Calidad Pty Ltd & Ors v Seiko Epson Corporation & Anor

[2020] HCATrans 107

[2020] HCATrans 107

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S329 of 2019

B e t w e e n -

CALIDAD PTY LTD ACN 002 758 312

First Appellant

CALIDAD HOLDINGS PTY LTD ACN 002 105 562

Second Appellant

CALIDAD DISTRIBUTORS PTY LTD ACN 060 504 234

Third Appellant

BUSHTA TRUST REG

Fourth Appellant

and

SEIKO EPSON CORPORATION

First Respondent

EPSON AUSTRALIA PTY LTD ACN 002 625 783

Second Respondent

KIEFEL CJ
BELL J
GAGELER J
KEANE J
NETTLE J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

FROM CANBERRA BY VIDEO LINK TO BRISBANE, SYDNEY AND MELBOURNE

ON WEDNESDAY, 12 AUGUST 2020, AT 9.59 AM

(Continued from 11/8/20)

Copyright in the High Court of Australia

____________________

KIEFEL CJ:   Mr Bannon, I take it that the balance of your time estimate for your oral argument can be accommodated this morning, even if Mr Shavin has to trim his reply a little?

MR BANNON:   Yes, I think I have been going for about an hour and I expect to go for about two hours to complete.  Maybe that is ‑ ‑ ‑

KIEFEL CJ:   I just did not wish you to feel rushed.  Not, of course, that you speak slowly anyway.

MR BANNON:   It sounds like it is slow from this end, but I understand what your Honour is saying.

KIEFEL CJ:   Yes.  Yes, Mr Bannon.

MR BANNON:   Could I return briefly, your Honours, to Grain Pool 202 CLR 479 for a moment, the separately provided copy, and at page 513 I referred your Honours to paragraph 83 and, in particular, the footnote, and had taken a detour from there. Could I just direct your Honours’ attention to what appears in paragraph 84 and the picking up there of Steers v Rogers across the page, which I had previously referred to.  Indeed, interestingly enough, they also pick up the US case to the same effect.  At 85 and 86 they rely on that to reject the argument run by the Attorney‑General.  So, I just wanted to draw attention to that. 

Secondly, could I go back to Menck in the High Court which is C10 in the - volume C, tab 10, and just refer your Honours to some passages in the minority judgment of Justice Isaacs commended for his process of reasoning which was accepted, we submit, by the Privy Council.  There was one point where the Privy Council did not accept Justice Isaacs – the capacity of conditions to travel with the goods without notice but otherwise his reasoning process accords with what we submit the Privy Council correctly did in terms of construing the legislation and the previous authorities and also Grain Pool, in that passage which I have taken your Honours to.

The part I wish to refer to is page 534, 287 of the bundle.  If I could do this fairly briefly by reference, at line 20 of the bundle there is a paragraph “The English cases which dealt specifically” – his Honour addresses those and lists them, then deals with some American cases, and then in the next paragraph says:

On the other hand there are some cases in America‑comparatively few and not generally followed –

I will come back to explain why he says that in relation to Bloomer when I come to a brief reference to Bloomer.  His Honour then refers to section 62, emphasises, over the top of the next page, with his own additional emphasis, the word “vend”.  In the second paragraph on page 35 he italicises, for his Honour’s own emphasis, “and no others”, and again about line 30 in the book, halfway down the page, after referring to Steers v Rogers consistently with Grain Pool, his Honour says that:

What the letters patent confer –

If your Honours can locate that:

is the right –

and again his Honour in parenthesis emphasises “exclude others”, and then picks up in Bloomer v McQuewan:

the right to exclude everyone –

I will just refer your Honours to that, and then over the page, the paragraph on 536, or 289 of the book, “But while it is perfectly true”, that paragraph, that analysis there we submit is correct.  At the top of page 537 his Honour refers to:

“the doctrine of leave and licence” -

perhaps as another way of describing the process.  Then the next passage starting with Latin, which I have forgotten.  The argument pressed there is sound, we respectfully submit.  Then at page 538 over the page, 291 of the book, there is a paragraph that commences at the bottom of the page:

The patentee may permit the manufacture and sale, and either absolutely or at stated times, or places ‑ ‑ ‑

EDELMAN J:   Mr Bannon, is that the essential or one of the fundamental distinctions between the implied licence approach and the extinction of rights approach, that if, under the implied licence approach, the patentee gives a licence only to use at stated times or places or prices, that that limited licence will bind all subsequent purchasers with notice, such as if it is stamped onto the goods or for some other reason, but under the extinction of rights approach it will not bind any subsequent purchaser even with notice?

MR BANNON:   Yes.  Part of the discussion here, over the next page at 539 where his Honour speaks about the entitlement of a patentee to impose any conditions whatsoever is a reflection – and I will come to this when I deal with the application of the principle to the particular facts – that a patentee has an absolute right once…..monopoly to exercise that right in the way it wishes.  Now, there may be other constraints.  At the time in 1903 I do not think there were too many and resale price maintenance and price fixing were at large and there were no constraints.  But today in today’s environment there are constraints which apply but perhaps ‑ ‑ ‑

EDELMAN J:   Subject to those constraints, are there any authorities or texts that have referred to or relied upon this particular distinction?

MR BANNON:   Not offhand, I cannot say there have.  We have referred to the multitude of texts which proceed on the basis of implied licence, but there is no active discussion that I can recall of the difference between this and exhaustion theory.  We venture to suggest it is because implied licence has become such an accepted part of both Australian law and UK law.  But the short answer to the question is no – I have just been given a note, the last sentence in paragraph 69 of United Wire may have something which deals with that.  Perhaps I can come to that when I have a look at that case.

So that is all I wanted to address in Justice Isaacs’ judgment.  Could I then briefly go back to Time‑Life again for a limited purpose.  Now, Time‑Life is volume C, tab 9 and I want to emphasise the language used in support of the proposition that the implied licence was one of necessity and it is no greater than it needs to be and, hence, it is particular to the particular article and, hence, the form in which that article is sold. 

Support for that comes from the following passages, inter alia, at page 540 of the decision which is 211 of the appeal book.  Justice Gibbs, I realise I elevated him to the Chief Justiceship too early yesterday a few times but as he then was, his Honour then was.  About line 30 of that, or about the middle of the page, working from the original, there is a reference to Blanco White, paragraph 3-219 and the language is:

licence under the patent to exercise in relation to that article –

and we emphasise.  Then over the page at 541, or 212, at about line 20 of the appeal book, about a third of the way down in the middle of a passage quoted from Lord Justice Cotton there is a reference to:

an absolute right to deal with that which he so buys –

we emphasise.  Then again later on the same page, at about line 38 of the book, about point 7 on the page within the paragraph commencing “These statements seem to accord”, four lines in about halfway along he refers to “the right to use the article”.  Then over the page at the very top, which is 542 native, 213 book, the first two lines, end of the first line “to use that which he has bought” and then the last reference in the same volume in Justice Stephen’s reasons at page 549 of the native, 220 of the book, about line 35, which is about point 7 of the page there is a reference to – the sentence which finishes “be made of those goods”, again the language “of those goods”.  I will come back to the significance of that in - what we say is the significance of that in due course.

Now, that was all in support of proposition 2.  If we accelerate to proposition 3 in our oral outline we refer to the implied licence as a long‑established part of Australian law.  We alert the Court to these additional references:  footnote 41 of our respondent’s submissions refers to ACCC v Pfizer, which is also referred to in her Honour Justice Jagot’s judgment at paragraph 152, a recent case in 2018 where the Full Court dealt with the important issue of a case brought by the ACCC against Pfizer in which the allegation was that Pfizer, by bundling pharmaceutical compounds to pharmacists which included its – I think the terminology in the industry - blockbuster drug Lipitor, which is a statin used to lower cholesterol, by effectively requiring, the allegation was, pharmacists who wish to get Lipitor had to buy other products which were not such great sellers, eventually not.  There was an allegation made there. 

Now, one of the defences raised in that case and it is addressed – I do not need your Honours to go to it but just to direct attention at 593 to 594 was that the conduct of Pfizer in selling its pharmaceutical compounds to the chemists, being compounds which were the subject of one or more patents, involved a grant of a licence by implication to those chemists to use and vend those pharmaceuticals. 

The Full Court accepted that that was true consistent with what we submit is well‑established authority and the argument put forward by Pfizer that it was therefore protected by the then section 51 of the Trade Practices Act, which has since been repealed - but we did send up 51(3) of the Trade Practices Act – I should say the Competition and Consumer Act, catch up with the times.  If your Honours have that, the relevant section is 51(3) which provided that:

A contravention of a provision of this Part other than section 46, 46A or 48 –

section 46, of course, being exercise of the market power, 48 resale price maintenance and 46A is, I think, another version of market power, from memory.  So, in other words the legislature is alive to addressing questions which may involve licences or conditions which may or may not offend competition law.  So, there was no protection for section 45, harking to a discussion your Honour Justice Keane had with Mr Shavin yesterday, but there was some protection, but it was of a limited sort because one looks at 43 – sorry, subsection (3) says:

shall not be taken to have been committed by reason of:

(a)the imposing of, or giving effect to, a condition of:

(i)a licence granted by the proprietor . . . of a patent –

then, skipping down to:

to the extent that the condition relates to:

(iii)    the invention –

So, in other words, it had to satisfy that condition.  Their Honours found that the – I am sorry my vision may be cutting off the top of my head, I will see if I can get that adjusted.

So the Full Court in the Pfizer Case found that there was a licence, by implication, but that that condition was not satisfied and so therefore the defence failed, but that the Trade Practices Act could apply to the implied licence is confirmed by that process of consideration and it is not limited to - and of course we know that, for example, section 45 has long been based on contracts, arrangements or understandings and implied licences would fall squarely into that and if there were conditions imposed or implicit which offended against the Trade Practices Act then they would be exposed.

Notwithstanding some of the statements suggested by my learned friend yesterday, there is no allegation in this case of any competitive conduct, there is no allegation that anything which is done is a suggested abuse of any monopoly or that there has been any market effect or even definition of “market” and the idea that there was a single market in a particular product - I think Ira Berk was the last time that was ever done in Australia and that was in dehors, perhaps, infamy of competition law because no one has ever found a single product market since.  That is by the by, but 51(3), now repealed, recognises that the legislature is alert to police anti‑competitive conduct via the Competition Act.  That is not the function of the Patents Act.

