Calidad Pty Ltd & Ors v Seiko Epson Corporation & Anor

[2020] HCATrans 106

[2020] HCATrans 106

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 TUESDAY, 11 AUGUST 2020, AT 10.03 AM

Copyright in the High Court of Australia

____________________

MR D. SHAVIN, QC:   May it please the Court, I appear for the appellants, with MR P.J.T. CREIGHTON‑SELVAY.  (instructed by Gilbert +Tobin)

MR A.J.L. BANNON, SC:   If it please the Court, I appear with my learned friends, MS C.L. COCHRANE and MR D. LARISH, for the respondents. (instructed by Quinn Emanuel Urquhart & Sullivan)

KIEFEL CJ:   Yes, Mr Shavin.

MR SHAVIN:   May it please the Court.  The general issue raised by this appeal is whether and, if so, to what extent, a patentee can control or limit what may be done with a patented product after it has been sold by or with the licence of the patentee.  It was recognised by the trial judge and by the Full Court as an important question concerning the scope of the monopoly. 

The effect of the judgment of the Full Court was to conclude that upon sale of a patented product the purchaser was granted an implied licence to use or sell the product and in determining whether modifications to the product by the purchaser infringed the patent by constituting the making of a new embodiment to elevate the importance of Seiko’s intention that its patented products be a single use to a prohibition constituting infringement under the Patents Act if its products were modified for re‑use, and to extend the monopoly granted by Seiko’s patents beyond the scope of their claims to unclaimed or generic parts of the patented products.

In doing so, it is our submission that the Full Court made a number of errors of principle.  The time has come, in our respectful submission, for this Court, for the first time since 1908, to affirm the correctness of the decision of this Court in Menck in 1908, which applied a doctrine of exhaustion – that is, that all patent rights in a product were exhausted at the time of first sale, before the Privy Council, in 1911, took the law, we say, in the wrong direction and held that instead of patent he retained control after sale by finding that a purchaser had an implied licence to use, repair and sell the product.

In our respectful submission, this Court’s analysis in 1908, which was done by applying the common law in the light of the terms of the Australian Patents Act, was correct in its approach and is the approach that ought be affirmed by this Court today.  The effect of the approach below has been to, in an unwarranted manner, extend the power of a patentee to exercise monopoly rights beyond the scope of its invention with detriment to the public in a lessening of competition.

The application of the exhaustion doctrine to the facts of this case, in our respectful submission, compels the conclusion that the appellants did not infringe Seiko’s patents.  However, the modifications by Ninestar did not constitute the making of new infringing embodiments.  Alternatively, if it affirmed the implied licence approach adopted below it is our contention that the conduct in importing and selling modified versions of the patented products nevertheless fell within the terms of the implied licence. 

The issue might come into sharper focus if an element of the reasoning below was adopted by this Court, that is, that if the Court affirms that below the approach, if there were to be an implied licence, was correct in looking at the purpose of the patentee in projecting their product onto the market that would result potentially in a different outcome to adoption of an exhaustion doctrine where the purpose of the patentee would on any view not be relevant.

The court below, in making the errors we identified in paragraphs 12 to 17 of our outline of oral argument, wrongly concluded that the modifications made by Ninestar resulted in the making of a new embodiment and, in particular, in determining that the intention of the patentee, regardless of the terms of the…..was a matter…..into account and was determinative in identifying the modifications as resulting in the making of a new embodiment that infringed.  Finally, if the Court was against us, it is our respectful submission that in any event it was inappropriate to grant an injunction in the general form, but we will address that very shortly at the end.

Can I briefly outline the overview of the proceedings below?  Seiko sued the appellants for infringement of two patents, the 643 and the 239 by the importation and sale of printer cartridges that had been modified.  The parties, both at trial and on appeal, agreed that there was no material difference between the disclosures in or claims of the two patents and the dispute was determined by reference to claim 1 of the 643 patent, which is found in the appellant’s books of further materials at tab 1.  Page 9 of that volume, at paragraph [0002], the patent identifies that:

it has become common practice to equip ink cartridges . . . with a device, for example, a memory for storing information relating to the ink.

In paragraph [0003], a problem of shorting of certain terminals was identified and the claimed invention provides:

a structure for preventing the information storage medium from shorting –

Now, the claim is set out on page 62 of that volume and it has 11 integers.  The first three integers are quite generic:

A printing material container adapted to be attached a printing apparatus by being inserted in an insertion direction, the printing apparatus having a print head and a plurality of apparatus‑side terminals, the printing material container including –

and what is important and will assume some importance is:

a memory driven by a memory driving voltage ‑

The third integer is:

an electronic device driven by a higher voltage than the memory driving voltage –

and then there are a number of detailed integers which will come later.

The primary judge in the Full Court dealt with claim 1 on the basis that it had 11 integers and a further place in finding the integers and their breakdown is in the decision below, which is to be found in the core appeal book at tab 7, at page 242 or paragraph 212.  The specification recorded that it had been common practice using cartridges and memory and this was held by the primary judge at paragraph 183 and in the Full Court at paragraph 214.

I should indicate at this stage that there were no issues in the appeal below – fact – nor are there here.  The issues, rather, go to characterisation.  Thus, integers [1] and [2] of the claim were generic parts of the claimed invention and the inventive step is to be found ‑ or the substance of the invention is to be found in the later integers. 

I should note that there was an error in our original outline where, at paragraph 24, we have incorrectly used the word “infringement” when we should have used the word “modification”, and I apologise to the Court for that error.  So that in paragraph 24 of our outline at about line 20 the word “infringement” is an error and if I could ask that that be modified to “modification”.

The solution to the problem of shorting resided in integers [4] to [11], which is the spatial arrangement of the terminals with contact portions on the ink cartridges, and the Full Court referred to this at paragraph 215 on core appeal book page 243 and the primary judge at paragraph 199, core appeal book 66.

Seiko sold and authorised the sale of original Epson cartridges which embodied the invention in claim 1 and also in the 239 patent.  Those cartridges were compatible with one or more Seiko printers.  Seiko designed the cartridges to try and ensure that when the ink ran out the cartridges would be replaced and had a worldwide business supplying replacement cartridges - Full Court paragraph 19, core appeal book 177. 

A company called Ninestar is in the business of supplying generic printer consumables in over 100 countries - Full Court at paragraph 20.  Ninestar obtains and restores to working condition print cartridges from numerous original equipment manufacturers including Hewlett Packard, Canon, Brother, Lexmark, Dell and, of course, Seiko.  The appellants operate a business which competes with Seiko in the supply of replacement cartridges for Seiko’s printers in Australia.  Calidad obtains its replacement cartridges from Ninestar, which it imports and sells in Australia. 

There is no dispute at trial or on appeal that the modified cartridges imported and sold by Calidad fell within the scope of claim 1 of each of the patents.  The nature of the modifications made by Ninestar were the subject of detailed findings of fact by the primary judge by reference to seven categories of cartridge sold by Calidad, plus a category A and B.  They are recorded in the core appeal book at pages 202 to 209 and none of these findings of fact were challenged on appeal, nor are they challenged here. 

The critical question is whether, either by reason of the doctrine of exhaustion or the grant of an implied licence, the owner of those cartridges, namely, Ninestar and then Calidad could treat them as ordinary chattels and refill them, modify in the manner found by the primary judge and sell those cartridges without infringing the claims.  That question arose in circumstances where Seiko had sold and authorised the sale of those cartridges and had therefore reaped an economic reward from its patent monopoly.  Seiko had taken steps to prevent the reuse of those cartridges so that without modification owners of those cartridges would be compelled to buy new cartridges from Seiko once the cartridges ran out of ink.

Now, if at this stage I could identify for the Court the doctrine of exhaustion and why, in our respectful submission, the Court ought recognise that doctrine as applicable to the 1990 Act. Section 13 of the Patents Act - and the sections are found in Part A of the joint book of authorities. There are two versions relevantly in the book, but they are not relevantly different so that in tab 4 at page 18 the Court will find section 13 of the Act and the most current version can be found in tab 5 at page 55.

So, subject to this Act, a patent gives the patentee the exclusive right during the term of the patent to exploit the invention and to authorise another person to exploit the invention, and the term “exploit” is found in the dictionary and under tab 4 - that is at page 49 - and in tab 5 the Court will find that at page 67, which relevantly is:

in relation to an invention, includes:

(a)where the invention is a product‑‑make, hire, sell or otherwise dispose of the product, offer to make, sell, hire or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things -

Interpreted expansively, section 13 would involve a collision with what was described by this Court in 1908 - and has not been challenged - as an elementary principle of the law of personal property that an owner may use and dispose of chattels. This was identified by Chief Justice Griffith in Menck, and Menck will be found in volume C of the joint bundle of authorities at tab 10, if I could take the Court to that at page 263.  This is part C of the joint bundle.  In the reasons of the Chief Justice:

It is an elementary principle of the law of personal property that the owner of chattels has ‑ ‑ ‑

KIEFEL CJ:   Mr Shavin, what page of the report are you reading from?

MR SHAVIN:   Page 510, if your Honour pleases.

KIEFEL CJ:   Thank you.

MR SHAVIN:   I am at about line 29:

It is an elementary principle of the law of personal property that the owner of chattels has an absolute right to use and dispose of them as he sees fit, and that no restrictions can be imposed upon this right, except by positive law or by his own contract. The right asserted by the plaintiffs in this part of their case must therefore depend upon the meaning of the words “use” and “vend” in sec. 62 of the Act.

Now, this Court then in Menck considered how the elementary common law principle of personal property that an owner may use and dispose of chattels and the rights granted by the Patents Act 1903 to the owner of a patent could be reconciled.  The Court held that the exhaustion doctrine accorded with the terms of the Patents Act and the Chief Justice, with whom Justices Barton and O’Connor agreed, proceeded then to construe those terms, the term “use”, the term “vend” and the term “invention”, and I will take the Court to that in just a moment, but that can be found in the page of the report at page 511, line 37, to 512 line 31 in the reasons of the Chief Justice and in Justice O’Connor at page 531 of the report, lines 1 to 30.

The doctrine of exhaustion is a common law doctrine rooted in the preservation of the elementary principle of the law of personal property that the owner of chattels has this absolute right to use and dispose of them. That general principle was confirmed by the Privy Council on appeal, which is to be found in tab 11, and the affirmation is at page 22 of the Commonwealth Law Report version – so that is at 12 CLR 15, which appears at bundle of authorities tab 11, page 303, and at page 22 of the report which is at the bundle, page 310 at lines 16 to 19, the Privy Council said:

To begin with, the general principle, that is to say, the principle applicable to ordinary goods bought and sold, is not here in question.

Put another way, it is a doctrine to which gives expression to the general principles identified by Justice Gibbs in Interstate Parcel Express, to which we will come, namely that the sale of an article confers on the buyer all the rights of ownership, including the right to use the article.  So that is founded in this fundamental common law principle that the law of the doctrine of exhaustion of rights has been developed.  

When understood in this way, the doctrine simply gives effect to basic and longstanding principles.  This Court in Menck held that the doctrine of exhaustion provided the doctrinal explanation as to why the Patents Act 1903 did not, by a sidewind effect:

a change in the fundamental principles of the common law –

regarding ownership of chattels, and that can be found in the Commonwealth Law Reports, page 512.  Perhaps it would be easiest to take the Court to some of the key portions of the reasoning of the Chief Justice, which starts, relevantly, at page 509 of volume 7 of the Commonwealth Law Reports, which is page 262 of the bundle.  At line 19, the Chief Justice starts with Webster’s Patent Reports, in a note to the case of Crane v Price:

“For suppose a particular article, starch for instance, to be the subject of letters patent, and that all the starch in the country was patent starch; there are attached to the making and selling of that article certain exclusive privileges, but the individual who has purchased it of the patentee has a right to sell it again, and to use it at his will and pleasure; the exclusive privileges are, in respect of that particular portion of the article so sold, at an end, and do not pursue it through any subsequent stage of its use and existence . . . Hence it is obvious, that if a person legally acquires, by licence or purchase, title to that which is the subject of letters patent, he may use it or improve upon it in whatever manner he pleases; in the same manner as if dealing with property of any other kind.”

