Patent Exhaustion in Japan &
Impression v. Lexmark
I.
Patent Exhaustion in
In July 1997, the
Japanese Supreme Court ruled[1]
that a patent is considered to be exhausted domestically when a patentee or
rights holder transfers the patented invention or product (hereinafter, simply
referred to as the “patented product” or the “product”) in Japan. This ensures
the smooth distribution of the patented product in
However, the
situation regarding international patent exhaustion is less clear. The Japanese Supreme Court ruled[2]
that a domestic patent right is exhausted for a rights holder in Japan who
assigns their patented product to another person outside of Japan, unless the
assignee has agreed to not sell or use the product in Japan. While it is
understood that by assigning a product to the assignee, the patentee is
relinquishing the right to wholly control the product, patentees often wish to
retain enforcement of their patent(s) in Japan even if the patented product is
assigned elsewhere in the world. If the assignee agrees that Japan is to be
excluded as a point of sale or use of the product (and this should be indicated
on the product itself or on the packaging and/or manual accompanying the
product), a subsequent assignee would be aware of this and would be free to
determine whether to purchase the patented product based thereon. This was
considered to be limited to assignees which were subsidiaries or companies
affiliated with the patentee.
Thus, unless an
agreement to not import the patented product into
The act of
refilling the plastic housing of a disposable camera with either film and/or
batteries [Konica Camera Case (June 6, 2000, Tokyo District
Court, p. 175, No. 1712, Hanrei jihou)] was deemed to be a case in which the patent
right was not exhausted. While it was noted that once the original product is available
in the market, the assignee has the right to use the product for its intended
purpose(s), but the assignee is not granted an unqualified or unlimited license
to use and reassign the product as the assignee sees fit. The addition of new film and/or
batteries to the disposable camera was deemed to be beyond the scope of
activity predicted by the rights holder and thus, the Utility Model and Design
Model rights were not exhausted in this case.
In a case similar
to the Konica Case, Fujifilm (August 31, 2000 Tokyo District Court) found that the
right to use and reassign a product may be transferred to an assignee based on
the concept that the function of the product does not change. In this case, the IP right is not
exhausted even after the function of the product has ceased (in this case, the
camera has run out of film), as the camera is not supposed to be/cannot be
properly used after the function has ceased. If a third party was to replace
the film (an essential part) and a non-equivalent product is produced, the IP
right would also not be exhausted. Extending the lifespan by the replacement of
a part that is relatively short-lived relative to the product’s anticipated
lifespan is within the realm of what constitutes a repair or replacement.
In a case involving a
pharmaceutical composition (November 29, 2001 Tokyo High Court, p.89, No.1779,
Hanrei Jihou)), the Acyclovir contained in a pharmaceutical composition was
extracted, and then formulated as a new pharmaceutical composition containing the
extracted, but otherwise unmodified Acyclovir. This case is clearly different from the
Fujifilm case, as the function of the product was not depleted, nor was the
essential part replaced. The court held that as no manufacturing process
resulting in a chemical reaction producing a new form of Acyclovir. The
existing product had merely been purified and reconstituted, and no new product
was produced, thus, there was no infringement as the patent right had been
exhausted.
In the Brother ink ribbon case,
a separate company actively refilled and sold replacement
ink ribbons and sold the replacements in boxes that included trademarked logos
belonging to Brother, but indicated that the replacement ink ribbons were from
the separate company. The Tokyo District Court (HEI-15 (Wa)
29488) and Tokyo High Court[3]
ruled that such sale by the separate company of recycled goods derived from
Brother products was deemed to be a non-trademark use of the Brother mark. It
was deemed that the use of the Brother mark was to let consumers know that the
recycled product is compatible with Brother’s printers and products.
In 2007, Canon’s
injunction against Recycle Assist, a third-party importer of Canon’s printer
ink cartridges, was upheld by the Japanese Supreme Court. The Japanese Supreme
Court ruled4 that Canon’s printer ink
cartridge was a single-use product, thus, the modification by a third-party
constituted the recovery of the initial function of the product and hence,
would restore the initial patent claims. While it is a common practice for a
company and/or an assignee to attempt to extend the operating life of a
purchased or licensed patented product through repairs and installation of new
components, a grey-area existed in the law regarding recycling of components for
which the original function has ceased due to exhaustion of a critical or
essential component.
The
remanufactured product (new product) may be different (non-identical) from the original
patented product, and numerous criteria such as the properties, state, materials
used and content of the product, the modification (and methods to undertake the
modification) to the original patented product, etc., should be excogitated in
order to determine whether the modified product in question qualifies as a new
patented product.
If the patentee
had assigned the original patented product to be sold in a country other than
In the case of
the Canon printer ink cartridge, it was deemed5
that Recycle Assist had, by refilling ink into the cartridge, allowed for the
recovery of the cartridge’s function.