That is one additional reference to the established acceptance of the principle.  In footnote 36 of our submissions we give a reference to Concrete Constructions v Parramatta - I do not need to go to it - and we give the reference in paragraph 60 to that of Justice Gummow’s judgment, where his Honour referred to the principle as “established”. 

Could I give your Honours an additional reference just orally, and without going to it.  In 1990, this Court in Avel v Multicoin Amusements (1990) 171 CLR 88 at 98, a case in relation to copyright, the plurality referred to the implied licence principle as in the patent world, and said it appears that the implied licence concept to be a matter of “settled law”, referring to Time-Life.

We have sent up this morning the unheralded – judgment of your Honour Justice Kiefel in McHatten v Saramoa, which no doubt has passed from your Honour’s recollection.  I do not need to go to it, but at page 11 your Honour makes reference to Ricketson, a paragraph of Ricketson, which we have also sent up, which refers to the implied licence theory.  It was a case relating to a sale of a business, and the extent to which part of the business assets were sold and whether or not there was a licence to use some of those assets, which were subject to a patent, and your Honour found or accepted that inevitably there was a licence, implied licence, to use the product, the subject of the sale of business or products, based on the implied licence theory.

Now, there is nothing significant about that case per se other than as a recognition that the implied licence theory not only informs, and has been accepted by multiple courts over the years, but it actually informs actual business transactions that occur on a regular basis and has proceeded on that basis.  One will never see it and could not count up the number of transactions because it is happening and does not need to come to court and does not come to court.

So that is proposition 3.  Proposition 4 is, briefly, the explanatory memorandum.  If I could go to that and just emphasise the part we rely upon.  So that is in book E at number 30 and the relevant page in the book is 702 and at line 41 the proposition is:

an infringement in a particular case will continue to be determined –

we emphasise:

as it is now -

and as it is now can only be referring to the line of authority of implied licence:

having regard to any actual or implied licences -

The additional words:

and to what is often known as the doctrine of “exhaustion of rights” so far as it applies under Australian law -

is not suggestive that this is an issue for the Court to resolve.  Colloquially, no doubt, people refer to implied licence theory as our version of exhaustion rights.  That is the part we rely upon.

KIEFEL CJ:   Do you have any reference, Mr Bannon for that, that it is colloquially so understood?

MR BANNON:   I think there may be a reference in the IP report.  Can I see if I can – in the IPAC report.  I will see if I can find that, your Honour.

KIEFEL CJ:   On another view of paragraph 24 of the explanatory memorandum, it is leaving it open for the Court to refer to exhaustion of rights to make choices.

MR BANNON:   We understand that submission made by our learned friends, but we submit “as it is now” does not admit of that possibility.

KIEFEL CJ:   What is the point of the reference to exhaustion of rights then, if you are not right about the colloquial reference?

MR BANNON:   Well, as a matter of language, the doctrine of exhaustion of rights “so far as it applies under Australian law” ‑ ‑ ‑

KIEFEL CJ:   Could that be “so far as it is held to apply”?

MR BANNON:   We would submit “so far as it has been held to apply under Australian law”.  That is how we would read that.

KIEFEL CJ:   At the point at which the explanatory memorandum was drawn, was there that - that predated references by Lord Justice Bingham, I take it, which seemed to vacillate about exhaustion of rights or implied licence.

MR BANNON:   Yes, I will come to that.  We would respectfully submit there is no vacillation, that his Honour was simply referring to the concomitant position in Europe without suggesting that was the position in the UK.  Can I assist your Honour at least by reference to your Honour’s previous question?  If one goes to paragraph 38 of our written submissions – I am not sure why we put “exhaustion” in square brackets.  I am just checking why we have “exhaustion” in square brackets.  I assume the word is there – perhaps I need to go to the actual cases that – I will just locate where that is actually said.  At page 809 of the book, behind tab 32 of 30, at line 35 in the book:

A last point that arises in relation to infringement by importation is whether Australia should adopt a wider “exhaustion of rights” principle.

Then at line 45 – in other words, do we go full metal jacket US “exhaustion”, or do we stick with the Australian version:

This principle is already part of the existing Australian law –

subject to certain qualifications. So against that background it is quite clear they are using the expression in the explanatory memorandum that the exhaustion principle somehow applies, the exhaustion of licence version as applies in Australia under existing law, namely implied licence.

That reinforces the point we make that the legislature has legislated on this principle.  Indeed, for a colloquial reference, at tab 14 of volume D, one will find a decision of Justice Dowsett and at page 423 in his…..capturing expression heading “Exhaustion of patent rights” he describes that by reference to what are the Menck principles, namely the Privy Council principle.

KIEFEL CJ:   Mr Bannon, does the IPAC report discuss the American cases?

MR BANNON:   I do not recall that they did, your Honour.  I will have that checked and hope to then give an answer while I am still on my feet.  On page 809, the short answer is there does not appear to be explicit reference, but at line 50 that paragraph seems to implicitly refer to matters in other jurisdictions.

GAGELER J:   Mr Bannon, pages 809 to 810 seem to be concerned with the specific phenomenon of parallel importing.

MR BANNON:   Quite.

GAGELER J:    Legislation specifically directed to parallel importing has not ‑ ‑ ‑

MR BANNON:   I do not think that has happened in patents, your Honour.  I think that is what your Honour might have in mind, but I will double‑check this in the trademark world.  I will double‑check that.

BELL J:   The IPAC report was concerned to look at consideration of reform of patent law through the lens of economic analysis and there has been considerable discussion of the tension, if any, between patent law and competition law.  Did it address in terms the issue with which this appeal is concerned which is…..to raise the matter Justice Edelman asked you about concerning texts earlier?

MR BANNON:   Yes, well, I think that there was certainly a wide‑ranging examination of all issues and at page 810 there is a reference to a recommendation, which is the recommendation adopted:

WE RECOMMEND that no change be made to the existing Australian law concerning infringement by importation and exhaustion of rights.

It may be that that expression “and exhaustion of rights” carries too much work to do.  Certainly, it is not an explicit reference to this particular issue but the rubric of exhaustion of rights would capture this.  I think the short answer to your Honour’s question is that part of the reason why there is no specific consideration that nobody was challenging or questioning the implied licence it was so well accepted, firstly, and secondly, there is nothing to suggest it was causing anybody any problems.  There was no clamouring at the door of Parliament.  There are no articles being written - judgments being written as to how it inconvenienced commerce or anybody. 

This is a single case which has come before this Court which is not from an Australian consumer but from an offshore proprietor who seeks, effectively – who seeks to make a business out of having virtually no cost of goods sold by collecting used cartridges effectively from the trash bin.  There is no suggestion of any wider public interest which has been pursued to date which is of concern and the other point to note that if there are two pieces of legislation in this country other than perhaps the Tax Act which get constant attention by the legislature, it is the competition legislation and the patents legislation. 

The number of times the patents legislation has been amended in the last 20 years is remarkable.  We have had the so‑called “raising of the bar” amendments, which has made it more difficult to get a patent.  We have had the innovation patent area changes.  I think there have been some changes to some of the infringement positions in terms of contributory infringement - I will check that.  But there have been changes also to – a recent change which I will come to, recently altered and removed section 135 which relates to reasonable requirements.  That is another matter I am going to come to briefly. 

Then on the ACCC side – on the competition side, changes to section 46 to change the test and make it easier, one might think, to establish and exercise the market power and that change to 51(3), of course, exposes – removes any limitation on the exposure of the Act to the conduct of patentees in opposing conditions.

The question of, for example, whether the relevance of a patent in a market power case has been one of constant debate amongst competition law practitioners the answer seems to be it can be a potential path of a source of market power, but it can never be in and of itself market power.  So that is a rather long‑winded answer to your Honour’s question, to say no, there does not seem to be a specific discussion in that, but we suggest the reason for that is the one I have given.

EDELMAN J:   Mr Bannon, just before you move from the IPAC report, can you explain to me how the so‑called “exhaustion of rights” approach in relation to parallel importing that the IPAC report is talking about is consistent with the implied licence approach?

MR BANNON:   Not offhand - can I have a moment to think about that, your Honour?

EDELMAN J:   Yes, certainly,

MR BANNON:   I will come back to it, and I think I will think in a corporate…..  Now, we refer to what was said in paragraph 25 of D’Arcy v Myriad.  They are concerned with the issue of what constitutes an invention and the reference to NRDC and the comment that the re‑enactment of 52 in the 1990 Act is with the “judicial methodology for its application” and the contents of the Act are attached to that methodology.  We say that principle applies here.

Then proposition 5, we say that the implied licence has always been the position in the UK, that our Act is based on the UK legislation.  There are many High Court cases which have adverted to that and the particular provisions we are concerned with here are not ever materially altered, as having originally been derived from the UK legislation. 

The current position in the UK, we submit, is reflected firstly in United Wire, which is volume D, tab 26.  At page 660 of the book, at paragraph 68, appreciating that your Honours have been taken to this passage, but where it says:

My Lords, the point is a very short one and in my opinion the Court of Appeal was right.  The concept of an implied licence . . . is well established in the authorities.

That is what we rely upon.  Then the rest of that passage.  In paragraph 69:

An alternative explanation, adopted in European patent systems –

He is not suggesting that that is an alternative available to UK law.  He seems to be recognising that other systems of law have addressed the issue in a different way.  Then, secondly, in Schütz in the same volume at tab 23 ‑ ‑ ‑

KEANE J:   Mr Bannon, just before you leave United Wire, we read what Lord Hoffmann says in paragraph 70 and 71 and one notices that the focus of his Lordship’s attention is upon this notion of “making” and he says in paragraph 70 that:

The sale of a patented article cannot confer an implied licence to make another or exhaust the right of the patentee to prevent others from being made.

So his Lordship is there saying whichever theory you adopt there can be an infringement, even on the exhaustion theory, where the owner, or the buyer if you like, the downstream person from the patent, is making the article because the right under the Act to prevent others making the article is never exhausted by the sale of an article.

