in Seiko's buyer (capable of being exercised by subsequent buyers), in all the circumstances, the primary judge examined a question of whether an implied licence was brought to an end, extinguished or terminated by the conduct of Ninestar in making modifications to the original Epson products: PJ at [164] and particularly at [178]. The question that must be answered as required by Menck PC is what exactly is the scope and content of any licence in the buyer (and subsequent buyers) arising out of the sale by the patentee or its agents of the product the subject of the invention (and thus, the claims defining the monopoly), when no limitation or restriction is imposed at the time of that sale.
69 The conduct complained of either falls within the scope of a licence or it does not.
70 In this case, the primary judge found that although Seiko might have imposed, expressly, some restrictions or limitations on the buyer of the original Epson cartridges at the point of sale, "[f]or its own reasons, it has chosen not to": PJ at [134].
71 Next, the primary judge considered whether the original Epson cartridges sold by Seiko or its agents, were sold subject to restrictive conditions imposed on the buyer built into the memory chip of each original Epson cartridge such that the "condition", deriving as a matter of inference from the physicality and functionality of the memory chip in the cartridge (and, in turn, the cartridge's relationship with the printer) is that "the original Epson cartridge is not to be used in a relevant Epson branded printer where at least one of the following circumstances applied: (a) the ink in the original Epson cartridge has dropped below a threshold level; (b) the cartridge has already been 'used' and is 'empty'; and (c) where applicable, the original Epson cartridge is not compatible with the Epson branded printer": PJ at [120].
72 Seiko contended that these restrictive "conditions" are programmed into each memory chip to give "effect" to the "restrictive conditions and physically embody them". For the reasons identified at [127] to [137], the primary judge rejected the "inherent restrictive conditions" argument. The primary judge was correct to do so.
73 Next, the primary judge found at [128] to [143] that no restrictive conditions were brought home to Calidad. The primary judge was correct to so find.
74 Having addressed those matters, the primary judge described as "the elephant remaining in the room" the "fact" of modifications having been made by Ninestar to the original Epson cartridges and Calidad's importation of the "modified products" (being the products under challenge in the principal proceeding). The question the primary judge posed was: to what extent do the modifications affect the implied licence? (PJ at [144]).
75 As to the fact of the modifications, I gratefully accept the detail of those modifications as described by Jagot J in her Honour's reasons in this appeal drawn from the findings of the primary judge and the subject of her Honour's further analysis of the modifications. It is not necessary for me to set out those matters again here.
76 As to the scope and content of any licence, the foundational principles are to be found in Menck PC as earlier identified but also in the affirmation of those principles by Gibbs J and also Stephen J notwithstanding that the discussion of the question as to the scope of an implied licence arising for the purposes of patent law, did not arise for determination in quelling a controversy between parties concerning the terms of an implied licence of a patent. The decision in Time-Life concerned questions arising in relation to the law of copyright. At the moment in time when their Honours in Time-Life were examining the notion of an implied licence so far as the patent law of the Commonwealth is concerned in order to address the argument raised by analogy to the patent law authorities, the statutory terms of the grant of rights were those determined by the Patents Act 1952 (Cth).
77 Section 13 of the Patents Act 1990 (Cth) frames the grant in terms of an exclusive right to exploit and the term "exploit", where the invention is a product, disposes of the old word "vend" and comprehends (although the identified classes of rights are expressed in inclusive terms) particular acts. They are: to make the product; to hire the product; to sell the product; to otherwise dispose of the product; to offer to make, sell, hire or otherwise dispose of the product; to use the product; to import the product; to keep the product for the purpose of "doing any of those things".
78 Those are the acts included within the term exploit in relation to "an invention" where the invention is a product. The specification for the patent application must disclose the invention in a manner which is clear enough and complete enough for the invention to be performed by a person skilled in the relevant art; disclose the best method known to the applicant of performing the invention; and end with "a claim or claims defining the invention": s 40 of the Act.
79 Thus, the "invention" is defined by the claim or claims.
80 The claim or claims defining the invention "must be clear and succinct and supported by matter disclosed in the specification": s 40(3). The claim or claims must relate to one invention only: s 40(4).
81 When s 13 of the Act grants a patentee the exclusive rights to exploit the invention (and to authorise others to do so), those exclusive rights are concerned with the invention as defined by the claim or claims and where the term "exploit" uses the phrase, "in relation to an invention, includes, where the invention is a product", the term "exploit" is contemplating an invention defined by the claim or claims relating to one invention only.
82 Where a patentee (or its agents) sells a product where the invention is that product all of the rights described at [77] of these reasons comprising the statutory grant are reserved to the patentee. The patentee, at the point of first sale of such a product, might elect to prescribe the things the buyer is able, or not able, to do with the product so purchased. The product might be sold, for example, on terms that the buyer can "use" the product but not "sell" or "hire" or "otherwise dispose of" the product or "keep it" for the purpose of doing anything other than using the product. However, in the absence of any prescription by the patentee or its agents (that is, any form of withholding) at the point of first sale, the buyer acquires a licence of the patent to exercise in relation to the product (being the expression of an invention defined by a particular claim or claims), "all of the normal rights of an owner including the right to resell" [emphasis added]. That formulation is drawn from Blanco White as a distillation of the effect of the earlier authorities including Menck PC and affirmed by Gibbs J and Stephen J in Time-Life as a correct statement of the patent law in this country: see [43] and [44] of these reasons. That right has also been described by Cotton LJ as "an absolute right to deal with that which he [or she] so buys in any way he [or she] thinks fit …": see [37] of these reasons.
83 If the scope of the patent licence implied by law is understood, consistent with Menck PC and the authorities already discussed, by reference to "all the normal rights of an owner" or the "absolute right" to deal with the product as the buyer thinks fit, that right would bring within the scope of the implied licence, rights which would fall within the statutory description of "exploit", to this extent: 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".
84 The 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.
85 Once Ninestar undertook modifications to the original Epson cartridges which are properly characterised as making an article constituting a product embodying the integers of a claim defining Seiko's invention, Ninestar stepped outside the scope of the licence. The licence did not come to an end by reason of the modifications. Nor was it discharged or repudiated by Ninestar's conduct. The scope and content of the licence simply did not comprehend an implied licence in the buyer or Ninestar or anybody else to subject the original Epson cartridges to a sequence of modifications so as to bring into existence a new article of manufacture the result of which, properly characterised, is a "making" of a product the subject of Seiko's invention defined by reference, relevantly, to claim 1 of the 643 patent and the 239 patent.
86 Calidad's entitlement to import the modified product so described above rises no higher than the limitations in the implied licence relating to Ninestar's conduct. CDP has imported into Australia for sale, kept for sale, offered for sale and sold, a product which does not fall within the scope and content of the implied licence. Calidad has thus infringed Seiko's patents. Apart from these observations, I otherwise agree with the observations of Jagot J and Yates J on the remaining questions in issue in the appeal.
87 The appeal ought to be dismissed and the cross-appeal allowed, having regard to the content of the modifications as described by Jagot J.
I certify that the preceding eighty-seven (87) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.