Therefore, the effect of the patented product was also recovered, and
the patent right could be enforced by the patentee. The refilling of ink into
the cartridge was deemed to be in excess of the simple replacement of a
battery, filter or other short-lived component of the patented product, which
would be a reasonable repair or recycling necessary so that the patented
product could realize the full lifetime of expected use.
In summary, the
Canon case determined that while assignment in Japan will lead to patent
exhaustion, in the case where the assignment is made for sale and/or use in
another country, it must be considered as to whether the patented product has
been modified and/or the essential element(s) have been replaced, thereby
resulting in a completely new patented product. Essentially, the act of
refilling an ink tank is not considered to be a step of (re)manufacturing, and
thus, there is no infringement.
However, refilling does constitute replacing or reprocessing of an
essential part of the patented product, and thus, there may be infringement.
Whether the
action of assignee constitutes (re)manufacturing would be determined based on
the function, purpose, lifespan, and materials used in order to restore the
function of the patented product. The patentee can also take steps to limit the
scope of what may constitute reasonable recycling (no infringement) through
notices, labels, and descriptions on the product website and/or the packaging
or in the accompanying manual stating that the patented product is “one use” or
“disposable”. The patentee may suggest on the product website and/or the
packaging or in the accompanying manual that customers purchase a “new”
patented product when the previously purchased patented product reaches the end
of its service life.
The issue of
patent exhaustion is quite far from being conclusively settled, not only in
Two topics which are
currently being debated with regards to patent exhaustion are summarized below.
1) The
patentee/rights owner expects to receive full value of the patented product
upon assignment of the patented product.
If the value has been received, then the patent should be deemed as
being exhausted in regards to the assigned product. However, it has been deemed
that replacing and/or reprocessing for reuse after the function has ceased (functionally
depleted) constitutes infringement, as a manufacturing step is involved resulting
in a non-identical invention or product.
2) What constitutes
allowable repairs and what constitutes impermissible (re)manufacturing
(infringement)? If the patentee/rights owner explicitly granted permission for the
assignee or consumer to conduct activities deemed to be (re)manufacturing, then
there is no infringement.
II.
Impression Products Inc. v. Lexmark International Inc.
On May 30, 2017, the United
States Supreme Court handed down a decision in the Impression Products Inc. v.
Lexmark International Inc. case (
According to the ruling, the
sale of a product exhausts any and all patent rights originally protecting the
product. Even if the patentee
attempts to restrict the location where the sale may take place, the sale of
the product exhausts the patent rights both domestically and internationally (following
Kirtsaeng v. John Wiley & Sons, Inc., 568 U.S. 519).
It was the opinion of Judge
Roberts that “…the sale transfers the right to use, sell, or import because
those are the rights that come with ownership, and the buyer is free and clear…because
there is no exclusionary right left to enforce”. Judge Robert’s decision seems
guided by the fundamental principles of property rights, essentially stating
that once a sale is completed and compensation has been obtained by the
patentee, the patent right is exhausted and the purchaser is free to do as they
wish with the product (following the first sale doctrine).
For Lexmark International
Inc., this decision means that the company does not retain patent rights for
their printer ink cartridges which were previously sold, even if Lexmark
attempted to impose a one-use only restriction or prevent the resale of the
product. The original sale of the cartridge exhausts the patent and if Lexmark
wishes to retain some rights, that is a contractual or licensing issue between
Lexmark and those who purchase their products. In short, the patent right is
exhausted, but a licensing agreement is not exhausted by the sale of a product.
With regards to the
importation into the
Implications
for International Trade
In third-world nations, American
and EU pharmaceutical firms tend to sell their products at lower prices than they
do domestically. According to the Lexmark
decision, there is no longer a distinction between a domestic and an
international sale in terms of patent exhaustion, thus, some pharmaceutical
firms see the Lexmark decision as opening up the floodgates for third parties to
(re-)import pharmaceuticals manufactured and/or purchased overseas, for
example, into the United States at prices far lower than the same
pharmaceutical purchased domestically. This may have the effect of limiting the
differences in the terms (for example, the cost) at which the same product is
sold in different countries.
Implications
for
As the Japanese
courts have also been grappling with the issue of patent exhaustion, the
Impression Products Inc. v. Lexmark International Inc. case and fall-out
resulting therefrom may influence future decisions regarding similar cases in
[1] BBS Case. Case
No. Heisei, 7(o)1988, Collected Civil Cases vol. 51, sec. 6, p. 2299 (July 1,
1997)
[2] Id
[3]
4 Case No. Heisei 18(jyu)826
(November 8, 2007)
5 Tokyo High Court, 31 January 2006, in: IIC 37 (2006) 867 “Canon Ink Jet”