Center for Advanced Study & Research on Intellectual Property

 

CASRIP Newsletter - Winter 2006, Volume 13, Issue 1

Japan’s IP High Court Finds Infringement For Refilling of Ink in Recycled Ink Cartridges
Canon K.K. v. Recycle Assist K.K.[1]

By Toshiko Takenaka, Ph.D.

I. Background

On January 31, 2006, the IP High Court of Japan handed down its second en banc decision, clarifying the conditions for applying the exhaustion doctrine to a legally sold product covered by both product and process patents.  In Canon, a manufacturer (patentee) of a jet printer and ink cartridge for the printer sued a distributor, which imports and sells reconditioned cartridges, for infringement of the manufacturer’s patent claims directed to an ink tank in the cartridge and a process for filling ink in the ink tank.  These cartridges were once legally sold by the patentee.  When the customers used up ink, the cartridges were collected and shipped to Taiwan and Korea where the ink tank of the cartridge was cleaned and refilled with ink.  Therefore, the distributor did not argue that the cartridge embodies the product patent and used the process patent for refilling ink in the cartridge.  Instead, it raised a defense of exhaustion, alleging that refilling ink in the legally sold cartridge constitutes permissible repair.

A. Tokyo District Court

The Tokyo District Court examined whether the distributor’s act constituted an act of “making,” which is exclusive to the patentee, or an act of “repair,” which is within the authority of the owner of the legally sold product.[2]  In analyzing the distributor’s act of refilling, the court distinguished the act involved in the Fuji Film case[3] and found that the act did not change the essential part of the invention.  Thus, the court held that the act was a permissible repair and found no infringement.

B. IP High Court

The IP High Court reversed the district court’s non-infringement ruling.  To clarify the analytical framework and to deal with legal issues concerning recycled patented products, the court decided to hear the case en banc.  At the IP High Court, cases are usually heard by a three-judge panel.  These three judges are selected from one of four divisions in the High Court.  The en banc panel, however, consists of five judges: the president of the court and presiding judges from all four divisions. 

II. Exhaustion Analysis

Unlike the Tokyo District Court, the High Court examined the distributor’s act and considered whether the exhaustion doctrine applied.  First, the court set forth the condition to apply the doctrine that the patent product must be sold legally by the patentee or its licensee.  The court clarified the limit of the doctrine that the doctrine does not apply if: (1) the product lost its function due to being worn out; or (2) the replacement of all or any elements of the patented product, which elements constitute an essential part of the invention.  Regarding the second limitation, the Court explained that the essential part include elements recited in the claim at issue, which elements relate to the core of the technical idea for solving the unique problem of the invention.

A. Product Patent Exhaustion

The court justified these limits with respect to the patent policy underlying the exhaustion doctrine: patent rights are exhausted when the patentee obtains compensation for the disclosure of the invention through the sales of the patented product.  The doctrine prevents the patentee from obtaining double compensation for the same product, while securing the flow of patent products in the market once the products are sold.  When the product was sold, the patentee was presumed to obtain compensation for using and reselling the product.  However, the compensation does not cover using and reselling the product after the product has lost its function.  Allowing a party to use and resell the product after the product has lost its function would prevent the patentee from fulfilling a new demand in the market. 

Likewise, the patentee was not presumed to have acquired compensation for the product when the individual elements constitute an essential part of the invention and, thus, the product has become a different product from what the patentee originally sold.  Preventing the product owner from replacing and modifying such essential elements does not result in a double compensation for the patentee.  Rather, allowing the product owner replacement of all or any elements of essential parts prevents the patentee from fulfilling a new demand for the patented product.

After confirming that the cartridges were legally sold by the patentee and its licensees in Japan and other countries, the Court examined whether one of two limitations to the exhaustion doctrine should apply.  The Court found that the first limit did not apply.  Even if the tank were configured to prevent refilling of ink, the tank was reusable.  However, the court found that the second limit did apply and concluded that the product patent was not exhausted because an element of the patented ink tank, which constituted an essential part of the invention, was the interface between the two absorbents having different ink absorbing rates, which interface prevented ink from spilling out from the cartridge.  When ink was used up and the dry ink remains clogged in the absorbents, the interface no longer functioned to solve the technical problem of the invention, which was preventing ink from spilling out.  Cleaning the absorbents and refilling the ink in the tank recovered the function.  Thus, the act of refilling the ink constituted replacement of elements which were included in an essential part of the invention.

