Posts

A Final Innovative Step: Australia Plans to Phase Out Innovation Patents

On 25 July 2019, the Australian Government introduced a bill to make a number of changes to the patents system. The changes to Crown use of patents and designs and to compulsory licences will be of interest to some. But the biggest change is phasing out innovation patents, Australia’s equivalent to a second-tier patent or utility model.

Innovation patents have a lower requirement for inventiveness than standard patents, are granted without substantive examination, and have an 8-year term. This is ideal for incremental improvements which may not justify the expense of a standard patent, but still benefit from a level of protection.

This will align Australia with jurisdictions like the United States and New Zealand which do not have a second-tier patent.

The proposed law will prevent new innovation patent applications being filed. It will not affect existing innovation patents.

This follows the Australian Productivity Commission’s report in 2016 that recommended abolishing innovation patents. Their reasoning is that the innovation patent system probably does not benefit Australian SMEs.

It is not clear when (or if) the bill will be enacted. However, there is no indication that this will be a contentious bill, and it may well pass through both houses relatively quickly.

Once the law comes into force, there will be a 12-month transition period in which new innovation patents can be filed. After that, no new applications will be allowed. With the 8-year term of innovation patents, this means that the final innovation patent, and so the innovation patent system as a whole, will likely reach the end of its life in 2028.

Reducing Reuse: Australia’s Full Court Develops the Law on Refurbishing Patented Products

The Full Court has confirmed that refurbishing patented products in Australia may result in patent infringement.

The Cast

Seiko is a Japanese company which is a large player in the printer market. Seiko sold ink cartridges in Australia under the Epson brand which were covered by the claims of an Australian patent.

Ninestar is a Malaysian company who would acquire used Epson cartridges. These would be refilled with ink and have their memory updated or replaced to allow the cartridge to be reused in Epson printers.

Calidad is an Australian group of companies, which imported the refurnished cartridges from Ninestar and sold them in Australia.

The Background

Seiko asserted that Calidad’s actions in Australia infringed its Australian patents.

In 2017, the Federal Court of Australia found partly in favour of Seiko. Burley J ruled that cartridges which had the memory replaced were infringing, but those that were merely refilled were not infringing. Both parties appealed to the Full Court of the Federal Court of Australia.

The Law

The Full Court’s judgment in Calidad Pty Ltd v Seiko Epson Corporation [2019] FCAFC 115, issued on 5 July 2019, found entirely in favour of Seiko. All of Calidad’s cartridges were found to be infringing.

The Full Court confirmed that the sale of a patented product gives a third party user an implied licence to have “all the normal rights of an owner”, which includes using or selling. However, the third party user cannot rely on this implied licence to make an infringing product.

Jagot J’s position (supported by Greenwood J) was that, because Seiko sold a single-use cartridge, the implied licence could not cover multiple uses. Ninestar’s actions made the cartridge act beyond how Seiko intended, and therefore was not covered by the implied licence:

The product which Seiko sold, in the form in which it was sold, was capable of use until the memory chip showed that the ink in the container was exhausted. By re-programming the memory chip, Ninestar enabled an embodiment of the invention, which could no longer be used, to be used. It was not repairing the cartridge. The cartridge was not damaged or worn in any way. It had simply reached the end of its intended life as a printer cartridge. Ninestar, by re-programming the memory, putting a new hole in the cartridge to enable it to be re-filled with ink, re-filling the cartridge with ink, and sealing the new and the existing hole created by the original use, manufactured a new embodiment of the invention, an act which could never have been authorised by the implied licence and could never be the subject of an exhaustion of patent rights by reason of sale. Calidad, in importing those cartridges, necessarily exploited the invention and thus infringed the patents.

[177] per Jagot J.

Yates J had a slightly different reasoning. The modifications were such that Ninestar’s refurbished products could not be said to be of Seiko’s making:

The correct approach was to ask whether, in each particular category, the modifications which Ninestar made to the original Epson cartridges altered them in such a way that they were, in substance, different articles to those which Seiko had put into the market and thus into the hands of the original owners. If so, they were not the articles in respect of which Seiko, as patentee, had given the implied licence and Calidad could not rely on that licence in respect of what were, in substance, different articles.

[293] per Yates J.

Under either reasoning, Ninestar’s action went beyond the implied licence that comes attached to the sale of patented products. Calidad’s importation of these refurbished products therefore was an infringement of Seiko’s patents.

This is a more restricted implied licence than that of the primary judge’s approach. The primary judge looked at whether Ninestar’s modifications amount of material changes to the features that embodied the claimed invention, and found that merely refilling the ink and updating the existing memory was not a material change.

The Future

Any modification of a patented product which does not strictly replace damaged parts or which was not envisioned by the original seller may be an infringement of an Australian patent.

This could have a significant effect on third party repairers or modifiers, who will now need to consider whether their actions could be patent infringement.

Calidad may try to appeal this to the High Court, which would be free to depart from the earlier decisions (including the 1911 Menck decision) which the Federal Court and Full Court felt bound by. If the High Court decides to hear the appeal, the doctrine of implied licence in Australia may yet be refurnished.