MR BANNON:   Yes.

KEANE J:   The focus of his Lordship’s attention – and as it is in Schütz as well – is upon making, it is not upon a restriction or an implied restriction on use.  The issue is always has there been a making, but your argument really is that there can be a sale and nevertheless an ongoing control of use that falls shorts of making.  Is that right?

MR BANNON:   Well, Schütz ‑ ‑ ‑

KEANE J:   If it is, then one notices that in United Wire and Schütz no one is talking about – no one is analysing the case in terms of use.  The analysis is in terms of making.

MR BANNON:   Yes.  Well, both of those cases were concerned with use of the term “loosely repair” and that is why the focus ‑ ‑ ‑

KEANE J:   As an antonym of “make”, not as an antonym of “use”.

MR BANNON:   No, but may I suggest comprehended within “use” the words “the licence to use” comprehends repair because it is part and parcel of the ordinary use.

KEANE J:   Can you point us in either of those cases to where the analysis proceeds on that point?

MR BANNON:   I cannot but I will again seek to support that.  Then, in Schütz behind D, tab 23 at paragraph 66 that is an affirmation, we submit, of the implied licence concept.  So, we say, in terms of the UK position, it is and always has been implied licence and to the extent that the majority in the High Court Menck Case suggested otherwise, we submit involved error.

Next, we submit that section 135(1)(b) and section 144 of the Act reflect an acceptance of implied licence theory.  Firstly, if one goes to proposition 6, volume A of the bundle behind tab 4, one sees at page 29 the section commencing “Compulsory licences”.  That provides that:

a person may apply . . . for an order requiring the patentee to grant the applicant a licence to work the patented invention.

Subsection (2) provides:

After hearing the application, the court may, subject to this section, make the order if satisfied that:

. . . 

(i)the reasonable requirements of the public with respect to the patent mentioned have not been satisfied. 

Then section 135 on page 32 provides that:

For the purpose of sections 133 and 134, the reasonable requirements of the public with respect to a patented invention are to be taken not to have been satisfied if:

. . . 

(b)a trade or industry in Australia is unfairly prejudiced by the conditions attached by the patentee . . . to the purchase, hire or use of the patented product -

We submit that that reflects an acceptance that conditions can be attached by the patentee for the use of a product, it is not limited to express conditions and it is not limited to immediate purchases and would capture sub‑purchasers as well.  We respectfully submit that is only consistent with Menck Privy Council and other cases which have followed it.

We have adverted to the fact that this section has been repealed.  Compulsory licences still exist and what is in the new version of section 133, a wider public interest test is substituted which undoubtedly would capture and embrace without limitation the matter which we have seen…..used to be and certainly at the relevant time of this case in 135(1)(b).  That provision was introduced in 1909 to the 1903 Act at the same time as the provision in relation to void contracts which appears on page 47, and 144(1) provides that:

A condition in a contract relating to the sale or lease of, or a licence to exploit, a patented invention is void if the effect of the condition would be –

for example:

(b)to require the buyer, lessee or a licensee to acquire a product not protected by the patent –

So…..forcing, in effect.  Now, it is not suggested that the licence must be express, it could include an implied licence and is not suggested it is limited to the particular purchaser.  But, more importantly, if one looks at section 144(4) it provides:

a defence to proceedings for infringement of a patent that the patented invention is, or was . . . the subject of a contract –

If it was a case, for example, that a licence was on terms for the purchaser that they not use the invention unless they also bought some other product from the licensor, they could be in breach of that contract, provided it survived ACCC‑type or competition issues.  But under exhaustion theory they could never be sued for infringement because that would be a restriction related to the licence which would not be recognised under US exhaustion theory.  It could never be an infringement. 

That is why we say subsection (4) is inconsistent with exhaustion theory and what my learned friend submitted as to the timing of its introduction is correct and I think to the extent we made in our submission a proposition that one should infer that it was introduced in…..did not quite say this – in defiance of Menck in the High Court…..we do not maintain that.  But what we do say is that if one looks at the second reading speeches the effect of it was it was designed to emulate provisions in the United Kingdom.  One sees this in volume E of the materials at tab 33 firstly.

BELL J:   Is this the second reading speech of 11 August?

MR BANNON:   Yes, your Honour, at page 863.  It starts at 862, 11 August and it starts with:

This Bill is designed to assimilate to a very substantial extent Commonwealth legislation with British legislation –

The second line refers to abuses of patents, line 20 at the end:

The main features of the Bill refer to the compulsory working of patents –

Your Honours do not have in the book the equivalent of the compulsory licence provisions, but I will give your Honours a reference to the section in a moment, it came out the same time:

in certain circumstances, and in connexion with this to the issue of compulsory licences in regard to them, and the making null and void, and otherwise dealing with certain –

restrictions, and that was the 144 equivalent.  Then, at the top of the next page there is a reference to the certain -

patent being worked in the Mother Country –

and the rest of that was directed to indicating that it was designed to follow what, at least in those days, was recognised as the mother in law of this country, looking west rather than east, and so the point being that the intent of legislature was to marry up with the provisions in the UK Act, which UK provisions were interpreted by the Privy Council to mean and always mean implied licence, or involve implied licence, and that is why we say the connection is relevant, that the intent was to adopt the British approach.  Now, if we come to the second reading speech on 26 August 2009 ‑ ‑ ‑ 

KIEFEL CJ:   Mr Bannon, just before you go on, when you say, “was interpreted”, the UK legislation was interpreted, that is in 1911, I think that was the point made yesterday by Mr Shavin.

MR BANNON:   Quite.

KIEFEL CJ:   It was not until two years later that Menck actually, in the Privy Council, referred to the UK provisions in the way ‑ ‑ ‑ 

MR BANNON:   Indeed, and – I am sorry.

KIEFEL CJ:   I do not ‑ ‑ ‑

MR BANNON:   Yes, I accept that, but my point is to say that what Menck interpreted was that the Australian legislation should be interpreted in the same way as the UK legislation has always been interpreted, and the legislative intent in these provisions was to follow the UK legislation, whatever that meant.  It turned out what it meant ‑ ‑ ‑ 

KIEFEL CJ:   Howsoever interpreted by the Privy Council, that is what you say?

MR BANNON:   How it had been – yes, however it is to be correctly interpreted, which was resolved by the Privy Council, albeit subsequently.

KIEFEL CJ:   I mean, the reality is, in 1909 in the second reading speech they just were not referring to a body of case law about this, and there was not any really established body of law.  There was not any clear case law about implied licence.

MR BANNON:   No.  It is elevating the discussion to that, although, your Honours do not have it before you, but on 15 August, if one goes to it - if one was to go to it there is a Senator Pearce in a supervised and erudite discussion addresses by reference to the High Court decision a proposition, the effect of which, you cannot pass this legislation because the High Court has said you cannot have conditions on patents, and this is conditions on patents.  Now, the response to that is on page 873 behind tab – the next tab, I think it is, tab 34, at about line 28.  That is where my learned friend picked up:

Senator Pearce referred particularly to what is known as the “Phonograph Case” –

That is referring back to the erudite discussion.  Whether he got it right, Senator Pearce, or not, one had to admire the content of the general discussion of the Senate then.  He recites that.  But Sir Robert Best was not going to be deterred and his answer was, well, that may be so in existing law, but we are pressing ahead with this to, as I say, emulate the English provisions. 

Now, the cross‑reference to the provision of compulsory licence, which we rely upon, which was introduced in the 1909 Amending Act - one will find it in section 87(6)(b) of the 1903 Act as amended by, inter alia, the 1909 Act and the equivalent of the 144 provision appears in the material behind tab 3 of book A at page 13 as provision 87 – section 87B(5) and I do not need to go to it.

GAGELER J:   Mr Bannon, this perhaps goes back to an earlier part of your argument and if it does, I apologise.  Can you just explain how the implied licence theory applies to a subsequent purchaser – in what circumstances is the subsequent purchaser bound by a restriction notified to the original purchaser?

MR BANNON:   It is only bound – sorry, the precondition for it to be bound is that the sub‑purchaser must be notified in turn by the principal purchaser but the basis of it is that the licence to use or vend the invention required by any purchaser, which is implied and carries through to any sub‑purchaser, if that licence is an express licence which includes terms which condition and control that use – any person, the entitlement of any person operating under that licence is subject to that condition and the Privy Council only if whoever is the person alleged to be subjected to the condition had notice of it before acquisition.

GAGELER J:   How do you get the notice bit?  Is that also a matter of implication into the original licence?

MR BANNON:   Most of the circumstances, as in Menck, there was a specific contract which distributors had to sign up to and they obliged them to notify some distributors of the condition which, I think, was related to you cannot stock other people’s goods.  It was really price fixing, quite frankly, from memory.  So, that the way it is done commercially was to require by contract the original purchaser to notify the sub‑purchaser.  Now, if that person did not honour that term and did not notify then that would be the end of the process, according to the Privy Council in Menck – the subsequent purchaser would not be bound by that limitation on use.

GAGELER J:   Why not, though?  I mean, if there is no licence from the patentee, the patentee has not given permission to the subsequent purchaser, why should it not be the other way around?

MR BANNON:   That is what Justice Isaacs said but the Privy Council said otherwise.  There is much to commend the view that it is, as your Honour suggested, as Justice Isaacs said, but ‑ ‑ ‑

EDELMAN J:   Is the answer that the way the implied licence has effectively been treated is as though it had proprietary effect, much like in the goods cases that followed the Lord Strathcona Case which was also decided by Lord Shaw where the licence with all its restrictions is given to the purchaser, but also the restrictions will bind subsequent purchasers with notice of it?

MR BANNON:   We did have a look at those cases, your Honour, and we accept that that applies, perhaps more than by analogy, directly.  But if a party does not have notice of a restriction of the licence then there may be other ways of getting at it, but the purchaser is perhaps clothed within ‑ there are a number of ways one could get to it, perhaps answering Justice Gageler as well, but if one goes back…..principles and exceptions the purchaser would be clothed with power of authority, if not express authority, to onsell without that limitation and, hence, any such limitation which would go to title would not bind the sub‑purchaser.  That may be one answer.

