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Calidad Pty Ltd v Seiko Epson Corporation

/ Kin Seong Leong / Articles

Many years ago, the great philosopher Plutarch raised the following scenario:

The ship wherein Theseus and the youth of Athens returned from Crete had thirty oars, and was preserved by the Athenians down even to the time of Demetrius Phalereus, for they took away the old planks as they decayed, putting in new and stronger timber in their places, insomuch that this ship became a standing example among the philosophers, for the logical question of things that grow; one side holding that the ship remained the same, and the other contending that it was not the same. (Plutarch, Theseus, 75AD)

In simple words, does an object that has had all of its components replaced remain fundamentally the same object? Or is it a new object? If it is a new object, what is the threshold or requirement for the object to change from the original to a new object?

The High Court of Australia has had a hand in deciding whether modifications made to an original patented product to enable its re-use have amounted to the making of a new infringing product, as we explain below.

Fast forward to 2020, and we have judges staring at printer ink cartridges. Not exactly a traditional ship of Theseus moment, but no doubt the recent High Court decision of Calidad Pty Ltd v Seiko Epson Corporation [2020] HCA 41 gives us a rare glimpse into the ship of Theseus dilemma, during which the High Court decided by slim majority, that the patent “exhaustion doctrine” should be applied instead of the “implied licence doctrine”, and that repair and modification do not create a new product.

The “exhaustion doctrine” decrees that the patentee’s exclusive rights with respect to the whole or part of a product covered by that patent are exhausted upon first sale; whereas the “implied licence doctrine” finds that an implied licence to use the product with certain implied conditions arises upon the sale of patented goods to purchaser (examples of implied conditions might be that the product cannot be sold “second hand” or that the product cannot be modified in any way for re-sale), and that the implied license continues after the first sale.

The High Court’s decision is an important one and has long-term ramifications, unless of course the Australian Parliament decides to amend the Patent Act. It is expected that the decision will set a precedent for a long time to come.

A bit on the background: Epson sells printer ink cartridges. After the ink has been used, the cartridges are discarded and replaced by a new one. Ninestar collects used cartridges and modifies them to be re-filled for re-use, and thereafter, Calidad sells the re-filled and modified cartridges. Generally, the modifications involve creating a hole in a side of a cartridge, injecting ink through the hole, sealing the hole, and modifying or replacing the memory chip of the cartridge. There are a few different versions of re-filled and modified cartridges.

In the first instance, the Primary Court found some cartridges infringed, some did not. The Court of Appeal then held that the modifications that were made were not authorised by any implied licence, and the making of the modifications amounted to a “making” of a new product or a re-making of the original. As such, all of the re-filled cartridges were held to infringe the patentee’s rights.

On further appeal to the High Court, the findings of infringement by both of the lower courts were overturned and in so doing, has changed what was previously and widely understood as the law in Australia, by creating a precedent that the “exhaustion doctrine” should apply in such circumstances.

For the time being, the question as to whether the ship of Theseus is new or not will remain a philosophical one, but that in a patent infringement case, there is a very real answer. The key take away for this High Court decision is that the “exhaustion doctrine” now applies in Australia and the repair and refurbishment industry will likely benefit, and in turn, the public will benefit as well.