This passage was referred to by the Supreme Court of the United States in the case of Bloomer v. Millinger, as authority for the proposition laid down by the same Court in the earlier case of Chaffee v. Boston Belting Co., that “when the patented machine rightfully passes from the patentee to the purchaser, or from any other person by him authorized to convey it, the machine is no longer within the limits of the monopoly.

If one then moves to page 511 of the Commonwealth Law Report, to line 31:

As Erle L.C.J. said:‑‑“The object is to give to the inventor the profit of his invention; and the most effectual way of defeating that object would be the permitting others to derive from the sale of the patent article the profit which it was intended to secure to the patentee.”

But the same considerations do not apply to a patented article made and sold by the patentee himself or his licensee, and which has therefore come into lawful existence and circulation as a chattel, the owner of which is entitled to make such use or disposition of it as he pleases, unless forbidden by Statute.  Such an article may be regarded, to use the American phrase, as having “passed out of the limit of the monopoly”.  In my opinion, the words “use the invention” mean put the invention, i.e., the idea, in practice for the purpose of bringing some new thing into existence, or effecting a physical change in some existing thing, and do not mean or include the case of making use of the product of the invention except in the case where the product has been brought into existence without the licence of the inventor.

There is more apparent difficulty in the use of the word “vend”.  The meaning of “invention” as the object of that verb, cannot, I think, be limited to the idea.  If it means the product of the invention simpliciter, and applies to all products, it would follow that by the introduction of that word into the English Patent Act of 1883 a radical change was effected in the law of personal property, and that there came into existence a new class of chattels to which is attached the quality or character of being inalienable without the consent of some person other than the owner, although that other has no right of property in them.  The difficulty or ease of proving that consent is not material for this purpose.

It is the next paragraph to which we particularly draw the Court’s attention:

Having regard to the manner in which the word “vend” came to be introduced into the Statute book, and to the recognized rule that the legislature is not to be taken to have made a change in the fundamental principles of the common law without express and clear words announcing such an intention, I think that the words “vend the invention” mean to put the product of the invention in the possession of the public, and do not refer to any sale of the article after it has once, without violation of the monopoly, become part of the common stock.

That is the essence of the doctrine as articulated by Chief Justice Griffith in this Court.  Justice Barton, at page 523 of the Commonwealth Law Report, which is at page 276 of the bundle, agreed with the Chief Justice and noted at page 524, line 3:

Indeed, when an article has once been sold by the patentee, or his licensee, the object of the law has been attained; the patentee has . . . intended he should receive, and any subsequent sale of the article is not within the meaning of the prohibition contained in the patent.”

Page 525 referred to another American authority of Keeler v Standard Folding at lines 18 and 19 which was relied upon subsequently by a decision of the United States Supreme Court in Impression Products, to which I will come shortly.  He also referred to at page 524, line 14 to a decision of Bloomer v McQuewan which was also relied upon by the United States Supreme Court in Impression Products.

Justice O’Connor at Commonwealth Law Report page 527, which is bundle of authorities page 280, also…..with the Chief Justice and at page 528 of the Commonwealth Law Report, bundle 281 at lines 41 and following referred to the American jurisprudence:

In America of late years the same question has been raised, and the decisions of individual Judges in the Federal District and Circuit Courts have been contradictory.  The Supreme Court of the United States has never had to decide this particular question, but it has in many cases stated the general nature and extent of the rights conferred by the grant of a patent in terms which would be equally applicable to the case of a patent under British law.

It refers to a passage from the judgment of Justice Miller in the majority of the curt in Adams v Burks where he said:

“The right to manufacture, the right to see, and the right to use are each substantive rights, and may be granted or conferred separately by the patentee.

“But, in the essential nature of things, when the patentee, or the person having his rights, sells a machine or instrument whose sole value is in its use, he receives the consideration for its use and he parts with the right to restrict that use.  The article, in the language of the Court, passes without the limit of the monopoly.

That was the foundation by which this Court concluded that as a matter of construction of the Australian Act, once a patentee or their licensee has sold the product of an invention and passed it to the public ownership of that product goes to the purchaser who may do with it as they would with any other chattel.  There was no need to imply a licence let alone do, as has been done in the court below, and start to construe the licence and imply terms and conditions into it, whether or not those terms and conditions were subsequently known.

It is perhaps at this stage appropriate then to see what happened in the Privy Council and this is found in volume 12 of the Commonwealth Law Reports at tab 11.  It disagreed with this Court and perhaps the following propositions can be drawn.  First, the Privy Council did not suggest that there was any foundation in the terms of the 1903 Act for the applied licence doctrine.  Second, the Privy Council considered – and this can be found at page 22 of the Commonwealth Law Report and page 310 of the bundle – this is at line 42:

In the opinion of their Lordships it is perfectly possible to adjust the incidence of ownership of ordinary goods with the incidence of ownership of patented goods in such a manner as to avoid any collision of principle.  In their Lordships’ view this has been done for a long period of years in England by decisions which are consistent and sound.

So the Privy Council recognised the conflict but rather than dealing with it as a matter of construction and the application of common law doctrine the Privy Council sought to achieve an adjustment with what it said was a long line of authority and the long line of authority came from a decision in Betts v Willmott. 

Betts v Willmott was a decision in 1871 by the House of Lords in a speech of Lord Hatherley who was the Lord Chancellor ‑ I am sorry, Chancery Appeals by a speech of Lord Hatherley, the Lord Chancellor. Lord Hatherley ultimately asserted the existence of an implied licence but without a detailed reasoning at, relevantly, page 244. I think the Court has been provided separately with a copy of this decision. It is reported 6 LR Ch App 239. At page 244 in considering – perhaps if I could go to line 38:

Supposing a man to have a patent in France and a patent in England, and he establishes manufactories in each country, it is contended that if he sells the patented article in France it is for the French market, and it does not justify a person buying the article in France, and bringing it over to England, and using it here; and Mr. Grove put the case of his having sold the English patent to an assignee, and still continuing the manufacture in France, and asked if the importer of any article sold in France would not come within the doctrine of Caldwell v Vanvlissengen.  No doubt, in the case so put, the importer would be restrained, because the license to sell, which belonged originally to the patentee, would then be vested in his assignee; and therefore no license in England given by the original patentee after he had sold the patent could authorize the use of the article, so as to defeat the right of the assignees in England.  And, of course, in exactly the same way, if the original patentee assigned his patent in France, no sale by him in England would be allowed to defeat the rights of the assignee in France.  In other words, it comes within the doctrine of leave and license, and there could be no leave and license in such a case.  But where a man carries on the two manufactories himself, and himself disposes of the article abroad, unless it can be shewn, not that there is some clear injunction to his agents, but that there is some clear communication to the party to whom the article is sold, I apprehend that, inasmuch as he has the right of vending the goods in France or Belgium or England, or in any other quarter of the globe, he transfers with the goods necessarily the license to use them wherever the purchaser pleases.  When a man has purchased an article he expects to have the control of it, and there must be some clear and explicit agreement to the contrary to justify the vendor in saying that he has not given the purchaser his license to sell the article, or to use it wherever he pleases as against himself.

Now, that is the foundation that has been relied upon by the Privy Council and, indeed, subsequently as the source of the implied licence.  The difficulty, of course, is that, as we will see below, that licence has become a very complicated fiction, that to overcome the perceived difficulty of how a purchaser can use or sell a patented product, lawfully acquired, it has been necessary to create the implication of a licence into which the courts are now starting to append additional terms, none of which ‑ ‑ ‑

KIEFEL CJ:   Mr Shavin, was there a feature of Betts v Willmott which you say explains why Lord Hatherley felt the need to attach a licence to use the goods, the subject of the patent?

MR SHAVIN:   Your Honour, he was simply seeking, in our respectful submission, to explain why it was that a person who had an assignment of a patent in France but did not own the patent in England did not have a right to import to England a product manufactured under the assigned patent in France.  He was explaining the way in which the rights would flow. 

There was no feature of that which rendered it necessary to start implying licences of the type that have been discussed subsequently.  It would simply be that in the United Kingdom the product had not, in fact, been produced by the owner or by or with the authority of the then owner of the patent because it had been produced by a different owner of the patent in France.  That was the simple fact situation with which Lord Hatherley was dealing. 

The second case that was dealt with by the Privy Council was Société Anonyme and that does not deal with implied licences at all.  This case is to be found in Part D of the joint bundle in tab 24 and at bundle page 613.  This is in cases determined by the Chancery Division - Société Anonyme des Manufactures de Glaces v Tilghman’s Patent Sand Blast Company, a decision of the Court of Appeal.  If I could take the Court to page 9 of the report and page 613 of the bundle at line 51:

When an article is sold without any restriction on the buyer . . . gives the purchaser an absolute right to deal with that which he so buys in any way he thinks fit –

As Justice Gibbs said subsequently in Interstate Parcel, this statement was not framed in terms of any implied licence but accords more with general principle.  So, that the two principal cases that the Privy Council pointed to as the foundation of this long line of authority do not provide an analysis of the type that was undertaken by this Court, nor do they consider the position in the American authorities, in our respectful submission, and the underlying logic to the approach which this Court adopted in 1908.

What this Court did in 1908 was to balance the interests of the public and the interests of the patentee by ensuring that the policy by which the patentee achieves a reward for the invention is not balanced by an undue burden on the purchaser who does not lose in those circumstances the usual incidence of having acquired a chattel, whereas the effect which we will see came from the application below of the implied licence doctrine is to expand greatly the monopoly right given to the patentee to the point, as we shall see, that if the patentee has an intention to preserve a monopoly over the ingredients, for example, the ink in a printer cartridge, they can do so by saying that their intention is to sell a product to be used only once, notwithstanding the waste, and that anybody who modifies that product by drilling a hole in it, filling it with ink and sealing the hole up, for example, would be remaking the product and infringing the patent because they would be in breach of a term of the implied licence. 

That gives far more than the reward due from the invention and has a clear effect on competition and an adverse effect on the public welfare from unduly expanding the patent rights.  Indeed, as we will see, when determining whether or not something has been made in breach of that licence, Justice Yates below found that it was not necessary to found the conclusion on the integers of the claim.  Justice Yates and Justice Jagot thought as dispositive whether the embodiment was different from that that had been projected onto the market because it was reusable without assessing whether the modifications were in fact to integers claimed or whether they were significant to the invention.

The Privy Council in Menck failed to consider any of the US authorities canvassed by this Court.  The Privy Council recognised that the result of the implied licence analysis adopted caused hardship to Mr Menck and gave him some of his costs.  Finally, it came up with three propositions which can be found in the CLR, page 28, but I can summarise them:

a sale sub modo, or accompanied by restrictive conditions which would not apply in the case of ordinary chattels; secondly, that 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; while thirdly, the owner’s rights in a patented chattel will be limited if there is brought home to him the knowledge of conditions imposed, by the patentee . . . upon him at the time of sale.

Mere knowledge again extends the rights substantially after the first sale.  However, nothing in the Privy Council’s speech in Menck provides support for the sort of analysis that I have just described at a very high level that…..taken below.  The Privy Council did not contemplate and was not concerned with the scenario which has arisen in this case, namely, a sale sub modo but where the patentee merely intended that the goods be subject to restriction, namely, single use, it having been accepted below that there was no express condition imposed and there is no appeal, relevantly, from that.

Similarly, the Court in Betts was concerned with some clear and express agreement to impose a condition.  Thus, in the Privy Council, in our submission, there is no authority for the scope of the implied licence in the scenario in this case, nor should the analysis of the Privy Council be preferred by this Court to the careful analysis by this Court in 1908 based on the Australian Act, and an application of the common law in this country, and that in light of the development that has occurred in this case, which shows a clear public detriment, in our respectful submission, from the application of the implied licence principle, it is appropriate for this Court to affirm its reasoning in 1908 and to assert as part of the common law and…..construction of the Act, the principles of exhaustion.

KIEFEL CJ:   Mr Shavin, what does the Court do with the fact that matters have proceeded in Australia by reference to the implied licence theory, and legislation in Australia, and in particular the 1990 Act had been passed with that body of authority that has grown up around it, not having been challenged at any point in over a century?