KEANE J:   In this case, is the notice of the restriction on use conveyed simply by the actual construction of the article as a single use item?  Is that where the notice is in this case?

MR BANNON:   Well, I will address questions of single use, but we do not suggest that there is a notice of single use.  We simply say that the implied licence here was the ordinary plain vanilla implied licence which is an implied licence to use and vend and inherently to pass on that licence to anybody to whom they vended it.

NETTLE J:   Do you say that the scope of the licence is informed by the nature of the product rather than the claim?

MR BANNON:   Yes, we say that whether or not there was a making is informed by the nature of the product and is informed by the intentions of the parties in their expectations.

NETTLE J:   Is that not contrary to English authority in Canon Kabushiki?

MR BANNON:   Well, we say that if one looks at Schütz and even the American authorities, if the product was perceived by both parties for it to be a single use product then that is relevant ‑ ‑ ‑

NETTLE J:   That is surely not the law in America - biotech rejects any contention that the intention of the vendor should control ‑ ‑ ‑

MR BANNON:   Unilateral intention, your Honour.

NETTLE J:   I thought that the English had followed that in Canon Kabushiki, or at least the Privy Council.

MR BANNON:   Well, I will come to the parts of Schütz on which we rely to support what I have just said and also the parts in the US cases to which my learned friend has taken your Honours which we say support what I said as well.

BELL J:   In dealing with the survey of the US cases, would you deal with Hewlett Packard v Repeat‑O-Type Stencil, which seems to raise an issue very much like the present issue and which at paragraph 7 seems to not support your contention that the intentional purpose of the patentee informs the determination. 

MR BANNON:   I will do that, your Honour.  I will endeavour to do that.  I am building up a list of tasks that I will endeavour to satisfy before I sit down.  Could I then simply say that for the reasons given to date, if there is going to be a change to the law of implied licence in this country it is a matter for the legislature and not for the Court.

KEANE J:   Well, except that we are talking about a doctrine that is a creature of the judiciary.  Why is it not for the judiciary to control its creature?

MR BANNON:   What we submit is that it is a creature of the nature of the statutory right which the courts have consistently construed in a way which is – the only way it is to be construed, having regard to those statutory rights and having proceeded on the basis for over a hundred years that that is the correct construction and approach, even as a matter of theory if the Court could change it the Court would not do so.  We say for the reasons we have given, exhaustion cannot apply to a proper construction of the statutory rights, as I have said but I will not go over that.

GAGELER J:   In the case of what you call a “vanilla implied licence”, is it not a licence to do everything other than make?

MR BANNON:   It will depend on the particular transaction but in a purchase transaction, as discussed yesterday with Justice Edelman, it may be if it is a process patent or arrangement different circumstances might apply but in a practical sense it probably is, your Honour, but “make” is the only thing which is left outstanding.

GAGELER J:   Same question when it comes to infringement – it is the same question.

MR BANNON:   Correct.  We agree, I agree.  If I could then address a few submissions in relation to US exhaustion theory.  Firstly, in paragraph 8, we have given a number of cases there, but this proposition is not contested.  To describe it as an exhaustion theory is a misnomer.  Even under the US cases there is no exhaustion because there is residual right to restrain reconstruction.  In other words, the proposition that the acquisition of the article is outside the monopoly and you can do whatever you want with it is simply not true.  So exhaustion is simply an incorrect characterisation.

NETTLE J:   Do the Americans not say that all rights are exhausted in respect of the article that is sold?  That is why “make” is an exception, because it is not the article sold, it is another article.

MR BANNON:   I agree with that – I accept that, your Honour, but to suggest in broad terms that it is all rights in respect of that article in the sense that one could do whatever one wants with it is simply not part of the US doctrine of exhaustion.  The second point, and we have referred to it in paragraph 9, is that - and we give a reference to Quanta, which we have provided, which I probably do not need to go to - we cite Quanta just to indicate the Supreme Court there, at page 625, said that the exhaustion theory birth was in the Bloomer cases.

If one looks at the two Bloomer cases, that is Bloomer v Millinger and Bloomer v McQuewan, one will see that the cases have absolutely nothing to do with what we are talking about here.  In both of those cases, the patent was in relation to a machine, a planing machine developed by one Woodworth, and what had happened is rights had been granted to the defendants or their assigns in respect of the patent. 

There had been extensions by statute subsequently to the grant of rights and there was an issue as to whether or not the grantor of the relevant rights to the particular defendant had the rights under the extension by subsequent statute.  So the only question was whether or not, in effect, the rights which were express rights - the defendants had to use the particular machine which they were not selling, they were using to plane things - were rights which were not affected by the fact that the patent was extended. 

Now, unsurprisingly, the court in both cases said you got it from a person who had the patent, but the patent was later extended, so the rights were referable to the patent, whether it was extended or not.  So that is the birth of the theory, and that is why Justice Isaacs, when he – he does not refer to Bloomer as supporting any proposition which is relevant to the circumstances of that case because it has nothing to do with that case.

Now, it is true that in that case comments were made of the type which have been quoted.  But it is important to understand that when this Court thinks about jumping to exhaustion, the source of it is nothing to do with this case and indeed, in Bloomer v Millinger, without going to it, because I…..your Honours with the reference, at page 350, this was said in attempting to capture the rationale behind exhaustion:

when they have made and vended to others –

This is patentees:

to be used one or more of the things patented, to that extent they have parted with their exclusive right . . . consideration has been paid to him for the right, he has then to that extent parted with his monopoly –

One of the existential issues in relation to exhaustion is statutory rights just do not dissipate and go into thin air.  They do not cease other than at the term of the patent. We submit that the American courts have struggled to actually provide a sensible juridical basis for exhaustion.  An example of that is if one looks at Aro which is one of the manufacturing repair cases - if I could take your Honours to that in Part D at tab 13.  At page 364 of the book at the bottom of the page, this is addressing the reconstruction issue, at line 50 it says:

While there is language in some lower court opinions indicating that “repair” or “reconstruction” depends on a number of factors, it is significant that each of the three cases of this Court, cited for that proposition, holds that a license to use a patented combination includes the right “to preserve its fitness for use so far as it may be affected by wear or breakage.”

I will come back to that later.  Then they cite three Supreme Court cases.  At the end of that:

We hold that maintenance of the “use of the whole” of the patented combination through replacement of a spent –

Emphasise “spent”:

unpatented element does not constitute reconstruction.

So this is the Supreme Court saying it is a licence situation.  That is understandable because statutory rights do not just dissipate into thin air.  There would be an action and reaction.  Then in US v Univis, a case which is cited and approved in Impression, which we have handed up, a separate reference…..so this is US v Univis Lens.  At page 252 – this was separately provided, your Honours.  At the top of that page:

The first vending of any article manufactured under a patent puts the article beyond the reach of the monopoly which that patent confers.  Whether the licensee sells the patented article in its completed form or sells it before completion for the purpose of enabling the buyer to finish and sell it, he has equally parted with the article, and made it the vehicle for transferring to the buyer ownership of the invention with respect to that article.

So therefore that is grappling with the problem of how you get rid of a right, and there they are saying it transfers with the article.  Now, that is a concept – it is a juridical basis which is almost – it is not easy to comprehend because that would involve the subdivision of a right by way of assignment apparently referable to a single argument, not something which we submit would be recognised under Australian law because it would necessarily carry with it an assignment of a right to sue in relation to that.

Then, Impression – I will just refer your Honours to this firstly – I am sorry, in proposition 11 of our oral outline we give a reference and I was not going to go to it.  The last reference on that page is to the Federal Circuit judgment at 754.  We have given the reference.  In there, the Federal Circuit judges also treat, examine the matter in terms of licence. 

Then, one comes to the Impression Case in the Supreme Court.  They affirm Univis and they do not distinguish Aro and they simply assert the exhaustion theory.  In particular, if I could direct attention to what appears at Impression which is at D, tab 20 down to the bottom of page 527 of the book, under the heading “B”, the last few lines of that and the top of the next page, or perhaps bottom of the previous page, 526 at the bottom over the top of the next page.

Indeed, what we submit is that infused in these statements and, for example, if I look at the bottom of 1531 right‑hand column, there is paragraph numbered [4, 5] and a statement at the bottom there, top of the next page.  It is fundamentally a policy reason, not potentially ‑ ‑ ‑

GORDON J:   Is that right, Mr Bannon, when one has regard to the fact that in two positions this idea that it is a matter of construction of the Act that one has the exhaustion theory - and that is reflected in the paragraph above it in [2, 3].  It is talking about it and it says the way in which you look at the Act compels that answer.  In respect of the licensing arrangements they are left to contract to the extent that they are permissible as reflected at page 1533, just above the letter B.  So, it is not a merger.  The question is whether or not it is an infringement of the patent or whether it is an infringement of the contractual…..that is what they are looking at, are they not?

MR BANNON:   We submit that the contractual analysis of the [2, 3] does not explain what happens to the exclusive right and the support for it at [4, 5] we submit, promotes a policy reason.

KIEFEL CJ:   Mr Bannon, that might be a convenient time for the morning adjournment.

AT 11.16 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.32 AM:

KIEFEL CJ:   Yes, Mr Bannon.

MR BANNON:   Thank you, your Honour.  Could I attempt to address Justice Edelman’s question about implication and how it sits with applied licence?  Could I take the Court back to tab 37 of E – tab 32 of E at page 809?  There is a passage there starting at about line 32, “A last point that arises” to the end of the next page.  What that provides – at line 38 it says:

The idea of exhaustion of rights has been adopted in a number of countries in which the concept of infringement by importation is applied.  It amounts to saying that whereas, ordinarily, importation of the patented article, or an article made by the patented process, will constitute infringement, this will not be so if the person by whom the imported article was first put into circulation somewhere else in the world, is the person who is the patentee in the country of importation.

This principle is already part of the existing Australian law, subject to a qualification that importation of the patented article put into circulation outside Australia by the Australian patentee will be an infringement if, at the time –

there was a condition stipulating against it.  Now, it is part of Australian law under implied licence because it was manufactured and sold ‑ or sold overseas by the patentee.  It did not matter where it was…..it was an implied licence to use or vend anywhere, and that, in fact, goes all the way back to Betts v Willmott.