B. Process Patent Exhaustion

Regarding the process patent, the court clarified that the process patent is exhausted (1) if the product patent, which resulted from the patented process, was exhausted and the product and process patents were based on the same technical idea; or (2) if the patentee or its licensee legally sold (a) a component which has only an infringing use such as a manufacturing machine in which the patented process is used or a material or component which is only used in the patented process, or (b) a component used for the process that is essential for solving the technical problem of the invention.  Regarding (1), the Court stated that the justification for applying the exhaustion doctrine to a product patent also applies to a process patent for producing the product.  Regarding (2), the Court held that the process patent was exhausted because the patentee has a de facto exclusive right for the component under Japanese Patent Law Article 101 (indirect infringement) and, thus, is presumed to obtain compensation when the component is legally sold.

Examining the facts involved in Canon, the Court found that (1) does not apply because the product patent was not exhausted and (2) does not apply because the product claims recite ink and, thus, the cartridge filled with ink sold by the patentee and its licensee was not a component, the assignment of which would constitute indirect infringement.  Instead such assignment constituted direct infringement.

C. International Exhaustion

Finally, the High Court also addressed the issue of international exhaustion.  According to the BBS Supreme Court Decision,[4] a patent right is exhausted if a patented product was sold without a territorial restriction.  Such a restriction is enforceable against a third party who legally obtained the product only if the restriction is clearly noted on each product.  In Canon, no restriction was noted on the cartridges.  However, as explained above, the exhaustion doctrine does not apply (1) if the product lost the function due to being worn out; and (2) the replacement of all or any element of the patented product, which element constitutes an essential part of the invention.  As the Court found with respect to the domestic exhaustion of the product patent, the limit (2) prevents the product patent from being exhausted because cleaning and refilling of ink changes the essential part of the invention.

Regarding the process patent, the court stated that the same conditions for the domestic exhaustion of a process patent applied.  Because the product patent was not exhausted, the process patent was not exhausted.  Although this case does not involve a component, assignment of which constitutes indirect infringement and thus the issue is moot, the Court mentioned that further consideration is necessary to answer whether the patentee or its licensee’s sales of such a component outside Japan gives rise to a implied license for using the process patent in Japan.

In conclusion, the IP High Court found infringement and granted the patentee’s request for an injunction to stop the importation of the reconditioned cartridge.

III. Comparison to Exhaustion Doctrines in the U.S. and Germany

The majority of Japanese courts and legal commentators traditionally follow an analytical framework of examining the act of the patented product owner to determine whether the act constitutes an act of “making,” which constitutes an infringement, or a permissible act of “repair.”  However, this framework does not work well with respect to the act of using a recycled patented product without any modification.  More courts have recently adopted an analytical framework that is more inline with the United States application of the exhaustion doctrine. 

In Canon, the Tokyo District Court followed the traditional framework while the en banc IP High Court adopted the new framework, expressly rejecting the concept of “making” for analyzing an act on a legally sold patented product.  United States and Japanese exhaustion doctrines share the same policy for preventing patentees from obtaining a double recovery for the disclosure of an invention and for securing the free flow of a patented product in the market, once a patented product was sold.  An authorized assignment of a patented product exhausts the exclusive right of either U.S. or Japanese patents as to that product. 

However, there are some differences between the U.S. and Japanese doctrines.  United States’ courts do not apply the exhaustion doctrine if the patentee imposes a restriction with respect to the use of the patented product when the product was assigned,[5] although courts often find such a restriction to be unenforceable.[6]  In contrast, such a restrictive assignment does not prevent Japanese courts from applying the exhaustion doctrine.  An authorized assignment in a foreign country does not exhaust U.S. patents,[7] but does exhaust Japanese patents.[8] 