MR SHAVIN:   Your Honour, in our respectful submission there is no part of the 1990 Act which identifies an implied licence.  The issue of the implied licence has come up remarkably little.  It came up, as is clear from the outlines, as dicta in the IPEC Case.  It came up in that context, which was a copyright case, by way of analogy as to whether or not the principles would be applicable in relation to copyright, and this Court said they were not.  Sir Ninian Stephen expressed the view that the whole of the analysis was irrelevant to the case before it because it did not apply.  We will come to that shortly.

In many cases, it will not have an impact.  But there is no provision ‑ I will come to section 144 later ‑ but there is no provision of the 1990 Act which is predicated on the existence of an implied licence rather than the application of the exhaustion doctrine and, indeed, in our respectful submission, the exhaustion doctrine fits more comfortably within the definition of “exploit”.  With “vend” there is nothing in the definition which says that the rights should follow the goods, rather that there is a power to sell, to offer the sale, to make the sale. 

As I said, section 144, when it is understood, has no application.  It is not influenced by whether or not there is an implied licence.  There is no resale right embedded in the Act anywhere.  Can I perhaps deal a little bit more with the implied licence, and then come to section 144, if your Honours please.  But we will see that section 144 deals with a completely different issue.  Section 144 initially came into the Act at the time when the decision of this Court in Menck in 1908 was the law, and before the decision of the Privy Council.  So that section 144 was enacted at a time when the exhaustion doctrine was the law of the country.

Thus, the implied licence doctrine applied by the Privy Council had a relatively short life based, as we have noted, on Betts v Willmott.  The notion of an implied licence, in our submission, is plainly artificial.  Could I take the Court to the reasons of Justice Gibbs in Interstate Parcel, which is in Part C of the bundle at tab 9.  This is Interstate Parcel Express Co Pty Ltd v Time‑Life International 138 CLR 534. It starts at 205 of the bundle, and if I could take the Court to page 212 of the bundle, which is 541 of the report. Now, Justice Gibbs considered Betts v Willmott at page 540, Société Anonyme, and the decision of the Privy Council, and said, at about line 33:

These statements seem to accord more with general principles than to say that a sale of an article imports a licence to use it.  The sale of an article confers on the buyer all the rights of ownership including the right to use the article, but it seems a misuse of words to say that a person who sells an article consents to its being used in any way that the buyer wishes.  However the statement that a patentee who sells a patented article gives the buyer his licence to use it has often been repeated by distinguished judges.

He then refers to some of them, and accepts, if one goes to the following page:

And although in National Phonograph Co. of Australia Ltd. v. Menck, Lord Shaw of Dunfermline expressed his conclusion in the words I have quoted, other passages in his judgment suggest that he accepted that the consent or licence of the patentee to use the article might be implied from the sale.  The words of Buckley J. in Badische Anilin und Soda Fabrik v. Isler must be regarded as a correct statement of the patent law.  The question is, does the same principle extend to the sale of a book the subject of copyright?

So one can see that the discussion in the IPEC Case is plainly dicta, but the qualifications of Justice Gibbs are not without significance.  Now, what has happened here is that this legal fiction has been teased out in the present case to allow a patentee to use restrictive conditions to extend the monopoly, to control the use of patented goods after sale.

In this case, it would permit Seiko to restrict competition by imposing a restrictive condition prohibiting re‑use of its cartridges where the element of single use was not a part of the invention claimed and ensuring that Calidad Ninestar was aware of that restrictive condition.  The only way in which such a condition could be imposed that ran with the goods rather than simply as part of a contract would be if in fact the concept of an implied licence was to be inferred from the terms of the statute. 

Such a condition would enable Seiko to avoid the consequence of a finding of legitimate modification or repair such as we contend ought to be made in this case and to exert ongoing and anti‑competitive control over the goods it had sold already for a profit, and it would permit the use of patented goods to be constrained by its mere intentions.  If I could take the Court to two passages from the decision below.  In the core appeal book at tab 7 in the judgment of Justice Jagot at paragraph 153 her Honour said – I am sorry, this is court book 224:

Seiko’s emphasis upon the fact that the implied licence which arises on an unrestricted sale is a licence to use the patented goods (and not a new embodiment of the claimed invention) reflects the authorities. Those authorities, moreover, are consistent with the terms of s 13 of the Patents Act which, during the term of a patent, gives the patentee the exclusive right to exploit the invention and to authorise another person to exploit the invention throughout the patent area, “exploit” meaning, where the invention is a product, to “make, hire, sell or otherwise dispose of the product –

and sets out the words:

The relevant focus is “the product” which is the product embodying the claimed invention.  For its part, Calidad accepted that the implied licence is a licence to use the product as sold and that such a licence could not extend to the making of a new embodiment of the claimed invention.

Can I interpose that the Court will appreciate that the decision below was undertaken on the basis that the Court was bound by the Privy Council in Menck and that any question for reconsideration was a question for this Court alone.  Then if I could take the Court to paragraph 177 of her Honour’s reasons, her Honour said:

I do not accept Calidad’s submissions to the contrary.  Once the nature of the product as sold by Seiko is understood, which informs the scope of any implied licence and the concept of repair, I am unable to accept that Ninestar’s actions involve the mere prolonging of the life of the product as purchased . . . As purchased, the product had a defined lifespan.  Ninestar’s actions recreated or remade the product altogether in new embodiments of the invention.  The product as sold by Seiko was for use until the memory chip showed that the ink had run out.  The Calidad products were new printer cartridges capable of use after the ink had run out.  Nor did Ninestar’s works involve the mere replacement of some worn or damaged part.  There was no worn or damaged part.  In the context of the product as sold, no part required replacement.

We will come to the parts and the modifications in a moment but, of course, her Honour does not contemplate that there would be a right to modify the type that was discussed by the Chief Justice in this Court in Menck or, as we will see, as is discussed by the United States Supreme Court.  Finally, in relation to her Honour’s reasons, could I take the Court to paragraph 180 on page 233 of the bundle:

In the present case, every purchaser purchased an embodiment of the invention which, in the form it was purchased, permitted a single use only.  To render the cartridge capable of re‑use, the acts described above were required.  In the context of the invention as embodied in the product sold, I am unable to accept that what was done was other than an infringement of the patents.  It was outside the scope of any implied licence which could have arisen on sale and outside any reasonable concept of repair.

Can we observe that, of course, there was no integer in the claim which had the effect of confining the invention to a single use product.  It was not only no part of the invention, it was no part of the claimed invention that the product was of a single use so that having invented a product in relation to the spacing of the contacts, what the court is doing is extending the scope of the monopoly beyond the invention and saying there was an implied licence which now has another term and that term is that you only can use the product for the purpose which the patentee had at the time the product was projected to the public, namely, as a single use product, effectively giving to the patentee a monopoly on the ink. 

In our respectful submission, that is a very long distance from a juridical basis of an implied licence in Menck.  It shows a clear conflict, in our respectful submission, between a balance between the rights a patentee has to achieve a reward from the invention and the balance to the public of being able to use a product and enjoy competition. 

In our respectful submission, the approach adopted by this Court more truly mirrors the balance by applying the statute when it talks about sell as not including resale for the life of the product but the sale by which the patentee or their licensee puts the product into the public hands.  That is where they obtain their reward.  That is the exclusive right which they have and that therefore implying not only a licence but licences with all these additional conditions is something which goes beyond the policy intention of this Act, goes beyond the language of the Act and is a policy which this Court ought revert back to the decision of this Court in 1908.

EDELMAN J:   Would your approach lead to any different result if there were an integer that had confined the invention to a single use?

MR SHAVIN:   Yes, if that was an integer of the claim then it would not have been infringed. 

EDELMAN J:   Yes.

KEANE J:   Mr Shavin, if the patentee agreed with its purchaser that the purchaser would not itself modify the product – product sold – so as to enable them for multiple use and agreed to extract a similar covenant from its sub‑purchasers, would that express agreement be sustainable in light of sections 45 and 47 of the Trade Practices Act?

MR SHAVIN:   As a matter of contract it would depend on the effect of the market, if it was section 45.

KEANE J:   Sure.

MR SHAVIN:   It would be a breach of section 45(2) so it would constitute a contravention only if it had the:

purpose, or would have or be likely to –

have the effect of substantially:

lessening competition –

So the question might ‑ ‑ ‑

KEANE J:   Well, it plainly has that purpose.

MR SHAVIN:   It has the purpose.  Whether it has a requisite effect in the market would depend on how you define the product market.  If you could define the product market narrowly to there being no substitute for an ink cartridge for a Seiko printer then, yes, it would contravene that.

KEANE J:   It does seem remarkable that that which might be unlawful if expressly agreed is nevertheless effective by implication.

MR SHAVIN:   We would respectfully agree with that, your Honour, and that is why we say that there is no good public policy reason for such an implication.  This Court in 1908 was conscious of this balancing of the rights of a purchaser and the rights of the patentee and understanding what is the purpose of this Act.

Thus, the Court said in 1908, the object of this Act is to give to the inventor a reward from the invention and that reward is derived from the sale when the product is projected to the public, and that is the way in which you in fact reward the inventor.  We respectfully urge that reasoning on this Court because, in our respectful submission, the consequence your Honour has identified is not in the public interest, nor is it rational.

Can I move forward to the reasons of Justice Yates which the Court will find at paragraphs 291 and 292, which is in the bundle at page 260, where his Honour said:

As I have remarked, the primary judge asked whether the implied licence had been extinguished.  It seems to me, with respect, that this is not the correct question, and the primary judge erred in this regard.  The correct question is whether the impugned acts—the importation and sale of the modified and refilled cartridges by CDP—fell within the scope of the implied licence recognised in National Phonograph.  Beyond an asserted licence to repair or refurbish, this is the only licence on which Calidad relies.

Also, the primary judge directed his attention to whether the modifications made by Ninestar to the original Epson cartridges amounted to material changes to those features of the cartridges that could be said to embody the invention claimed in claim 1 of the 643 patent.  In my respectful view, the primary judge erred by confining his attention only to those modifications.  It is of course true, as I have recognised, that the right to control the use of the original Epson cartridges derived from the fact that they were embodiments of the claimed invention and thus attracted those rights which, absent a licence, were exclusively the patentee’s to exercise.  But the licence that was implied was with respect to the articles themselves, in the form in which they were got up by the patentee and put into the market.  Once Seiko’s authority as patentee to control the use of those articles is recognised, as it must be, and once the limited nature of the implied licence is recognised, a consideration of the materiality of the modifications made by Ninestar to the original Epson cartridges is not confined to only those features of the articles that are claimed features of the invention.  To so find is not to extend the patentee’s statutory rights.  It is to do no more than recognise the patentee’s rights in the patented article itself as it comes into the hands of the first owner.

What we say, with great respect to his Honour, is that he has expanded the scope of the patent monopoly directly beyond the integers of the claim by looking at the materiality of modifications not by, as we will see has been done in the United Kingdom and in America, looking at whether it has in fact made the substance of the invention to determine the materiality of the modifications, but by looking not at the claim at all, but at the product, so that the intention of the patentee to have the product in the market as a single‑use product, an intention not reflected in an integer of the claim has become the litmus test by which the determination of infringement, the determination as to whether in fact what has been done has been the making of a new embodiment or the modification of an existing embodiment is to be assessed.

GORDON J:   Mr Shavin, is your complaint then that, if one puts to one side this debate about the implied licence agreement, that their Honours did not look at the integers, did not identify what was absent from them?  So as I understand it, on your analysis there are a number of integers missing.  When one looks at [1] to [11] ‑ single use, ink, information on memory – and that they are things which one has to assess when one comes to look to see whether the changes that are made constitute making.

MR SHAVIN:   Yes, if your Honour pleases.  When one looks at the steps that were taken, they did not amount to a making of a new embodiment but rather amounted to a modification of an existing embodiment and that a modification such as that does not constitute an infringement if it is short of making a new product.  Thus, the decision below enables a patentee to exercise control over the manner in which goods are used, even though the manner of use is unrelated to the invention the subject of the craft and the patentee has already received a reward from the first sale of the product.