The discussion here was whether one should overturn what was understood to be existing law which could only be supported by Menck Privy Council, namely, you can have a viable condition attached which would still render an importation contrary to the licence of – imported by – sorry, inferred or by the sale overseas should one go further and address that, and the conclusion was no.

Indeed, those paragraphs are actually very explicit confirmation.  We would respectfully submit, that when they refer to exhaustion in the explanatory memoranda they are simply referring – I use the…..colloquially as an example of an application of implied licence theory, albeit described in this IPAC document as a type of exhaustion.  But we know from Betts v Willmott that the applied licence accrues from a sale overseas without more ‑ ‑ ‑

EDELMAN J:   It would not really be an express stipulation that is contrary to the implied licence, it would just be – if you have such an express stipulation then so far as that stipulation exists there is no implied licence.

MR BANNON:   Yes, it does not extend to importing into another country.  For economic reasons the recommendation was that position should be maintained to potentially protect Australian suppliers.  That is the position which the legislature adopted, going back to that memorandum.  So that is almost the clearest exposition of the intention of the legislature was to maintain Menck.  They had absolute clear opportunity here to address it and they chose not to. 

So it is not just a judge‑made circumstance, it is a legislature repeatedly enacted in 52 and 1990 and all the other amendments without addressing the issue, and here where they had the specific opportunity to address the issue they did not, relying on existing law.

So that was a significant step for this Court, in the face of that, to overturn implied licence and flip to exhaustion theory.  If one did, one would have the following tasks to attend to, explain its juridical basis of how it disappears into ether, explain how it was born out of a Bloomer case which had nothing to do with the point, and explain what its boundaries are, and in particular, what does it mean in relation to reconstruction as opposed to the language of our Act, which talks about “make”.  So the Court would have to write some sort of mini‑textbook on the way forward, and why, is the question one may ask rhetorically.

If, on the other hand, the Court accepts the implied licence, and indeed, even if we go down to what we steadfastly resist, the exhaustion route, on either view, it seems to make no difference because the ultimate question is “make”.  I am sorry, and that reminds me, I have an answer for your Honour Justice Keane in relation to United Wire - paragraph 68 of United Wire, page 660, that is behind tab 26.  In paragraph 68 his Honour addresses generally the width of the implied licence and the distinction between, about the middle of that paragraph, “make” versus also “use, exercise or vend”.  At the bottom of the page, his Honour refers to:

A repair . . . is by definition an act which does not amount to making –

and the last few lines on 71, over the page:

The owner’s right to repair is not an independent right conferred upon him by licence, express or implied.  It is residual right, forming part of the right to do whatever does not amount to making –

and whatever does not amount to making are the other rights which are part of the implied licence, which his Honour has referred to in paragraph 68, so that is why I submitted what I said before, your Honour.  I hope that addresses your Honour’s question. 

My other piece of homework was addressing a question raised by your Honour Justice Bell.  Insofar as it referred to, I think, Jazz, I was going to address it.  Insofar as it referred to a different case, I am sorry, your Honour, those with me and me did not get the reference - if your Honour could repeat the particular reference, I think your Honour referred to paragraph 7 of a case?

BELL J:   Yes.  I was referring to a decision in Hewlett‑Packard v Repeat‑O‑Type Stencil 123 F 3d 1445. It was a 1997 decision. I mean it has some significance in that it deals with precisely this issue, taken up subsequently in that it controlled components in Lexmark, a decision of the United States District Court, but which seems to make sense of the reason for the note in Lexmark in the court below indicating that no argument of the type here made was advanced in that case, namely a line of authorities holding, in this circumstance, the reusing of the printer cartridge did not amount to a “making”.  I raised it in the context of the disavowal in Hewlett‑Packard of the notion that the patentees’ intentions or understanding informed the determination was there a making or not.

MR BANNON:   Yes.  I think I can address those, your Honour, because in Jazz Photo the reference to Hewlett‑Packard describes it as an example of unilateral intent of the vendor not being relevant and we would accept that.

GORDON J:   Can I clarify that please, Mr Bannon?  Is your proposition that if there is unilateral intent that is not sufficient, but if there is what you would regard as non-unilateral intent – that is, both sides understand the purpose of the transaction or the purpose of the product – then somehow that is a different consequence?

MR BANNON:   Yes, and I will ‑ ‑ ‑

GORDON J:   Where am I to find that supposed common intention, if it is not from the integers?

MR BANNON: One finds it from the nature of product which is a one‑use product.

GORDON J:   But that is not in the integers here.

MR BANNON:   I am sorry, your Honour?

GORDON J:   That is not in the integers of this patent, which is the issue in this appeal.

MR BANNON:   But it is in the embodiment.  Can I come back to your Honour’s question more precisely when I address the issues which arise in relation to “making”.  In any event, if one was to apply a version of US exhaustion theory, it would be difficult to see why the court would use the word “reconstruction”, being a US concept, rather than our own word “making”, or to the extent the US has “making” they have ignored it and rely on “reconstruction”.

The point of that is to say, whether it is implied licence or exhaustion theory, we cannot convey the issue of making, in which case, for the purpose of this case, the vehicle which this case presents, whether implied licence or some version of exhaustion theory applies simply does not matter.

EDELMAN J:   Mr Bannon, just to clarify, you are not saying that the difference between the two theories does not matter, full stop.  You are simply saying that on the facts of this case it does not matter?

MR BANNON:   Quite, yes.  Absolutely, yes, because in other contexts conditions are posed on use.  There is a significant difference, as that importation discussion we looked at recognises.  But this is not the vehicle to address that case.

Two questions of principle in relation to whether there is a making or implied licence – I will stick with implied licence – which cannot be doubted, we submit, that the implied licence extends only to the article as supplied and the exhaustion theory has a similar bent, as Justice Nettle suggested, that it is directed to the article as supplied.  Secondly, the implied licence does not include a licence to make and again that same requirement interprets “reconstruction” as “make”, then that is the same principle there.

So that any question of principle on either issue does not apply and we are therefore bound to whether there is a making and that is a question of fact.  That involves a reconsideration of what the Full Court did.  The Full Court’s consideration of “making” is no more or no less than an infringement case which the Federal Court is well seized of.  It does not involve any issue of principle and it is a reconsideration of the facts. 

This Court would be perfectly entitled to say that there is nothing in the reasoning or the process which warrants reconsideration.  To the extent that this Court might take a different view on the facts but it is not persuaded that the view was not open, one would….I adventurously suggest it, it would be open to the Court to say that, having decided a truly important case warranting all seven of your Honours here as to implied licence or exhaustion, if that was decided in our way, then venturing on to revoke special leave and the balance…..would be an option open to your Honours, but that is not for me to say.

Then, can I come to the issue of the patent claims?  A patent claim and all patent claims inevitably comprehend more than one possible embodiment of a claimed invention, each of which if made by the patentee would be within the claim or if made without authority would be infringement.  Pharmaceutical patent cases are a prime example, claims of which include a chemical formula with a range of potential substitute chemical compounds at different points of the chemical equation with the potential to cover a multitude of ultimate products. 

A patentee is entitled to select which embodiment within a claim it wishes to make, sell or authorise another to make or sell.  A patentee is not obliged to make everything within an embodiment.  If the patentee does not sufficiently exercise the invention compulsory licence provisions are available or if it can be seen as an exercise of market power it may be something which could trouble the competition law. 

If one tests this argument in this case on the facts by reference to the grant of an express licence, if one was to assume a grant of an express licence to a manufacturer to make a specific embodiment within a claim with defined features, that express licence does not authorise that licensee to make a different embodiment.  The different embodiment will be outside the licence and will be an infringement.  I

It is no answer to such a proposition to say – for the licensee to say I made a thing better or it works the same or even I have added some bits and pieces to it which are not identified in the claims.  What is true for an express licence is also true for an implied licence.  Justice Yates in his reasons, Full Court judgment paragraph 288 at page 259, has captured the principle in 288 and, indeed, 289 - captured the principle exactly correctly.  The fact you get a licence, be it express or implied, to make one embodiment, does not authorise a licence to exploit the invention generally or to exploit other embodiments within the claim. 

One starts with this case and takes, for example, the power in claim 1.  If you go to the extra materials provided by our learned friends, claim 1 at page 62 of those extra materials provides:

A printing material container adapted to be attached to a printing apparatus –

Now, that is an integer which has to be satisfied for there to be infringement.  There may be multiple ways of creating a container which has that adaptation mechanism, but they are all within the claim.  One way may be, as per the product supplied and as identified by Justice Gordon, if one looks at page 92, a preferred embodiment identified on that page at figure 23 is the form of attachment which was supplied, and that was the implied licence granted to anybody who bought this product.  There was no implied licence to use another form of attachment. 

If an infringer was to make figure 23, that would infringe.  If the infringer was to make a variant à la what appears in the primary judge’s reasons at page 29 of the appeal book where there is a side‑by‑side picture of the interface pattern, which is a cartridge where the adaptation be connected, if the infringer was to make the variant on the right which has its own adaption to be connected, that would infringe.  They are both within the claim. 

Now, the fact that the patentee has authorised one particular embodiment with one particular form of attachment does not authorise the user to create a different embodiment, and it is a different embodiment if you put in a different form of attachment.

KIEFEL CJ:   Mr Bannon, this comes down to a submission, does it, that the purchaser is not allowed to alter the product as sold?

MR BANNON:   The person is not allowed to do an alteration which would constitute the making of a new embodiment.

KIEFEL CJ:   No, leave “making” out of it.  As I understand your submission to this point, the alteration of the article as sold is not a permitted use.  Am I misunderstanding what you are saying?

MR BANNON:   An alteration which produces a new making is not a permitted use.

KIEFEL CJ:   But not all alterations will produce a new product.  You are alliding the two.