To define the scope of exhaustion, U.S. courts use the concept of the “spentness” of the patented product to distinguish permissible repair from impermissible reconstruction and accordingly limit the scope of exhaustion.[9]  In comparison, Japanese courts also use a concept similar to “spentness” by examining whether the patented product has lost its function.  They also examine the act of the patented product owner to determine if the element of the patented product changed by the owner is an essential part of the invention.  United States courts have refrained from adopting such an analysis[10] because the U.S. Supreme Court has expressly rejected a distinction between reconstruction and repair affected by whether the element of a patented product that has been replaced is an essential or distinguishing part of the invention.[11]  In short, to apply the exhaustion doctrine, Japanese courts require not only the identity of the product, but also the identity of the invention embodied in the product after the element of the product is replaced or modified.  As demonstrated by Canon, replacement of ink, which is a typical worn out part, gives rise to infringement if a claim is drafted to recite the ink as the essential part of the invention.  When ink is used up, the tank no longer solves the problem of the invention, preventing ink from spilling out from the ink tank.  Refilling ink in the ink tank to recover the function of the invention for solving the problem goes beyond the scope of exhaustion.

Japanese courts are not the only courts that find infringement with respect to the replacement of an element of the patented product, if the element is the essential part of the invention.  The German Supreme Court has adopted a similar analysis.  It refuses to apply the exhaustion doctrine if the element of the patented product that has been replaced is essential for the patented invention in that the replacement impacts the technical or economic advantage of the invention.[12]  German courts will also take into account whether the replacement of the element was expected.  In balancing the interests of the patentee and the owner of the patented product, the Court will find infringement with respect to the replacement of a measuring cup, which has a shorter life than the entire product.  However, it is not clear under German law whether the replacement of a worn part necessarily constitutes infringement if the replacement results in the recovery of technical and economical advantages of the invention since German courts may still balance the competing interests on case-by-case basis.[13]

Regarding the exhaustion of process patents, when the patented process is used to produce a product, U.S. patent rights for that process are exhausted upon an authorized sale of the product, regardless of the product and process claim being based upon the same technical idea.  United States exhaustion applies on product-by-product basis.  Furthermore, U.S. case law distinguishes the exhaustion doctrine from an implied license and applies the former only to cases involving an authorized sale of the product embodying a patented invention.[14]  An authorized sale of a non-stable component of the invention, e.g., a machine or law material only used in the patented process, which constitutes a contributory infringement, does not exhaust the exclusive right of a U.S. process patent.  Instead, such sale gives rise to an implied license if the circumstances of the sale plainly indicate that a grant of license should be inferred.[15]



[1] Judgment of IP High Court, January 31, 2006.

[2] Judgment of Tokyo District Court, Dec. 8, 2004.

[3] Judgment of Tokyo District Court, Aug. 31, 2000. English Summery by the author is available at: http://www.law.washington.edu/Casrip/Newsletter/Vol7/newsv7i3jp2.pdf

[4] Judgment of Supreme Court of Japan, July 1, 1997, 51 Minshu 2299, Harei Jiho No. 1612, 3, Hanrei Taimuzu No. 951, 105.  An English summary by the author is available at: http://www.law.washington.edu/Casrip/Newsletter/Vol4/newsv4i3jp2.html

[5] Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 702 (Fed. Cir. 1992).

[6] Jazz Photo Corp. v. Int’l Trade Comm., 264 F.3d 1094, 59 U.S.P.Q. 2d 1907 (Fed. Cir. 2001).

[7] Id.

[8] Supra note 4, Judgment of Supreme Court of Japan, July 1, 1997.

[9] Aro Mfg. Co., Inc. v. Convertible Top Replacement Co., 365 U.S. 336(1961).

[10] Sage Products, Inc. v. Devon Industries, Inc. 45 F.3d 1575, 33 USPQ2d 1765 (Fed. Cir. 1995).

[11] Dowson Chem. Co. v. Rohm & Hass Co., 448 U.S. 176, 217, 100 S. Ct. 2601, 2624, 206 USPQ 385, 405 (1980).

[12] Judgment of Federal Supreme Court of Germany, May 4 2004, 2004 GRUR 758.

[13] Niels Hölder, Contributory Patent Infringement and Exhaustion in Case of Replacement Parts – Comment on Recent Supreme Court Decision in Germany, 36 IIC 889 (2005).

[14] Glass Equip.Dev. Inc., v. Besten, Inc., 174 F.3d 1337, 50 USPQ 2d 1300 (Fed. Cir. 1999).

[15] Met-Coil Systems Corp. v. Korners Unlimited, Inc., 803 F.2d 684, 686, 231 USPQ 474, 476 (Fed. Cir. 1986).

Last updated 4/27/2012