I remind the Court of the analysis by Chief Justice Griffith of the word “vend” and urge upon the Court that that is an appropriate construction that translates equally to the current version of “sell”, “offer for sale”, “be for sale” in the definition of “exploit” in the dictionary of the current Act, and that there is nothing necessarily in that definition which suggests that it is appropriate to give to “sell” a continuing control over the product after sale.

It is perhaps unsurprising in these circumstances that both the House of Lords and the Supreme Court in the United Kingdom have in recent times started to move away from the implied licence doctrine.  Could I take the Court back to the decision of the primary judge, who referred to one of these examples at paragraph 148 – this is in the core appeal book at page 54 of the bundle, at paragraphs 148 and 149.

KIEFEL CJ:   Mr Shavin, the Court is going to take a morning break shortly.  This might be a convenient point at which it does so.

MR SHAVIN:   Certainly, if the Court pleases.

KIEFEL CJ:   Thank you.  The Court will adjourn for 15 minutes.

AT 11.14 AM SHORT ADJOURNMENT

UPON RESUMING AT 11.30 AM:

KIEFEL CJ:   Yes, Mr Shavin.

MR SHAVIN:   Thank you, your Honour.  I have, I think, been about to take the Court to a passage from the primary judge’s reasons at core appeal book page 54, paragraphs 148 to 149:

In the United Kingdom, the right to repair a patented product is no longer characterised as arising from an implied licence.

In Canon Kabushiki Kaisha v Green Cartridge Co (Hong Kong) Ltd [1997] AC 728 (Canon) Lord Hoffman (with whom their Lordships agreed) said that the concept of a licence, which is something which “makes an action lawful which without it had been unlawful” (citing Thomas v Sorrell (1674) Vaughan 330, 351) is “not really” applicable to the repair of a patented article.  His Lordship said at 822:

Because repair is by definition something which does not amount to the manufacture of the patented article, it is not an infringement of the monopoly conferred by the patent.  It cannot therefore be an unlawful act and needs no special licence to make it lawful, unless as part of a general implied licence to use the patented product at all, which is sometimes used to explain why mere user does not infringe the patentee’s monopoly.  But this is perhaps better regarded as a consequence of the exhaustion of the patentee’s rights in respect of the particular article when it is sold.

Then, if I could take the Court to another decision of Lord Hoffman in United Wire, which will be found in Part D of the joint book of authorities at tab 26 - United Wire Ltd v Screen Repair Services (Scotland) Ltd [2001] RPC 24, and perhaps first if I could go to Lord Bingham of Cornhill’s speech. At bundle 657, paragraph 55, Lord Bingham deals with the question of repair, and refers to a decision in the Court of Appeal, and the reasons of Lord Justice Aldous, where at the foot of 657 of the bundle:

Aldous L.J., as I respectfully think, approached the question in the right way in the present case when he said (at page 14 of the transcript of the Court of Appeal judgment):

“It follows that acts as prohibited by section 60 are infringing acts whether or not they can be categorised as repairs.  it is therefore better to consider whether the acts of a defendant amount to manufacture of the product rather than whether they can be called repair, particularly as what could be said to be repair can depend upon the perception of the person answering the question.  Even so, when deciding whether there has been manufacture of the product of the invention, it will be necessary to take into account the nature of the invention as claimed and what was done by the defendant.”

The judge was “narrowly persuaded” that the defendants’ reconditioning operations were to be regarded as no more than repairs, but he did not, like the Court of Appeal, concentrate his attention on whether the defendants had made the patented product.  The Court of Appeal concluded on the facts that the defendants had made the screen assembly which was the subject of the first claim in each of the patents.  This was a conclusion clearly open to the court.  I see no reason to disturb it.  By selling their products on the open market the plaintiffs exhausted their rights as patentees, but that does not prevent them complaining of infringement by a party who has made the product without their consent and it cannot be said that they impliedly licensed the defendants to make it.

So, again, we have got Lord Bingham basing the analysis primarily upon a concept of exhaustion.  Then, if I could take the Court to some passages in the speech of Lord Hoffmann and if I could start at paragraph 68:

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 to do various acts –

I am sorry, it is at page 660 of the bundle.  I apologise to the Court:

in relation to a patented product is well established in the authorities.  Its proper function is to explain why, notwithstanding the apparent breadth of the patentee’s rights, a person who has acquired the product with the consent of the patentee may use or dispose of it in any way he pleases.  The traditional Royal Command in the grant of a patent forebade others not only to “make” but also to “use, exercise or vend” the invention.  Similarly, section 60(1)(a) provides that a person infringes a patent for a product not only if he “makes” it but also if, without the consent of the proprietor, he “disposes of, offers to dispose of, uses or imports the product or keeps it whether for disposal or otherwise”.  Put shortly, the problem is to explain why, for example, a patentee cannot complain when someone to whom he had sold the patented product then, without any further consent, uses it or disposes of it to someone else.  The answer given by Lord Hatherley L.C. in the leading case of Betts v Willmott . . . was that he did so by virtue of an implied licence . . . 

An alternative explanation, adopted in European patent systems, is that of exhaustion of rights.  The patentee’s rights in respect of the product are exhausted by the first sale . . . The difference in the two theories is that an implied licence may be excluded by express contrary agreement or made subject to conditions while the exhaustion doctrine leaves no patent rights to be enforced.

Where however it is alleged that the defendant has infringed by making the patented product, the concepts of an implied licence or exhaustion of rights can have no part to play.  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.  A repair of the patented product is by definition an act which does not amount to making it:  as Lord Halsbury L.C. said of the old law in Sirdar Rubber . . . :

“you may prolong the life of a licensed article but you must not make a new one under the cover of repair.”

May I draw the Court’s attention particularly to the next sentence:

Repair is one of the concepts (like modifying or adapting) which shares a boundary with “making” but does not trespass upon its territory.  I therefore agree with the Court of Appeal that in an action for infringement by making, the notion of an implied licence to repair is superfluous and possibly even confusing.  It distracts attention from the question raised by section 60(1(a), which is whether the defendant has made the patented product.  As a matter of ordinary language, the notions of making and repair may well overlap.  But for the purposes of the statute, they are mutually exclusive.  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 the product.

Now, the words to which we drew attention were words not considered below and, in our respectful submission, the court fell into error because we would urge upon the Court the correctness of the approach of Lord Hoffmann, which was to place the words “repair, modify or adapt” in the same class which shares a boundary with “making” but does not trespass upon its territory. 

Then, there is the third of three English cases to which we refer before we come to the American authorities which, like the European authorities, apply a doctrine of exhaustion.  So when this Court is considering Australia’s trading partners and relationships, the question of the doctrine of exhaustion is applied in Europe and in America and of course one can see references to it now in the United Kingdom.

KIEFEL CJ:   Mr Shavin, the respondents I think take up something in what Lord Hoffmann says in their submission that, regardless of whether one looks at implied licence or the doctrine of exhaustion, the question here which remains is whether or not the product was made new.  I do not think you have any difficulty with the notion that it is not open to a purchaser to manufacture or make.  Your point is, as I understand it, that there is a world of difference between that and modifying or adapting a patented product.

MR SHAVIN:   That is correct, your Honour.

KIEFEL CJ:   There is very little in the English authorities which actually deal with what might be said to amount to modifying or adapting.  The English authorities seem to have on the one hand it is either repair or it is made new, and there seems to be little in between.

MR SHAVIN:   That is correct.  There is more consideration of this in America and, although they use the term “reconstruction”, we will take the Court to a couple of American authorities, one Federal Circuit and two Supreme Court decisions which explore what were the permissible acts that did not constitute a reconstruction which translates to a making.

KIEFEL CJ:   Why do you think it is that the English authorities insofar as they maintain the implied licence test have not developed any jurisprudence around this in‑between act, as you would have it, of modifying or altering?

MR SHAVIN:   It is a speculation, your Honour, but it may be just the cases that have come before the Court.  In America, there has either been litigation concerning single-use items such as photographic devices and printer cartridges and there has been…..over construction or reconstruction and repair of gun remounts and the like by the navy and by contractors for the US Navy, which have given rise to the question.

KIEFEL CJ:   Yes.

MR SHAVIN:   It may be nothing more than a coincidence.

KIEFEL CJ:   I should let you then take us to those authorities in due course.

MR SHAVIN:   I will in just a moment.  I wanted in the interim to go to Schütz, which is at tab 23 of Part D of the bundle.  It is Schütz (UK) Ltd v Werit (UK) Ltd [2013] RPC 16, and if I could take the Court to paragraph 67, which appears at court book 597 or page 413 of the report. This is an intermediate bulk container, which the judges of the Court may well have seen in their ordinary daily experiences. It is a great big plastic bottle. It weighs about a tonne and it sits in a wire cage. The question was what could you alter, could you replace the bottle, could you replace the cage? At paragraph 67, Lord Neuberger, with whom Lord Walker, Lady Hale, Lord Mance and Lord Kerr agreed, stated:

the bottle does not include any aspect of the inventive concept of the Patent.  The extent to which a component of an article is a subsidiary part, so that its replacement is more likely to involve repairing than “making” the article, must be a matter of degree.  It therefore seems to me that it must be legitimate, in the context of addressing the question whether a person “makes” the article by replacing a worn out part, to consider whether that part includes the inventive concept, or has a function which is closely connected with that concept.

That is one of the bases upon which we urge upon the Court that, although we accept that of course to determine infringement one must assess whether or not the alleged infringing item has taken each integer of the claim, when one is determining qualitatively whether that which has been done for patented items constitutes a modification or constitutes a making of the item, it is relevant to look, as the primary judge did, at the significance of what has been done in the context of where the invention lies.  That is why at the outset we pointed to the fact that in the courts below it was accepted that the invention lay in integers [4] to [11], not in integers [1] to [3].

Can I perhaps then move to the exhaustion doctrine itself and compare it.  In contrast to the approach to an implied licence, the doctrine of exhaustion, in our respectful submission, as recognised by this Court in Menck has much to commend it.  First, this Court found it formed part of the common law of Australia.  Thus, it was endorsed on principle by this Court and in our respectful submission, the foundations of that conclusion by this Court are as valid today as they were in 1908. 

The doctrine fully preserves the elementary principle of personal property that the owner of chattels has an absolute right to use and dispose of them as he thinks fit without need to adjust that principle in the way contemplated by the Privy Council.  It does not allow a patentee to impose restrictive conditions that quality that right of ownership.  Thus it gives effect to the policy recognised by the United States Supreme Court in Impression Products that extending patent rights beyond the first sale would clog the channels of commerce and when an item passes into commerce it should not be shaded by a legal cloud on title as it moves through the marketplace.

Now, could I take the Court to – or perhaps I will make two further points and then take the Court to Impression Products.  Third, the exhaustion doctrine ensures that the object of patent protection from the perspective of the patentee is preserved.  As the Supreme Court noted, we will find in a moment, upon the sale of patented products by or with the authority of the patentee, it has…..all the rights secured by the monopoly.  In reaching that conclusion, the Supreme Court relied upon the Keeler decision relied upon by this Court in Menck by Justice Barton and as Hindmarch, quoted by Justice Barton in Menck, noted:

the object of the law has been attained -

Fourth, the exhaustion doctrine avoids the use of the artificial construct of the implied licence and the proposition in respect of exhaustion is more basic.  It accords with the fundamental terms of the Act and with its objects.  It confers the exclusive right to exploit.  “Exploit” is defined in the schedule as where the inventors of product make, hire, sell or otherwise dispose of the product - offer to make, hire, sell or use or import it. 

Once a patentee has sold or authorised the sale of the patented product, it has exhausted its exclusive right to exploit the invention in respect of that product.  To adapt the language of Chief Justice Griffith, the product has passed out of the limit of the monopoly or, to put it another way, the words “sell” and “import” in the Patents Act do not refer to sale or importation after the patentee has exercised his exclusive rights in respect of any particular products and put that product into the possession of some other person by way of sale.  This is because the exploitation of the invention in respect of that product has already occurred. 

This accords with the plain text of the Act.  It does not require either the implication of an…..or the adjustment of fundamental principles of property law which have been repeatedly affirmed by the court, including this Court. 