MR BANNON:   Well, your Honour, we can only deal with what we have to deal with here.  Your Honour may be correct conceptually, but we do not know because we do not have an ‑ ‑ ‑

KIEFEL CJ:   I just need to be clear about what you are saying because I am getting a little bit confused about whether we are in “use” territory or “making” territory.  The focus of Justice Yates’ reasons which you had referred to is that the cartridges were supplied in a particular form and his Honour notes at 281, a form which was not reusable or refillable.

MR BANNON:   Yes.

KIEFEL CJ:   The purchaser, or here the appellant, alters that form so that it can be reused or refilled.  Do you say that the alterations may amount to a “making” within section 13(1) of the Patents Act?

MR BANNON:   Yes, I do.

KIEFEL CJ:   Well, if they do, why do you have to rely upon the implied licence, because on that view it is not that it falls outside the implied licence, it is simply that it is a new product.

MR BANNON:   We do not and have never relied on the implied licence.  The implied licence has only ever been relied upon by our learned friends as a defence.  We have always said that it is a making, and therefore it is an infringement.  It is our learned friends who raised implied licence ‑ ‑ ‑ 

KIEFEL CJ:   Yes, I follow that.

MR BANNON:   But the reason we got so excited, if I may use that vernacular, about implied licence versus exhaustion, the way the special leave application was presented ‑ ‑ ‑ 

KIEFEL CJ:   Yes.

MR BANNON:   ‑ ‑ ‑ it was on the basis that any change could be made because exhaustion, according to Bloomer, according to Justice Griffiths says you can do anything, you can modify it.  Since then ‑ ‑ ‑ 

KIEFEL CJ:   So long as it is not a making.  But can I just ask you this, Mr Bannon, in relation to Justice Yates’ conclusion at 290, as I read his Honour, his Honour holds that the licence does not extend to modifying the product sold so that it can be used again.

MR BANNON:   Yes.  I will attempt to make that good by reference to the particular changes.  I accept what your Honour says, I have to identify physical changes which would support that, and I set myself that task.

KIEFEL CJ:   But implicitly you are saying that a modification of an article to permit its reuse amounts to a making of a new article.

MR BANNON:   Certainly in this case, yes.  I will attempt to make that good.

KIEFEL CJ:   Yes.

MR BANNON:   Can I just go back to where we started in this exercise.  As we understood, part of the application for special leave was to say any change, as per Bloomer, any modification is not caught.  There is not a word about, in the special leave application, making or reconstruction as an exception.  We put that in response, but your Honours granted special leave, and then we have come now ‑ ‑ ‑ 

KIEFEL CJ:   The matter has proceeded in this Court on written submissions, and I think below, upon an acceptance by the appellant that if something amounts to a “making” there is an infringement.

MR BANNON:   Well, there may be ‑ ‑ ‑ 

KIEFEL CJ:   If this is a new product, there is an infringement.

MR BANNON:   I understand that, but as we understand it, the grant was seen to be pressed on the basis that even a new making survived the exhaustion period.  But anyway, we have gone beyond that point, and we have got to the point where our learned friends accept a making/reconstruction, even under exhaustion, is still an infringement, which lends us to press - pose the question, why is this a vehicle for this Court to consider, if it does not matter either way?  But be that as it may, we are here.

If I could then address - but our point in relation to this is to say that an integer of the patent is a container adapted to be connected, and that is an integer which has to be satisfied for infringement purposes.  The licence in relation – and this does not apply to all the products, but this is some of the pre‑April product, pre‑April 2016 products, the licence by the – the licence/exhaustion was only in relation to a product which had as its feature a particular adaptation, not this one.  This one is made by a non‑licensee would infringe, it therefore infringes and is a making - sorry, is a making and therefore an infringement.  That is one example.

Secondly, an embodiment which is sold by the patentee, which has its own circuit board and memory chip, is authorised to be sold - I am still talking about pre-April 2016 embodiments - to change those memory chips and put in a new circuit board or their own memory chips is not something which is the form of the article in which it was authorised to be sold and again, if it was an express licence, a licensee which made those changes would be creating a new embodiment, which are all integers, and therefore that would be an infringement.

His Honour the trial judge dealt with this at paragraph 275 – perhaps I do not need to go to it – which identifies that the circuit board is in fact the thing which has the terminals on it, the separate terminals, which are at the heart of the description of the invention in order to avoid shortages.

Can I then come to perhaps the burning question in relation to post‑2016 articles, which is the reuse.  Again…..claim 1…..claim 1 comprehends a printing material container which will take any number of forms.  One form it will take will be the particular embodiment which is described in the body of the specification.  If I can ask your Honours to look at page 25 at line 32 it says:

On the bottom face of the housing 101 there is formed an ink supply orifice 110 into which the aforementioned ink supply needle 6 inserts when ink cartridge 100 is attached to the holder 4.

That is described or depicted at page 92, figure 23 – it is on the bottom there – and it is identified in that drawing as 110b.  If one goes back to page 74 of the patent, there is figure 4.  One sees there that that ink supply orifice is pierced by the needle.  I do not know whether your Honours have ever had the joy of replacing a print cartridge in a printer, but you put it in and it compresses and what happens is the seal is broken ‑ and the judgment refers to this – and that is an ink outlet supply.

Now, this embodiment - and perhaps I will go to the part of the judgment which identifies that.  If one goes to Justice Jagot’s judgment, which picks up his Honour’s findings on this - this appears at page 204.  This is her Honour picking up findings of his Honour, the trial judge.  At line 10, your Honours see:

The outlet hole is prepared by removing the original seal covering it, which was broken when the Epson cartridge was first used.

So, that is a reference to the orifice outlet.  That is the thing which gets the ink into the machine from the container.  Then, what happens next - and one looks at the next paragraph:

refilling involves the creation of a second hole (injection port) . . . which is then used to inject replacement ink into the cartridge . . . The injection port and the outlet hole are each sealed by placing pieces of thin clear plastic over them and applying force and heat to effect a seal.

So, what they are doing is putting the same sort of seal on the new injection port as existed in the originally designed outlet port.  So, again, in reuse these Calidad cartridges, that seal on the outlet port will be broken when it is inserted in the printer.  The other hole, the other port, still there is covered by the same sort of seal and is described as an injection port and no doubt Calidad or Ninestar, when they collect used cartridges, will hope that they collect one of the ones they have already sent because then they do not have to drill a new hole - I do not know if your Honours try to drill holes in plastic, it can be troublesome, it can crack.  Perhaps that is just me but, in any event, they do not have to do that.  They can use the injection port and pierce it with a needle and inject it. 

What is the significance of all that?  The significance is this.  The product which is supplied and authorised to be used was a product which had one hole, an outlet hole.  No product was supplied which had an inlet hole.  Again, I ask – we pose this question, it was an express licence to sell a product which has one outlet hole which, as we know from the evidence, means it can only be used once because you have to have an inlet hole.  If you licence the product as supplied, which only has one hole, for that express licensee to turn around and say, by the way I have just added a new hole and it can now be reused and I have sealed it and it is all good, that is outside the licence.

That is an embodiment.  It is within the claim because it is another version of the print container.  It is not authorised.  It is an infringement and it is blindingly obvious, if I may say so.  So, you have created something which now has two holes with the same sealing device which is outside the licence.  A patentee is perfectly entitled to sell the product it wished to sell which has one outlet hole, the effect of which is it is not reusable.  It is not reusable ‑ ‑ ‑

KIEFEL CJ:   Is it the making of a new article?

MR BANNON:   Yes, because it is a new embodiment.  It is a new embodiment because it now has an inlet hole and an outlet hole.  The only thing which is authorised to be sold was one with an outlet hole.

KIEFEL CJ:   But it is not a new embodiment, is it, if it is different?  It has added another feature, has it not?

MR BANNON:   Indeed it has but the patentee did not authorise that.  What the patentee authorised is that ‑ ‑ ‑

KIEFEL CJ:   This is the problem we are having, Mr Bannon.  We seem to be moving between what is authorised by the licence and what is a making?  Which is it?  Or is it a combination of both?

MR BANNON:   I can only test it by reference to an express licence.  If one tests it by reference to asking if there was an express licensee who was authorised to make and sell a single port device, does that authorise that licensee to make a different embodiment?  Answer:  no.  What is the consequence of making – adding a different hole?  You have a printer cartridge.  Now, that integer is in a different form, it is a different embodiment with a significantly different outcome.  That is a making.

BELL J:   Mr Bannon, after the new inlet hole is created and ink is inserted the new inlet hole is sealed and one returns to a container with the one hole as initially the product was produced.  So that on one view what has happened is that the owner of the article has altered it with a view to preserving its fitness for use by permitting the addition of new ink into it, but how does that – if one goes to the integers of the claim, how is that said to be a making of a new article as opposed to altering it in order to, as I say, preserve its fitness for use for a longer period?

MR BANNON:   Because it is a different embodiment.  One of the integers – the patent covers a printer cartridge which can be made – the claim is silent on it, it can be made with one hole or two or 20, but if it is ‑ ‑ ‑

BELL J:   Am I right in understanding, Mr Bannon, that after the new hole is created in order to permit the refilling of the cartridge, it is sealed?

MR BANNON:   It is only sealed with the same seal which seals the outlet hole which is broken on insertion.  So that it continues to be reusable over and over again.

BELL J:   Yes, but when one looks to the integers of the claim where does one find a preclusion – or where does one find a statement of single use?

MR BANNON:   One does not, but the ‑ ‑ ‑

BELL J:   It is the implication from having only one port, but if you only create the second port in order to refill with ink and then you seal it ‑ ‑ ‑

MR BANNON:   I am not addressing the subjective intention of why people do it.  All I am addressing is you have embodiment one which is sold, what is created is embodiment two which now has two holes, one adapted for outlet sealed by a plastic seal and one adapted for inlet sealed by a plastic seal.

BELL J:   I understand.

MR BANNON:   That second hole sealed by the same plastic seal can be punctured again for further injection when it further expires.

GORDON J:   Do you accept, Mr Bannon, that none of those details are set out in integer 1?

MR BANNON:   It does not matter, because all of those details are comprehended by the integer “a printer container”.

EDELMAN J:   Mr Bannon, does that not then mean that any instance of repair that would involve changing an integer would, on your view, amount to a making?

MR BANNON:   The repair cases – no, because the repair cases recognise if something is spent or worn out it can be repaired.

EDELMAN J:   I realise that, but what I am asking is, on your approach to a making, put aside what the repair cases say, if one were to adopt your approach to making, would that not necessarily mean that as soon as one were to replace one of the integers of the claim in the product, that would therefore amount to a making, even if, colloquially ‑ ‑ ‑ 

BELL J:   May I just interrupt - I am sorry, Justice Edelman, but we appear to have lost Mr Shavin.

KIEFEL CJ:   I am sorry, thank you, Justice Bell, I had not noticed.  I do not know whether – Mr Shavin, can you hear us?  No.  We need to adjourn shortly while the reconnection is made.

AT 12.09 PM SHORT ADJOURNMENT

UPON RESUMING AT 12.12 PM:

MR SHAVIN:   If the Court please, I apologise for that.  For some reason we dropped out.

KIEFEL CJ:   Thank you.  Yes, Mr Bannon.

MR BANNON:   Thank you, your Honour.  If I may attempt to answer your Honour Justice Edelman’s question again, the difference in repair is you are restoring it back to the condition it was in, in circumstances where it is spent or been damaged.  What has happened here on any view is the creation of a new embodiment with two holes resealed by tape which can be reused for both outlet and inlet purposes.  That is the difference. 

Not that it much matters, but there is no suggestion there is any nefarious purpose in the patentee using a single instance product or features which dictate that.  It is consistent with the move from refillable fountain pens to throwaway pens.  There may be extra manufacturing costs in having a resealable implement.  There may be extra risks of ink spillage. 

I will just give these references without going to them…..line 30, page 4, line 20, page 15, line 50 were all concerns about issues producing ink spillage or other problems because these things get rattled around in there and the idea of having an extra hole in there covered by seals may have been thought by the patentee to create a risk which increases the risk which it was trying to avoid, which was ink falling across terminals which was producing shortage.  So that the form of the container ‑ ‑ ‑

NETTLE J:   There is no evidence of that, is there?

MR BANNON:   It is what the patent says.  Sorry, as for the reason why they manufactured, no.

NETTLE J:   Yes.  So why are you telling us ‑ ‑ ‑

MR BANNON:   Because there is some suggestion or an assumption that there is some nefarious anti‑competitive purpose.  There is no evidence of that.  But there are equally sensible manufacturing purposes.

NETTLE J:   Well…..ex facie it may not be, but nothing ex facie about the reason for making it single use.  That is the difference.

MR BANNON:   Well, it was never alleged it was anti‑competitive.  It is a completely different ‑ ‑ ‑

NETTLE J:   No one is contending that it is.  I simply observe that ex facie it appears to be, but I am not making any conclusions about it.  On the other hand, there is nothing to suggest the reason for making it single use.

MR BANNON:   I accept that.  We end up in a draw.  I accept that, your Honour.  Can I then deal with the issue in relation to the memory, and we say the same analysis holds true.  I will not go to it, but I will just make these brief submissions.  Justice Jagot at 172 correctly identifies that the memory must be one which is:

“a memory driven by a memory driving voltage”.

The embodiment which is made available to a purchaser is an embodiment which has a memory driven voltage which does not recognise – a memory content which does not recognise a refilled cartridge.  Now, the content of a memory, one accepts – and her Honour accepts – is not part of the claim, but it is an embodiment within the claim and one of the integers is the memory.  So that again, if an embodiment which is made which includes a memory which does not recognise a refilled cartridge, changing that to a memory which does recognise it is the making of a new embodiment.

KIEFEL CJ:   But, Mr Bannon, the content of the memory is not part of the claim.

MR BANNON:   I accept that, but we say it does not matter because it is the entitlement of the patentee to make whatever embodiment it was within that claim, that is something within the claim and part of the – you have to have some memory which has to have some function.  The one they choose to make and authorise others to use is limited to the one which does not recognise a refilled cartridge.  To change that memory so that it does is a different embodiment.

GORDON J:   But the embodiment is directed at an inventive concept to deal with shorting and that is why ink - the information on the chip is not part of the integers of the claim because they are not relevant to the shorting question.

MR BANNON:   One may accept that the information per se is the content is not.  The question is whether there is a making of a new embodiment and we say there is for the reasons I have indicated.

GAGELER J:   Mr Bannon, one way of putting your argument might be to say that the word “making” in the statute means the creation of any new embodiment, a new embodiment relevantly being an embodiment that is different from that which was sold.  Is that all your argument comes down to really?

MR BANNON:   Yes.  They are all identified in physical features.

GAGELER J:   The difference, in your submission, as I understand it, is just any physical difference required in some way?

MR BANNON:   Certainly any physical difference which does not amount to repair or whatever may be the product of ordinary usage.

GAGELER J:   Thank you.

MR BANNON:   In the briefness of time…..attempt to do a reference to…..one UK case on these principles and one on a couple of the US cases.  Firstly, in relation to Schütz, which is volume D, tab 23, at paragraph 74 on page 599, the proposition:  does the article have value when it has been used and before it is worked on, we rely on what is said there as a factor in favour of a new making.  That applies here.

GORDON J:   It is said that factor has to be approached with caution, does it not?

MR BANNON:   Well, it is a factor we take into account.  In our outline, proposition 14(b), we identify the relevant paragraphs which support the applicability of the matter in 74.  If I could then go backwards to paragraph 52, page 595 and there halfway through:

the totality of the work described in his [64] amounted to “making” a new article, because the removal of the meshes and the stripping down and repairing of the frame resulted merely in a component of the patent of the article “from which a new screen could be [and was] made”.

In the present case, at least in relation to the pre‑April articles, the stripping down resulted in a container being used by the new circuit board and a new memory chip was added and, indeed, the attachment mechanism was changed.  Thirdly, paragraph 56 rejects an approach where the inventive concept is the answer.  If I could then go to paragraphs 65 and 66, we submit, firstly, they say:

the bottle has a significantly lower life expectancy than the cage –

Just for your Honour’s reference a picture of the bottle appears on page 586.  It is a sort of a soft plastic bottle inside a cage.  But coming back to 65:

First, the bottle has a significantly lower life expectancy than the cage – and, presumably, than the pallet.  In particular, one would anticipate –

We emphasise the word “anticipate” – that is, the purchaser would anticipate - the vendor would anticipate the purchaser anticipating:

replacing the bottle, on average, five or six times during the life of the cage.  The fact that one would expect –

emphasise “expect”:

the bottle to be replaced in this way reinforces the notion that it is a subsidiary part.  Another aspect of the same point is that the bottle is also physically less substantial . . . made of plastic ‑

et cetera.  Then in 66, the last paragraph after the quote from United Wire, it says:

In principle, a purchaser of a patented article, as I see it, should be taken as entitled to make such an assumption –

and the assumption his Honour is referring to – his Lordship is referring to, at the beginning of paragraph 66:

Looking at the point another way, if the cage has a much greater life expectancy than the bottle, a purchaser of an IBC might well expect to be able to replace the bottle.

That is the Supreme Court indicating that the expectations of the parties are a relevant factor in working out whether there is a making.  At the top you see a mutual expectation, which is obvious from the nature of the article.  Then paragraph 67 ‑ I have dealt with paragraph 67.  At paragraph 67 – I am sorry, perhaps I will come back to a separate point on paragraph 67, the last sentence:

It therefore seems to me that it must be legitimate, in the context of addressing the question whether a person “makes” the patented article by replacing a worn out part, to consider whether that part includes the inventive concept –

So the application of that principle involves looking at a worn‑out part.  We do not have one of those here.  At paragraph 70:

Two further factors . . . carry some weight . . . They can be highlighted by contrasting the facts of this case with those in United Wire.  In this case, the replaced part, the bottle, is a free‑standing item of property, which does not include, or relate to, the inventive concept.

That is not the case here.  At paragraph 71, about the middle of that paragraph:

In United Wire, unlike in this case, (i) the replaced part was integrally connected to the retained part, so the work included a significant element of demolition, (ii) the replaced part was subjected to significant improvement work –

et cetera.  That is the same as here.  There is no freestanding element here, unlike that case, and the demolition of the container, I believe, involves putting a hole in it to make it useless, but also involves the replacement of circuit boards and memory chips, and a remaking.  If it looks like a remaking, feels like a remaking, it is a remaking. 

Then briefly in relation to the US cases.  To the extent one is applying making, these are only adjectivally relevant, we would respectfully submit.  But be that as it may, if one goes back to Aro, in volume D, at tab 13, page 337, about line 50, convertible folding tops - it was about convertible folding tops of a car and the fabric in it.  That is what the issue was.  At the bottom of the page it says:

The components . . . other than the fabric, normally are usable for the lifetime of the car, but the fabric has a much shorter life.

Again, that is consistent with the expectation of the parties, and then at 357, if I may go to it.  I am sorry, your Honours, I am already there.  I think they refer to the Court of Appeal’s, which they reject, the approach in 40 to 50 about how long it might be expected - the life of the fabric might be expected to last.  But then if we go to 361, at about line 22, there is a reference to seems to be regarded as a…..decision, Wilson v Simpson.  About line 35:

concerned a patented planing machine which included, as elements, certain cutting knives which normally wore out in a few months’ use . . . The Court explained that it is “the use of the whole” of the combination which a purchaser buys –

and the whole was a cutting machine which was, we would say, apt to last much longer than the knives.  Then the next paragraph on about line 12:

The distilled essence of the Wilson case was stated . . . in United States v Aluminum . . . “The [patent] monopolist cannot prevent those to whom he sells from . . . reconditioning articles worn by use, unless they in fact make a new article.”

We do not have that issue here with no worn by use.  Then if we look at the footnote to this, footnote 9, at about line 48 there is a reference to cases which are described as coming “within the Wilson case”, then there is reference to Cotton‑Tie:

the only other repair‑reconstruction case decided by this Court since Wilson, found infringement by one who bought up, as scrap metal, patented metal straps, used in tying cotton bales, after the straps had been used and severed . . . and who then welded or otherwise reconnected the straps at the severed point and resold them for further use in baling cotton.  The case is distinguishable on its facts, and the fact that the ties were marked “Licensed to use once only,” –

So go to reconstruction ‑ ‑ ‑

GAGELER J:   Mr Bannon, can I just ask you a question?  At paragraph 14 of your outline of oral argument you have some key factual matters you set out as paragraphs (a) to (f).