Fifthly, the doctrine of exhaustion permits the owners of patented goods which…..of the patent monopoly to repair, improve, modify or refurbish.  The ambit of activity recognised by the US courts extends well beyond a narrow notion of “repair” and gives full recognition to the fundamental principle that an owner of chattels is free to deal with those chattels.

Now, in that context could I take the Court to two of the US authorities.  The first of these is the decision of the Supreme Court in Impression which can be found in Part D of the bundle at tab 20 - Impression Products v Lexmark International Inc, and this is a decision of the United States Supreme Court dealing with a case which in many respects has a common factual foundation.  Could I take the Court to page 523 of the bundle where:

Chief Justice ROBERTS delivered the opinion of the Court.

At about line 49 on the first left‑hand column:

When a patentee sells one of its products, however, the patentee can no longer control that item through the patent laws – its patent rights are said to “exhaust.”  The purchaser and all subsequent owners are free to use or resell the product just like any other item of personal property, without fear of an infringement lawsuit.

This case presents two questions about the scope of the patent exhaustion doctrine:  First, whether a patentee that sells an item under an express restriction on the purchaser’s right to reuse or resell the product may enforce that restriction through an infringement lawsuit.  And second, whether a patentee exhausts its patent rights by selling its product outside the United States, where American patent laws do not apply.  We conclude that a patentee’s decision to sell a product exhausts all of its patent rights in that item, regardless of any restrictions the patentee purports to impose or the location of the sale.

Now, Lexmark had printer cartridges, and the court recites, at the foot of that column, what Lexmark sought to do:

The underlying dispute in this case is about laser printers‑‑or, more specifically, the cartridges that contain the powdery substance, known as toner . . . Lexmark International, Inc. designs, manufactures, and sells toner cartridges . . . 

When toner cartridges run out of toner they can be refilled and used again.  This creates an opportunity for other companies‑‑known as remanufacturers‑‑to acquire empty Lexmark cartridges from purchasers in the United States and abroad, refill them with toner, and then resell them at a lower price . . . 

Not blind to this business problem, Lexmark structures its sales in a way that encourages customers to return spent cartridges.  It gives purchasers two options:  One is to buy a toner cartridge at full price, with no strings attached.  The other is to buy a cartridge at roughly 20‑percent off through Lexmark’s “Return Program.” . . . To enforce this single‑use/no‑resale restriction, Lexmark installs a microchip on each Return Program cartridge that prevents reuse once the toner in the cartridge runs out.

Lexmark’s strategy just spurred remanufacturers to get more creative.  Many kept acquiring empty Return Program cartridges and developed methods to counteract the effect of the microchips.  With that technological obstacle out of the way, there was little to prevent the remanufacturers from using the Return Program cartridges in their resale business.  After all, Lexmark’s contractual single‑use/no‑resale agreements were with the initial customers, not with downstream purchasers like the remanufacturers.

Lexmark, however, was not so ready to concede . . . it sued a number of remanufacturers . . . for patent infringement with respect to two groups of cartridges.

The first were domestic and the second lot were overseas:

Eventually, the lawsuit was whittled down to one defendant, Impression Products, and one defense:  that Lexmark’s sales, both in the United States and abroad, exhausted its patent rights –

So that was the background.  Could I then take the Court to the right‑hand column on 1531 of the report, 525 of the bundle:

First up are the Return Program cartridges that Lexmark sold in the United States.  We conclude that Lexmark exhausted its patent rights in these cartridges the moment it sold them.  The single‑use/no‑resale restrictions in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.

Can I go into the next paragraph?  The Court may see half a dozen lines down a reference to Bloomer v McQuewan:

The limit functions automatically:  When a patentee chooses to sell an item, that product “is no longer within the limits of the monopoly” and instead becomes the “private, individual property” of the purchaser, with the rights and benefits that come along with ownership . . . A patentee is free to set the price and negotiate contracts with purchasers, but may not, “by virtue of his patent, control the use or disposition” of the product after ownership passes to the purchaser . . . The sale “terminates all patent rights to that item.” . . . 

This well‑established exhaustion rule marks the point where patent rights yield to the common law principle against restraints on alienation.

We remind the Court of the closeness in reasoning between the language of this Court in Menck and the language of the United States Supreme Court in 2017, 109 years later.

GORDON J:   Mr Shavin, was there a case of making in Lexmark?

MR SHAVIN:   It was not alleged ‑ ‑ ‑

BELL J:   I believe there ‑ ‑ ‑

MR SHAVIN:   It was not alleged.  That is correct.

GORDON J:   I do not there was…..decision there was no making – there was no suggestion that what they had done constituted infringement by the making of the article, was there?

MR SHAVIN:   No, there was – the use of the micro – the changing of the microchip which was referred to but which was not certainly at this level being argued as constituting or making.  We will come back to that issue, your Honour, when we come to Jazz Products. 

BELL J:   A footnote to the decision below records that Lexmark had not argued that the chip replacement and the replenishment resulted in new articles which would have been outside the scope of the exhaustion doctrine.

MR SHAVIN:   Thank you, Justice Bell, appreciate it.  We will return to that specific part of the issue when we look at Jazz Products which is a decision of the Federal Circuit preceding this decision but after an earlier decision of Aro where what might constitute a reconstitution of the product was considered by the court.  If I could then take the Court to page 527 of the bundle just before the letter B.  If I could go back to 526 in the right‑hand column at the foot where there is the figure [7]:

This Court accordingly has long held that, even when a patentee sells an item under an express restriction, the patentee does not retain patent rights in that product.

Then, could I go to the right‑hand column:

Turning to the case at hand, we conclude that this well‑settled line of precedent allows for only one answer:  Lexmark cannot bring a patent infringement suit against Impression Products to enforce the single‑use/no‑resale provision accompanying its Return Program cartridges.  Once sold, the Return Program cartridges passed outside of the patent monopoly, and whatever rights Lexmark retained are a matter of the contracts with its purchasers, not the patent law.

Then, if I could take the Court to page 528 of the bundle to the figures [8, 9] where there is a critique of the approach by the Federal Circuit:

The misstep in this logic is that the exhaustion doctrine is not a presumption about the authority that comes along with a sale; it is instead a limit on “the scope of the patentee’s rights.” . . . The right to use, sell, or import an item exists independently of the Patent Act.  What a patent adds‑‑and grants exclusively to the patentee‑‑is a limited right to prevent others from engaging in those practices . . . Exhaustion extinguishes that exclusionary power . . . As a result, the sale transfers the right to use, sell, or import because those are the rights that come along with ownership, and the buyer is free and clear of an infringement lawsuit because there is no exclusionary right left to enforce.

Then, on the right‑hand side at about line 35, there is then a discussion about licences noting that licences are not constrained by this because the licensee is effectively acting in the steps of the patentee and the patentee can break up its rights between a number of different licensees.  So, that is not impacted by the approach.  Then at bundle 529, report 1535, in paragraphs [14, 15] and following, which I was not going to take the Court to in detail, is the reasoning by which the same conclusion is reached in relation to imports.

Could I then move from Impressions going back in time to Jazz.  I believe that we provided to the Court on Friday a copy of a decision of Jazz Photo Corporation v International Trade Commission 264 F 3d 1094. An answer perhaps to the question, Justice Bell, as to why making was not alleged in Impression is that it may have been regarded as an argument that was not open having regard to this decision.

If I could start at page 5 of this bundle – there should be a number in the top right‑hand corner of each page, 1098 of the report – Judge Newman noted at line 20 in the left‑hand column:

Fuji Photo Film Co. charged twenty-seven respondents, including the appellants Jazz Photo . . . with infringement of fifteen patents owned by Fuji.  The charge was based on the respondents’ importation of used “single-use” cameras called “lens-fitted film packages” . . . which had been refurbished for reuse in various overseas facilities.

At page 1099 in the right-hand column under the heading “The Patented Inventions”:

The LFFP is a relatively simple camera, whose major elements are an outer plastic casing that holds a shutter, a shutter release button, a lens, a viewfinder, a film advance mechanism, a film counting display, and for some models a flash assembly and battery.  The casing also contains a holder for a roll of film, and a container into which the exposed film is wound.

Then if I could take the Court forward to page 1101, which is page 8 of this print, in the left‑hand column there is a summary of the accused activities and the steps are listed down at line 48 in column 1 and onto the next column:

·removing the cardboard cover;

·opening the LFFP body (usually by cutting at least one weld);

·replacing the winding wheel or modifying the film cartridge to be inserted;

·resetting the film counter;

·replacing the battery in flash LFFPs;

·winding new film out of a canister onto a spoil or into a roll;

·resealing the LFFP using tape and/or glue;

·applying a new cardboard cover.

Now, it was argued, if I go down to the second paragraph on the right‑hand column:

The appellants argue that they are not building new LFFPs, but simply replacing the film in used cameras.  They argue that the LFFPs have a useful life longer than the single use proposed by Fuji, that the patent right has been exhausted as to these articles, and that the patentee cannot restrict their right to refit the cameras.

Then can I take the Court to the page numbered 9, paragraphs [7,8]:

The distinction between permitted and prohibited activities, with respect to patented items after they have been placed in commerce by the patentee, has been distilled into the terms “repair” and “reconstruction.”  The purchaser of a patented article has the rights of any owner of personal property, including the right to use it, repair it, modify it, discard it, or resell it, subject only to overriding conditions of the sale.  Thus patented articles when sold “become the private individual property of the purchasers, and are no longer specifically protected by the patent laws.” . . . However, the rights of ownership do not include the right to construct an essentially new article on the template of the original, for the right to make the article remains with the patentee.

Then could I take the Court to the foot of page 1103 of the report.

GORDON J:   Do you rely upon paragraph [9], Mr Shavin?  Do you place any emphasis on what is set out in paragraph [9] at the bottom of 1102?

MR SHAVIN:   Yes:

It is readily apparent –

This is the passage to which your Honour Justice Gordon has referred:

that there is a continuum between these concepts; precedent demonstrates that litigated cases rarely reside at the poles wherein “repair” is readily distinguished from “reconstruction.”  Thus the law has developed in the body of precedent, illustrating the policy underlying the law as it has been applied in diverse factual contexts.

BELL J:   Mr Shavin, in the first sentence of paragraph [9] there is reference to “repair” as not including:

the right to preserve the useful life of the original article.

That imports some notion that the article has a - that at a point an article becomes spent, and after the article is spent, activity designed to give it life again amounts to “making,” on one view.

MR SHAVIN:   Yes, that is really the issue that is explored, because Fuji argued in this case that its cameras were designed for single use - they had a single roll of film.  The film was not user replaceable.  Indeed, they had to break a weld of the camera to extract the film to put in a new film.  They had to replace reels and reseal the body of the camera.  In this case ‑ ‑ ‑ 

EDELMAN J:   Something like a memory chip.

MR SHAVIN:   I am sorry?

EDELMAN J:   Something like a memory chip.

MR SHAVIN:   Like a memory chip, yes, indeed - or reprogramming it, because in this case, of course, in categories 1, 2, and 3, the memory chip was not replaced.  It was simply reprogrammed.  The finding by the trial judge, which is no longer the subject of any challenge, was that the proper definition in the claim of memory chip was not the programming of it, it was simply the hardware item.  I suppose a software - and this was acknowledged by Justice Jagot - the software was not part of the element or integer in the claim.

So, Justice Bell, in this case, and in our case, the fact that there is an ingredient or raw material which is used but can be replaced, in our respectful submission, distinguishes a product from one that is truly spent and has no useful life.  Where it can be restored, here, by a series of quite simple processes, as your Honour will have appreciated from the judgments, drilling a small hole, pouring in some toner, putting a piece of tape or sealing it, reprogramming a memory chip, these are steps which can readily be done and give the product further life, and the issue is whether, by the claims, the patentee is able to prevent those steps from being undertaken.  In Jazz Photo, the finding was that they could not.

GORDON J:   …..taken because it constitutes the making of a patented combination.

MR SHAVIN:   That was the allegation, but it did not constitute the making in these cases.  In other words ‑ ‑ ‑

GORDON J:   Because of the way integers worked - when one looked to see what were the steps taken by reference to the integers of the patent.

MR SHAVIN:   When one does that then of course what was done did nothing to change any of the inventive step.  We will come at the end to each of the steps taken.

KEANE J:   It did not change the inventive step and it did not involve replicating the inventive step.

MR SHAVIN:   No, it used the original cartridge.  It did not change the placement of the contacts.  It left the cartridge intact.  It drilled two holes so you could put toner in.  It resealed them.  It reset the microchip so that it did not register as empty.  In some categories, that is, the pre‑2016 categories which is categories 4, 5 and 6 I think, various steps were taken including replacing a microchip with another one, because they cut them out, did them in bulk and put them back again.  They did not necessarily come from the cartridge from which they were removed. 

But they were reprogrammed microchips which was integer [2], but all integer [2] required was the existence of a microchip, not a particular microchip with particular software on it.  But the inventive step, which were integers [4] to [11], were not touched.  It is in that context that the primary judge in finding that there was no infringement with categories 1, 2 and 3, in our respectful submission, correctly approached the question as to the materiality of the modifications by reference to the invention claimed which is the approach, Justice Bell, in our respectful submission, is suggested in paragraph [9] in Jazz Photo.

Where we part from the primary judge, of course, is at two levels.  First – which could not have been argued begore him because he was bound by the Privy Council – is that the correct analysis is one of exhaustion, not implied licence and, secondly, in the way in which the approach was taken to categories 4 to 7.  When we come of course to the Full Court, it is completely different because there primacy was given to the purpose the patentee had in projecting a non‑reusable cartridge into the market, a matter which is not dealt with by the claims.  Can I then return to page 1103 of the report.  At paragraph number [10]:

This right of repair, provided that the activity does not “in fact make a new article,” accompanies the article to succeeding owners.  In Wilbur-Ellis Co. v. Kuther –

in the Supreme Court, a decision of the Supreme Court:

the Court dealt with the refurbishing of patented fish‑canning machines by a purchaser of used machines.  The Court held that the fairly extensive refurbishment by the new owner, including modification and re-sizing of six separate parts of the machine, although more than customary repair of spent or broken components, was more like repair then reconstruction, for it extended the useful life of the original machine . . . (“Petitioners in adapting the old machines to a related use were doing more than repair in the customary sense; but what they did was kin to repair for it bore on the useful capacity of the old combination, on which the royalty had been paid.”)

That was the analysis, your Honour Justice Bell, that was adopted.  Then, the next paragraph:

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.

There is a reference to General Electric Co v United States where:

the court held that the Navy’s large scale “overhauling” of patented gun mounts, including disassembly into their component parts and replacement of parts that could not be repaired with parts from other gun mounts or new parts, was permissible repair of the original gun mounts.  The court explained that the assembly-line method of reassembly, without regard to where each component had originated, was simply a matter of efficiency and economy, with the same effect as if each gun mount had been refurbished individually by disassembly and reassembly of its original components –

Justice Keane, in our respectful submission, a category – the categories were, in fact, the microchip is taken out and replaced – falls within the same category or class as General Electric.  Then the Court refers to Dana Corp:

Similarly, in Dana Corp. v. American Precision Co . . . the court held that the “rebuilding” of worn truck clutches, although done on a commercial scale, was permissible repair.  The defendants in Dana Corp. acquired worn clutches that had been discarded by their original owners, disassembled them, cleaned and sorted the individual parts, replaced worn or defective parts with new or salvaged parts, and reassembled the clutches.  Although the patentee stressed that some new parts were used and that the rebuilding was a large scale commercial operation, the activity was held to be repair . . . The court also observed that in general the new parts were purchased from Dana, the original manufacturer of the patented clutches, and that repair of used clutches was contemplated by the patentee.

One other comment that we would make in passing here, and that is that the Court will appreciate that in each of these cases there has been a disassembly and a reassembly and, of course, at the point of disassembly the items cease to exist.  So that if one looks at page 1104, left‑hand column, starting five lines from the bottom:

The court rejected the argument that the complete disassembly of the and production‑line reassembly of the clutches constituted a voluntary destruction followed by a “second creation of the patented entity,” invoking the phrase of Aro Manufacturing . . . 

“Reconstruction,” precedent shows, requires a more extensive rebuilding of the patented entity than is exemplified in Aro Manufacturing –

which was the case of the canopy and the convertible cars.  If I could take the Court two‑thirds of the way down the right‑hand column, the Court will see a reference to a case Everpure, Inc. v Cuno, Inc. 875 F.2d 300 where there is a comment in parentheses:

(replacement of entire cartridge containing spent filter is repair) –

If I could then take the Court to page 1105 at paragraph [12, 13]:

Underlying the repair/reconstruction dichotomy is the principle of exhaustion of the patent right.  The unrestricted sale of a patented article, by or with the authority of the patentee, “exhausts” the patentee’s right to control further sale and use of that article by enforcing the patent under which it was first sold.  In United States v. Masonite Corp . . . the Court explained that exhaustion of the patent right depends on “whether or not there has been such a disposition of the article that it may fairly be said that the patentee has received his reward . . . However, the prohibition that the product may not be the vehicle for a “second creation of the patented entity” continues to apply, for such re‑creation exceeds the rights that accompanied the initial sale.

We accept that.  So could I then take the Court, finally, to page 1106?  If I could take the Court to the fourth line:

The activities of disassembly and rebuilding of the gun mounts of General Electric were similarly extensive, yet were deemed to be repair.  Aro Manufacturing and the other Supreme Court decisions which underlie precedent require that infringing reconstruction be a “second creation” of the patented article.  Although the Commission deemed this requirement met by the “remanufactured” LFFPs, precedent places the acts of inserting new film and film container, resetting the film counter, and resealing the broken case—the principal steps performed by the remanufacturers—as more akin to repair.

In our respectful submission, there is a close analogy between those steps and the steps found by the primary judge in this case.  If I could take the Court down to line 48 on that column:

The appellants stress that all of the original components of the LFFP except the film and battery have a useful remaining life, and are reused.  The appellants state that but for the exposed roll of film and its container, any portion of the case that was broken by the photo processor, and the winding wheel in certain cameras, the refurbished LFFP is substantially the original camera, for which the patent right has been exhausted.

The Commission placed weight on Fuji’s intention that the LFFP not be reused.  The ‘087 patent specification states that

forming an opening in the film package makes it impossible to reuse the film package.  Therefore, it will be impossible to refill a new film into the used film package in order to reclaim a film package for reuse.

So that was in a specification.  However, the Federal Circuit held:

However, the patentee’s unilateral intent, without more, does not bar reuse of the patented article, or convert repair into reconstruction.

If I could finally go to page 1107, in the left‑hand column in the first complete paragraph:

The appellants state that the film and its removable container are commercial items, and that their replacement in a camera can not be deemed to be reconstruction.  As discussed in Aro Manufacturing, the replacement of unpatented parts, having a shorter life than is available from the combination as a whole, is characteristic of repair, not reconstruction.  On the totality of the circumstances, the changes made by the remanufacturers all relate to the replacement of the film, the LFFP otherwise remaining as originally sold.

On the right‑hand column, first complete paragraph:

The ruling of reconstruction as to these patents is incorrect, because the remanufacturing processes simply reuse the original components, such that there is no issue of replacing parts that were separately patented.  If the claimed component is not replaced, but simply is reused, this component is neither repaired nor reconstructed.

Now, in our respectful submission, that case provides this Court with sound guidance for the principles that are appropriate whereas here you have a cartridge where the patentee intends it to be a single use and intends to exert beyond the point of first sale market power to restrict downstream competition as being something that is not permissible under a doctrine of exhaustion.

In our respectful submission, it is also not part of an implied licence but to the extent that intention is relevant to an implied licence and, in our respectful submission, that is not the appropriate state of the law in this country and that the principles identified by this Court in Menck accord more accurately with the policy to be discerned from the Act and by giving effect to an exhaustion doctrine this Court would thereby give effect to the policy of the Act of rewarding the patentee but not unduly confining or extending those rights after the point at which the product has been projected into the marketplace.

KIEFEL CJ:   Mr Shavin, the use of the word “repair” in this authority and its various incarnations in the cases referred to goes beyond what might be thought to be fixing something which is broken.  It seems to be a wider concept rather more like making good for further use.

MR SHAVIN:   Yes, your Honour, or modification.  Thus, we remind the Court of Lord Hoffman’s discussion in United Wire where Lord Hoffman equated on one side modification, improvement and repair as being adjacent to but not impinging upon making.  We would respectfully adopt that and urge that upon the Court as the correct approach and, thus, one can understand that in the American jurisprudence the concept of repairing encompasses improvement and modification as part of the same genus. 

BELL J:   Do you embrace the formulation that “repair” encompasses the right to preserve its fitness for use?

MR SHAVIN:   Yes, if your Honour pleases.  Now, there has been reference to Aro.  I was not going to take the Court to it.  It is at tab 13 of bundle D.  It involved the replacement of an unpatented part which was the material cover in a convertible automobile where there was a mechanism by which you had a removable…..roof in a sports car and there was a material part of it.  There was a dispute as to whether after market people could replace the cost and the court held that that constituted a modification by replacement of an unpatented part and that did not constitute an infringement. 

If I simply give the Court a reference.  At court book page 361. lines 23 to 44, at line 50 to page 362, line 13, there is a passage that I would commend the Court’s attention to.  I was not going to take the Court to it now, so that, in our respectful submission ‑ ‑ ‑ 

GORDON J:   Mr Shavin, can I ask you about the foot of page 342, are they the lines that you are referring to us, where it says:

The Court held that, although there is no right to “rebuild” a patented combination ‑ ‑ ‑

MR SHAVIN:   Yes.  Can I just open the – I am sorry, your Honour, I now have the page in front of me.  Your Honour’s question was?

GORDON J:   I am just asking, in reference to the last 10 lines, where:

The Court held that, although there is no right to “rebuild” a patented combination –

do you take issue with that passage ‑ ‑ ‑ 

MR SHAVIN:   Yes.

GORDON J:   ‑ ‑ ‑  and the passage that goes over the page?

MR SHAVIN:   No.  We would respectfully adopt that, your Honour.

The Court held that, although there is no right to “rebuild” a patented combination, the entity “exists” notwithstanding the fact that destruction or impairment of one of its elements renders it inoperable; and that, accordingly, replacement of that worn‑out essential part is permissible restoration of the machine to the original use for which it was bought . . . The Court explained that it is “the use of the whole” of the combination which a purchaser buys, and that repair or replacement of the worn‑out, damaged or destroyed part is but an exercise of the right “to give duration to that which he owns, or has a right to use as a whole.”

Now that resonates ‑ ‑ ‑ 

GORDON J:   The next bit which I think is a distillation of it, and that is that:

The [patent] monopolist cannot prevent those to whom he sells from . . . reconditioning articles –

But they cannot make the new article.

MR SHAVIN:   That is correct.  We would respectfully adopt that and urge it upon the Court.  In the context of these cases, where you have something which is reusable, even though the patentee might design and desire it only to be a single‑use item, making such modifications to enable it to be reused falls within reconditioning and repair against forbidden reconstruction.  Thus we say that in Australia what has happened with the print cartridges by Ninestar and sold by Calidad constitutes “repair” in the broad sense or modification or improvement, which is within the same genus and is not within the scope of “making,” which we accept is forbidden territory.

So, drawing these threads together, we observe that the exhaustion doctrine has been endorsed in the United States Supreme Court and, as Lord Hoffmann noted, is applied in Europe.  It has received support in the House of Lords which has questioned in the context of repair the utility of the implied licence doctrine.  It was held in this Court to form part of the common law of Australia, that of course this Court is no longer bound by the Privy Council, that exhaustion accords with the terms of the Australian Act, does not require the implication of an artificial licence and preserves the elementary principle of personal property that the owner of chattels has an absolute right to deal with them and thereby competition and free trade more generally, and that this Court now ought to affirm the correctness of Menck.

Can I move at this stage to an issue that has been raised by our friends in their outline ‑ it was raised at the special leave application – which is the role of section 144 of the Act.  In our respectful submission, this section is completely irrelevant.  It gives rise to no basis for any inference that the Patents Act is built upon the existence of an implied licence.