MR BANNON:   Yes.

GAGELER J:   Am I correct in understanding that on the test of “making” that you propound it is really only paragraphs (d), (e) and (f) that are material?

MR BANNON:   Yes.  Well, except ‑ ‑ ‑

GAGELER J:   That is, they…..

MR BANNON:   I am sorry, your Honour.  Except that (c) informs the making.

GAGELER J:   Well, really, because they could be repaired but if the repair ‑ ‑ ‑

MR BANNON:   I am sorry, your Honour?

GAGELER J:   The cartridges may well have needed repair but if what was done to them created any physical difference you would say that would amount to a making, would you not?

MR BANNON:   Well, no, because – well, sorry, if by way of repair because something had worn out, an element was replaced, it was a repair, then…..it was something different, it is not a making because it is a repair because it is part of the ordinary use.  It is not a right to repair, it is part of ordinary use.  So you can – you will create something which is different because it has a different integer to what was supplied, but if it is replacing a worn‑out part then it is not a making.

GAGELER J:   In any event, (a) and (b) are decisive.

MR BANNON:   Well, (b) fits within paragraph 74 of United, that it is relevant to considering whether there is a making because there is a factual question at the end of the day.  If things are dead and buried and discarded and picked up and may come to light again that is…..I accept, as Justice Gordon indicates.  You cannot go too far with it.  It is a factor that bears on it and single‑use cartridges – the provision we have just looked at says it is licensed to be used only once, that is a relevant factor, and the mutual expectations of the parties is relevant to whether there is a remaking.  So all of the matters, we submit, we rely…..  I am endeavouring to support each of those matters as I go through by reference to passages in these judgments.

EDELMAN J:   Mr Bannon, this Court has for nearly a century applied an approach in property law to the making of a new thing based upon a decision in Doodeward v Spence, which looks to matters like whether the nature or character of a thing has changed and the extent of the work and skill that has been expended on the change.  Is there any reason why the same approach would not apply here?

MR BANNON:   We submit it should not be applied because…..informed is the law of “making” in relation to patent matters, for the reasons that I am seeking to identify, your Honour.  So we say one cannot transport that into this arena.  When I say that I confess I am not familiar with that case, but that is my…..response to it.

If I could then, at paragraph 364 – sorry, I have already addressed that part - …..I did address it but just to emphasise as far as this Supreme Court is concerned, the last few lines on 364 that the “license” – again, using language “license”:

“to preserve its fitness for use so far as it may be affected by wear or breakage.”

That is not the case here.  It does not apply.  Cotton‑Tie – I am terribly sorry about the time I am taking, your Honours – can I point out, possibly in the briefest of manners, give some references to parts of four more judgments, then I will sit down, if I can do that.  Firstly, Cotton‑Tie, volume D, tab 18 at page 504 of the book there is a reference there at about line 15:

“Licensed to use once only” –

At 506, at line 40, there is a buckle and it was of a particular design and wires were attached to each of it, around a cotton bale, and the cotton bale expanded and a connection was made.  The ties were cut and discarded.  The defendant here collected the cut bits and pieced them together and put them back with the old buckles and…..discarded buckles they used a second time but not in the form in which they were provided.  Then, at page 507, at lines 10 to 20, there is reference to:

The band was voluntarily severed by the consumer at the cotton‑mill because the tie had performed its function –

in this case, voluntarily tossed in the bin.  In the last couple of lines, referring to Wilson v Simpson:

The principle of that case was, that temporary parts wearing out in a machine might be replaced to preserve the machine, in accordance with the intention of the vendor –

Obviously, that has to be read as not the unilateral intention but an intention discernible from the nature of the article.

Then, behind tab 22, this is the decision of Sandvik.  At 577, what appears is about drill tips.  Paragraph [5], in the bottom left‑hand column, the replacement of the drill tip – they have:

become spent, including the nature of the actions by the defendant . . . and objective evidence of the intent of the patentee. 

Then, at 578, about line 18, left‑hand column:

The drill tip was not manufactured to be a replaceable part –

And the right‑hand column, about line 22:

no objective evidence that Sandvik’s drill tip was intended to be a replaceable part . . . does not turn on the intention of the patentee alone –

et cetera.  Then Jazz Photo, which our learned friend referred to.  There are a couple of references in that.  That is a separately provided report.  At page 10 of the copy provided for the Court – 1103 native, right‑hand column at the bottom of the page, paragraph [11]:

Precedent has classified as repair the disassembly and cleaning of patented articles accompanied by replacement of unpatented parts that had become worn or spent, in order to preserve the utility for which the article was originally intended.

The utility was single use, we say, in this case.  Then, in page 11, the right‑hand column, there is a reference to Sandvik at line 45, and reference to it being “spent”, over the page.  Lastly, in Husky - sorry, sticking with Jazz for one moment, at page 13, right‑hand column, line 23:

However, the patentee’s unilateral intent, without more, does not bar reuse of the patented article . . . See Hewlett-Packard -

I think that is my answer to what your Honour Justice Bell raised – if that is sufficient.

Then, lastly, Husky, which is in tab 19 of volume D.  It starts at page 509.  There is one reference to page 514.  This is post‑Jazz, looking at line 22.  What appears there between 22 to the bottom of the page, we rely on.  Can I draw attention, too, your Honours to what appears in relation to Sandvik – it talks about objective intention, et cetera.  Sandvik, at line 36, “certiorari denied”.  So, the US Supreme Court would not take that up – suggested it was wrong.  In footnote 3, said see also Jazz Photo Corp – “readily replaceable parts”, I think, at line 51.

I am sorry for rushing a bit towards the end.  Thank you, your Honours, for giving me that extended time.  May it please the Court.

KIEFEL CJ:   Yes, thank you, Mr Bannon.  A short reply, Mr Shavin?

MR SHAVIN:   Yes, if the Court pleases, I will seek to make four short propositions.  First, in relation to our friend’s submissions on the question of “making”, our friends have adopted an extreme position that suggests that the purchaser of a product has no rights in relation to the product, that, as Lord Hoffmann said in United Wire, there is on one side repair, modification and improvement and on the other is making. 

Our friends invite this Court to reject the approach of Lord Hoffmann in United Wire and to extend the rights of a patentee so that the purchaser of a product is no longer entitled to improve or modify.  We remind the Court that even the Privy Council in Menck recognised that when someone purchases a product they have full rights in relation to it, and that can be found in Part C, tab 11, bundle number 316:

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 -

Our friends would give no rights of ownership other than pure repair; no right to improve or modify.  In our respectful submission, that is in error.  Our friends conceded that unilateral intention was not sufficient and yet in this case it has been accepted that there was no notice or condition imposed on the sale. 

If I could respond to a question advanced by Justice Edelman to me at pages 49 and 50 in relation to Lord Strathcona, the only comment we would suggest to your Honour in relation to the principle as to what would happen if there was knowledge and a common intention of the parties is that for there to be a right for equity to intervene in relation to later parties, later purchasers, there would have to be an acceptance of the condition, so that equity would impose in conscience if a subsequent purchaser had both knowledge of a condition or obligation and had accepted it and on the acceptance equity intervenes.  In our respectful submission, that can be found in the page to which your Honour referred.

EDELMAN J:   Would you accept that that approach would apply on the exhaustion of rights approach and, if so, is it reflected in the American cases?

MR SHAVIN:   In our respectful submission, not as an incident of the patent right.  The concept of exhaustion is that once the patentee sells a product put by themselves and their licensee and puts it into the public domain, the patent right in relation to that product comes to an end.  That does not deal with “making” because upon making there is a presumption that there is a new product.  But in relation to the product that is supplied the patent right ceases.  If there are conditions then, as a matter of contract or equity, contract or equity will survive but not as a matter of patent law.  I think I might leave it at that point.

In relation to the making, in our respectful submission, our friends are ignoring all of the jurisprudence to which we went yesterday, which showed that “repair” has a very wide connotation and, as Lord Hoffmann said, it includes modification improvement.  Thus our friends would have this Court take Australia to a high point of patentee rights, unmatched in the United Kingdom or in America or in Europe. 

We would urge the Court to be very cautious before it took that position, that there is no basis for rebalancing the right of an owner and the right of a patentee so dramatically in favour of the patentee where there is no indication in the legislation that that is the appropriate outcome.

I have only two further comments to make.  Yesterday, I very briefly referred to the provisions of section 144 of the Act and, in our respectful submission, a careful consideration of the whole of that provision shows that our friends are in error in suggesting that section 144(4) suggests that there has to be a right infringed - imposed by a condition…..patentee. 

For the reasons that we advanced yesterday it is a very broad provision, which shows that if there was a condition anywhere imposed by a patentee seeking to leverage by tying arrangements or…..enforcing arrangements, any other person is a person who can then avoid an allegation of infringement which can be unrelated to the contract in which the relevant condition can be found.  That is the penal provision that is contained in section 144 of the type described by Justice Floyd at first instance in Schütz, to which we referred yesterday.

Then, finally, our friend, I suspect just in error, suggested that the report of IPAC was a report of the legislature.  Of course, it was not.  It was an independent report in 1984.  It is not the legislature and what is contained in the IPAC report is not admission by the legislature.  We pointed yesterday and remind the Court of the terms of the explanatory memorandum which, in our respectful submission, make it clear that there is in Australia, in addition to any presumption by the Court of a licence, the extension to which there is exhaustion doctrine in Australia. 

It is referred to in the explanatory memorandum as applied by this Court on a case‑by‑case basis and, in our respectful submission, nothing can be drawn to suggest that the legislature intended that there be no doctrine of exhaustion applied in Australia.  Unless there is any further way in which we can assist the Court, I know that I have done that very briefly, but those are our submissions.

KIEFEL CJ:   Yes, thank you, Mr Shavin.  The Court reserves its decision in this matter and adjourns until 2.15.

AT 12.48 PM THE MATTER WAS ADJOURNED