The statutory predecessor to section 144 was section 87B of the Patents Act 1903. That will be found in bundle Part A at tab 3. I do not need to take the Court to it in detail, but it is there for the Court to observe. It is at pages 12 and 13 of the bundle. Whilst there is no direct equivalent in the 1909 amending Act to section 144(5), the last words of 87B(5), “while that contract is in force” achieve a similar effect.

Now, the effect of section 144 – I withdraw that.  When one goes back one step, we can find that the second reading speech and the debate demonstrate that section 144 and its antecedent, section 87B, were designed to deal with abusive conduct by patentees that were referred to in the Hansard that we have included in Part E of the bundle.  If I could take the Court to tab 34 in the second reading speech and could direct the Court’s attention to page 872 of the bundle to line 51, or 49, Senator Sir Robert Best:

I submit that it does not.  The clause is introduced with the object of preventing an abuse of a patent.

Senator Pearce:

It specifies what contract of sale shall be made with regard to a patented article.

If I could take the Court to about line 30 on page 873:

A patentee cannot, apart from contract, attach to the product of his manufacture any conditions which will inhere in the product when once it has passed into the hands of other persons.

That might be so under the existing law; but I would point out that the present Bill has for its object the alteration of the law; and we are here providing for the contingency of a contract.

Now could I take – there is a reference there – the passage at lines 30 to 34 are in fact a passage from the judgment of Justice O’Connor in Menck at page 53…..  Could I take the Court to section 144 which is to be found in Part A and although two versions of the Act are included in tabs 4 and 5, there is no difference in this section.  Section 144 is carefully structured and its effect, as with its UK equivalent is 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:

(a)to prohibit or restrict the buyer, lessee or licensee from using a product or process (whether patented or not) supplied or owned by a person other than the seller, lessor or licensor, or a nominee of the seller, lessor or licensor; or

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

The effect of doing that is that any person, whether or not a party to that contract, any other person can plead that contract as a defence to any action for infringement of that patent.  In other words, if you have a void contract, for so long as the conditions in that contract survive and subsection (5) is not otherwise satisfied, the patentee loses all rights to enforce the patent against anyone for so long as the contract is in existence.

In subsection (5) the patentee can redeem themselves because it offers - the other parties to a contract mention subsection (4), a new contract does not contain the void condition but it otherwise gives the parties the same rights, then whether or not they accept it subsection (4) ceases to apply, so that it is no longer a defence of infringement.

Now, the broad-sweeping character of this and the fact that there is no necessary nexus between the contract in (1) and the person in (4) can be found in the first instance decision in Schütz, which we have neglected to put into the bundle but I only need to refer the Court to the passage, which is [2010] Fleet Street Reports, 534 at paragraphs 213 and 214, which are six lines, where Justice Floyd, referring to the UK section 44 said:

The mischief to which the section was directed –

as identified by Lord Justice Dunn in Fichera v Flogates Ltd as being:

to prevent a patentee from abusing his monopoly by placing restrictions on the acquisition and use of products other than the patented products. 

The mischief is punished not only by providing that the term or condition is void but also by preventing the patent from being enforced against anyone while the necessarily void restriction is in force.  This was a provision that was put in place into the Act at the time when the decision of this Court was the law of the country, that is, when exhaustion was the law in Australia.  It is not related to any concept of an implied licence doctrine, no inference that it supports the existence of an implied licence can be drawn from it because there had been no reference to implied licence as the law in 1909. 

What it is plainly is a fairly blunt instrument to prevent patentees using tying contracts or third line…..provision…..Justice Keane that were caught now by section 47 of the Competition and Consumer Act.  But the consequence of the patentee was not just a consequence with a void contract but it was a consequence against all attempts to enforce the patent.  So, it was a fairly strong incentive to seize the conduct which was troubling the Parliament. 

In our respectful submission, a combination of the fact that the provision was inserted whilst the law was exhaustive and a consideration of the provision itself demonstrates that the inference for which our friends contend simply cannot be drawn and we note that the harm to which we have drawn is also referred to by the High Court in a case to which our friends have referred of Transfield v Arlo (1979-1980) 144 CLR 83 and we refer particularly to passages in Justice Stephen’s reasons at pages 93 and 96, Justice Mason at 98 to 99 and Justice Wilson at 106.

So, the section has a broad policy.  A patentee seeks to obtain commercial leverage for anti‑competitive effect such as a tying contract.  It loses all power to enforce its rights under the patent under subsection (4) until it gives up the leverage under subsection (5).  I will not trespass further on that until we see perhaps what our friends have said, but if I could perhaps then move to a second matter that has been raised by our friends which I would like to deal with very briefly.  That is the explanatory memorandum to the 1990 Act which our friends have sought to draw in aid of a contention that they suggest that the Parliament intended that in fact the Act be implemented in the context of an implied licence.

In fact, in our respectful submission, the explanatory memorandum of the 1990 Bill explicitly recorded that it was a matter for the courts to develop a common law doctrine.  The explanatory memorandum is found in tab 30 of Part E and if I could take the Court to bundle page 702 and paragraph 24:

While the definition makes it clear that certain acts are capable of being held to infringe a patentee’s rights, it does not mean that a person who performs one of those acts will always be held to infringe.  Clause 13 is not intended, in particular, to modify the operation of the law on infringement so far as it relates to subsequent dealings with a patented product after its first sale.  This applies particularly where a patented product is resold or where it is imported after being purchased abroad.  It is intended that the question whether such a resale or importation constitutes an infringement in a particular case will continue to be determined as it is now, having regard to any actual or implied licences in the first sale and their effect in Australia, and to what is often known as the doctrine of “exhaustion of rights” so far as it applies under Australian law.

In our respectful submission, the explanatory memorandum refers to both concepts and how the Court applies it, and is not determinative, saying, as our friends would seek to say, that it is to be determined by reference to the implied licence, but rather it is to any actual or implied licences in the first sale and their effect in Australia, and to what is often known as the doctrine of exhaustion of rights, as far as it applies.  So that nothing can be drawn from the explanatory memorandum other than…..left to the Court the determination of how these principles apply in relation to infringement.

It appears, as we understand it, but we will not develop this further at this stage, that our friends contend that in some way this Court is precluded from doing the very thing which the explanatory memorandum leaves to this Court, that is, determining the extent to which there are implied licences or the doctrine of exhaustion applies.  Thus what is also clear is that the legislature has determined that it is not going to be prescriptive in the legislation.  It leaves it for this Court to construe the legislation in much the same way as it left this Court to determine the approach to the patentability of genetic sequencing.

So the explanatory memorandum revealed that the application and development of the common law doctrine of exhaustion was a matter left to the Court.  Our friends also refer to the IPAC report but our general answer to that is that when one considers the IPAC report – and we will leave it to see what our friends say – it is quite clear that what was being considered in the extract of the IPAC report to which our friends refer is in fact importation questions.  It does not deal with the general infringement issue, which is the subject of the proceedings before this Court.

It is dealing with the question of the extent to which there may be any licences in relation to the importation of product.  It does not make any comment about the question as to whether on sale there is an implied licence and whether that excludes a doctrine of exhaustion.  Perhaps if I can reserve for reply any further discussion.

KIEFEL CJ:   That might be a convenient time, then, Mr Shavin.  The Court will adjourn until 2.15.

AT 12.45 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.15 PM:

KIEFEL CJ:   Yes, Mr Shavin.

MR SHAVIN:   If the Court pleases.  Before moving to the findings below, can I add, as a footnote to the discussion of Jazz and Impression, that in Impression, the Supreme Court disagreed with the Federal Circuit in relation to the question of imports and, as I indicated when we went to Impression, the Supreme Court took the view that it did not matter where the product had first been sold.  It otherwise did not comment on the matters in Jazz, to which I took the Court before the lunch adjournment.  Can I turn now to the findings below.

The court, of course, did not deal with the question of exhaustion, it having been understood as an important question but reserved for this Court, so both the primary judge and the Full Court assessed whether the conduct of Calidad in importing and selling the cartridges fell within the scope of the type of implied licence contemplated in Menck.

The primary judge held that the importation and sale of cartridges sold after April 2016, namely categories 1, 2 and 3, and category A fell within the scope of the implied licence, and that the importation and sale of cartridges sold before April 2016, namely categories 4 to 7, including category B, fell outside the scope of the implied licence and were thus infringements.

In finding non‑infringement, the primary judge made a number of findings.  Now, we have summarised these in paragraph 15 of our outline.  I will go very briefly through that, because it will then act as a prelude to the five errors that we identify in the court below.  Category 1 involved the two steps of refilling the cartridge with ink and rewriting data in the memory chip.  Categories 2 and 3 were similar, in that they involved the same two steps.  The rewriting of data in these categories was slightly more involved than that for Category 1, but not materially different for present purposes.  In category 4, instead of rewriting data in the existing memory chip on the cartridge, that chip was replaced with a compatible generic memory chip containing the data required to enable the cartridge to be reused.

I am sorry, could I clarify, I am reading from paragraph 15 of our outline of submissions.  That is a convenient summary.  The primary judge’s findings are at paragraph 238 to 268 for categories 1 to 3, and category A, and at 269 to 294 for categories 4 to 7.  So category 4 was instead of rewriting data in an existing chip, it was replaced with a compatible generic memory chip containing the data required to enable the cartridge to be reused.

Categories 5 and 6 involved the additional step of removing an interface pattern, a physical feature on the side of the cartridge, to allow the cartridge to be inserted into and used in a different printer.  And category 7 involved the step of replacing the integrated circuit assembly on the cartridge with an equivalent assembly sourced from another original Epson cartridge.  This entailed replacing not just the memory chip but also that part of the circuitry which contained the electrical terminals that would connect the cartridge to the printer with which it was to be used.  The particular layout . . . remained the same because it applied an existing Epson item.

And then categories A and B were the same as some of the earlier categories, save they did not involve the cutting and resealing of a gas membrane on the cartridge, a step that was undertaken in relation to the earlier categories in order to improve gas exchange within the cartridge when used.  So that gives you the scope of the physical work that was undertaken.

Now, it is our respectful submission that the court below fell into error in five separate ways.  The first error, in our respectful submission, was the account taken by the court below of the relevance of Seiko’s intention that the cartridges be used only as single use items.  Justice Greenwood at paragraph 54 referred to the printer cartridge as manufactured “is a spent force”, and at 57:

All of this results in “a repurposing” of the original cartridge –

Justice Jagot, as the Court may recall, at 166 to which I took the Court:

As sold, the patented article could not be re‑used . . . As re‑purposed, the product was still an embodiment of the invention but was capable of re‑use.

And at 169:

In the form [in which] it was sold, the product had worked precisely as it was designed to work.

At 175:

in the form it was sold, [it] enabled a single use only until the ink in the cartridge was exhausted.

At 176:

Ninestar enabled an embodiment of the invention, which could no longer be used, to be used.

At 177:

Once the nature of the product as sold by Seiko is understood, which informs the scope of any implied licence and the concept of repair, I am unable to accept . . . As purchased, the product had a defined lifespan.

At 180:

every purchaser purchased an embodiment of the invention which, in the form it was purchased, permitted a single use only.

Justice Yates approached it on the basis of 280:

The reason the cartridges no longer worked was not because they were broken but because, as an inevitable consequence of their intended use, their ink resource had been depleted to the level that the cartridges should no longer be used –

At 281:

the original Epson cartridges were not supplied in a form in which they could be accurately described as re‑usable or re‑fillable cartridges ‑

At 282:

the purpose of their intended use had been achieved and their utility, as intended, was spent.  Seiko programmed them to be that way.

It is our submission that the intention of Seiko that its cartridges be single use was irrelevant to exhaustion and we refer the Court to the passage from Jazz Photo at 1106 to which I took the Court before lunch and the passages of Impression Products at 523 on the second column and at 528:

The exhaustion doctrine is not a presumption about the authority that comes along with the sale; rather, it is a limit on the scope of the patentee’s right.

So Seiko’s patent do not give it, in our respectful submission, any right to control whether the products embodying the claimed invention were put to a single use or re‑used.  Once Seiko had exploited the claimed invention by sale of a patented product, its rights in respect of that product were exhausted.  It could not then assert that because it intended that the product be a single use product that the re‑use of that product infringed its rights, and the status of the cartridge as a single use or re‑usable formed no part of the claimed invention.

If one steps back slightly then and compares this with the Privy Council decision in Menck, even if one was to look at it in terms of an implied term rather than as a question of exhaustion, it is plain that the Court has moved a long way from the reason why someone can use a product is because it is implied that they have got a licence to do so.

Now it is being said that this implied licence, implied to give some practical utility to the fact that the product has been sold, has now got a special term saying, well, if the patentee had an intention for the product then the person who ultimately ends up with the product has a limited ability to use the product only as the patentee intended it.  Now, the only purpose of that is to put a constraint on commerce to give to the patentee monopoly rights that extend beyond the exploitation of the invention by the first sale and, in our respectful submission, it is a curious evolution of an implied term to put such a qualification on it.

That, in fact, the implied term, if there is one contrary to our submissions, would simply be that once you have purchased a product from the patentee you have the rights of a purchaser to deal with it as you see fit, and as long as what you do not do is make another embodiment then there should, in fact, be no constraint referable only to the purpose of the patentee.  Thus, our submission falls in two parts on this error.  The first is that the doctrine of exhaustion ought to apply and that all rights of the patentee were exhausted, but if the Court was against us on that then, nevertheless, the patentee’s intention ought not be relevant. 

Now, our friends argue in paragraphs 62, 63 and 67 of their outline that the intention is a relevant part of the consideration of the implied term, and if our friends are right on that it demonstrates why in this case the doctrine of exhaustion would end up with a different outcome and that would be a sound basis for this Court to conclude that with the passage of time and the circumstances that have arisen to the extent that an implied term may once have been an acceptable approach as a matter of policy now it is in the public interest for the common law found by this Court in 1908 on the construction of the Act, then found and still relevant, the doctrine of exhaustion ought to apply to ensure that there are proper limits on the scope of the rights of a patentee in these circumstances.  The second error is that ‑ ‑ ‑

EDELMAN J:   Mr Shavin, if the intention – which I take it to be assume to be an objective intention rather than a subjective intention – is to be the intention of both the patentee and the purchaser, would there ever be a difference in result between an intention‑based approach under a banner of implied licence and the exhaustion of rights approach, particularly given that it is said that the implied licence has proprietary effect and binds subsequent purchasers as well?

MR SHAVIN:   In our respectful submission, there would be a difference, your Honour, because under the doctrine of exhaustion the intention is completely irrelevant whether it is the patentee’s or the purchaser’s and certainly it would not follow down the line to subsequent purchasers.  So that when one looks ‑ ‑ ‑

EDELMAN J:   So, would there ever be a difference in result if one were to look to the intention of both the purchaser and the patentee for the initial sale and then effectively to give that proprietary effect for subsequent purchasers?  Would there be a case which would lead to a different result if that approach were applied, as opposed to the exhaustion of rights approach?

MR SHAVIN:   Can I break it down in this way, your Honour.  If one has first of all an approach of an implied licence, then, in our respectful submission, the purchaser’s intention would never be relevant for determining whether a condition ran with the goods as opposed to an informal contract.

Secondly, to the extent that one follows precisely what the Privy Council said in Menck, it said there could be a condition but it had to be a condition that was communicated to the purchaser at the time of the sale that does not talk about “happens to subsequent purchases”.  In relation to the doctrine of exhaustion, the approach that was adopted in the United States is that the intention of the vendor, the patentee, is not relevant and, as a matter of logic, that would follow, in our respectful submission, from the approach of this Court in Menck because all rights cease for the patentee at the time of first sale.  Does that respond to your Honour’s question?

EDELMAN J:   In part, yes.

MR SHAVIN:   Is the part that I have left unanswered:  does it matter if the purchaser shares the intention of the patentee?  It would matter on a constraint on the purchaser perhaps as between the purchaser and the vendor at the first sale but, in our respectful submission, would have no impact on a subsequent sale.

EDELMAN J:   You may wish to look at the line of cases that begin with Lord Strathcona Steamship Co. v Dominion Coal Company [1927] AC 108, particularly at page 120, and whether or not that line of cases is good law, or inconsistent with the proposition that you have put.

MR SHAVIN:   Perhaps, your Honour, I can return to that in reply.

EDELMAN J:   Certainly.

MR SHAVIN:   If I may.  I have not looked at that line of cases for this purpose.  If I can have liberty to refer to your Honour on that in response in reply.

EDELMAN J:   Yes, certainly.

MR SHAVIN:   Thank you.  Could I turn to the second error that we respectfully suggest has happened, to which the court fell in below, and that was that the court failed to recognise that modification or improvement were permissible acts even if there was an implied licence.  And under the doctrine of exhaustion, they are permissible acts that fall short of “making”, so that, in considering the factual steps found by the trial judge, not challenged on appeal, they were all characterised in terms of pure repair or making, and the court did not characterise any of them in terms of modification or improvement.

For the reasons we identified this morning, and relying in particular upon the approach by Lord Hoffmann, in our respectful submission, repair, modification, and improvement all fall on one side of the line, with a shoulder abutting but never crossing into making, and of course, consistent with the authorities in the United States, summarised in Jazz Photo, a similar approach was adopted there where quite considerable steps were accepted as repair or modification falling short of the language used in America of reconstruction. So, as the Court will recall, before lunch, the concept of “repair” in the American authorities clearly encompassed modification and improvement. So that when we look below, Justice Greenwood, at paragraph 83, noted that:

the scope of the patent licence implied by law . . . that right would bring within the scope of the implied licence, rights which would fall within the statutory description of “exploit”, to this extent:  to “hire, sell, otherwise dispose of . . . use or import it –

At 84:

The scope of the implied licence, however, does not include a right to “make” –

These propositions established a dichotomy, in our respectful submission, between “use” and “making” with no middle ground for modification or improvement, so that Justice Greenwood held at 85 that Ninestar had undertaken a sequence of modifications so as to bring into existence a new article of manufacture.  In our respectful submission, the error was that he has elided from modifications to making a new article, and it is plain, on the authorities, that as a matter of characterisation of principle, the proper finding would have been that there has been a modification but no making of any new article.

Now, Justice Jagot adopted a similar approach at paragraph 166.  Perhaps I might take the Court back to this.  It is in the core appeal book at bundle 228, this is in tab 7.  The Court will recall that Justice Jagot said:

It cannot be doubted that on the facts as found by the primary judge, none of the Calidad products are the product as sold by Seiko.  The products which Seiko sold all embodied the claimed invention including that part of the first integer consisting of a “printing material container”.  Step 2 of the process for all categories of container involved creating a new hole in the container to enable the container to be filled with fresh ink and then sealing both the new hole and the original hole with plastic by applying heat and pressure.  While the primary judge described this at [240] as a “minor physical alteration” with no relationship to the claimed invention, as Seiko submitted, at the moment the new hole was created, there was no longer an essential integer of the claimed invention, a “printing material container”, as unless and until the new seals were applied, the purported container could not contain printing ink.  Nor do I see how it could be concluded that the implied licence which arose on sale enabling the purchaser to use and repair the original Epson printer cartridge could be thought to extend to re‑purposing the cartridge once it was empty of ink by creating a new injection hole for ink to enable the cartridge to be re‑filled and sealing the original and new holes so that the cartridge, which had ceased to be a printing material container, was made into a new printing material container.  That is not a use of the patented article as sold at all; it is the making of a new article within the scope of the patent.  As sold, the patented article could not be re‑used at all for two reasons.  One, the container was empty of ink.  Two, the memory recorded that the container was empty of ink so it would no longer function.  As re‑purposed, the product was still an embodiment of the invention but was capable of re‑use.  Of itself, these facts indicate to us that the modifications involved the making of a new embodiment of the invention, outside of any implied licence ‑

Now, there are a number of errors we say, with the greatest of respect, in that analysis together at para 177 where her Honour commented on that that there was no worn part.  Relevantly, in relation to this error, in our respectful submission, her Honour failed to give any consideration as to whether there were modifications or improvements ‑ simply drilling two holes, putting in some ink and sealing them and how that qualitatively compared to the patented product as to whether it was making a new product or whether, in fact, it was simply modifying or improving a product.

What seems to have tainted her Honour was giving undue importance to both the intention of the patentee which was the first error, and also whether temporarily the product became unusable which is the unmaking argument which is the third error.  But, in this case, those paragraphs also identified an error by her Honour in not considering properly whether the steps undertaken by Calidad should properly have been characterised as a modification.  It would be within an implied licence or a modification that would not constitute the making of a new embodiment and is outside the question of any doctrine of exhaustion.

Now, Justice Yates at 294 noted that:

the modifications . . . materially altered the original Epson cartridges –

and:

amounted to remanufacture . . . to produce reborn printer cartridges ‑

His Honour did not explain why the modifications were material or involved remanufacture.  It appears when one looks at the paragraph that the material alteration was because the end result was not in his Honour’s view the single use product that had been projected onto the market, but his Honour failed to consider whether by mere modifications this was something that fell far short of making a new product and, thus, with respect, his Honour fell into this error as well.

Under the doctrine of exhaustion, there is, in our respectful submission, a right to improve a patented product, as the Chief Justice articulated at CLR 509, line 16 to CLR 510, line 14, which is at pages 263 to 264 of Part C of the bundle.  And in Jazz Photo at pages 1102 to 1104, modifying and refurbishing patented products was not an infringement. In Aro in the Supreme Court at 346, lines 30 to 34, modifying by replacement of unpatented parts of patented products does not constitute an infringement.  So that in this respect we say, with respect to the court below, each of the members of the court fell into error.

Now, error three is the unmaking and ceasing to exist argument.  The Court will recall that Justice Jagot regarded this as a significant matter at paragraph 166 of her reasons and, similarly, at paragraph 168 of her reasons her Honour referred to the unmaking of the printed material container and our friends picked this up in paragraph 12 of their submissions.  However, this is the precise mode of artificial reasoning which has been rejected by both the United Kingdom Supreme Court and by the United States Supreme Court.

If I could take the Court to Aro, which is at part D of the bundle in tab 13, in the concurring reasons of Justice Black which will be found at page 365 of the bundle, or 346 of the judgment, and if I could take the Court to page 371 of Justice Black’s reasons ‑ 352 of the reasons themselves, 371 of the bundle.  If I could ask the Court to go to line 41, so on page 371 of the bundle:

The contention was that the machine ceased to exist or have any “material existence” the moment its knives wore out, and that for this reason replacement of the knives amounted to a “making” of the whole patented invention which infringed the patentee’s exclusive right to “make, use, and vend.”  The Court refused to accept this conceptualistic and misleading argument as to when a tangible machine ceases to have a “material existence.”  It did agree that “when the material of the combination ceases to exist, in whatever way that may occur, the right to renew it depends upon the right to make the invention.  If the right to make does not exist, there is no right to rebuild the combination.” . . . But the Court then went on to enunciate what has been the accepted rule in this Court ever since with respect to component parts of the combination:  “When the wearing or injury is partial, then repair is restoration, and not reconstruction. . . .  And it is no more than that, though it shall be a replacement of an essential part of a combination.”

He continues that explanation through the balance of page 372 of the bundle to 373, and if I could just take the Court to a few lines at page 373 of the bundle, at about line 34:

None of this Court’s cases relied upon by my Brothers HARLAN and BRENNAN justifies adoption of the supposed guides and standards referred to in their opinions.  Deciding whether a patented article is “made” does not depend on whether an unpatented element of it is perishable, or how long some of the elements last, or what the patentee’s or a purchaser’s intentions were about them, regardless of whether the application of such standards is considered a question of law, as it is by MR. JUSTICE BRENNAN, or a question of fact, as it is by MR. JUSTICE HARLAN.

In Schütz, which is tab 23 of the bundle, at paragraph 57 and 58, the Supreme Court speech of which was delivered by Lord Neuberger:

On the other hand –

At 57, this is at page 596 of the bundle:

I consider that the Court of Appeal were too ready to accept that the outcome of this case was governed by United Wire. They do not appear to have recognised that the question of whether replacing a part of a patented article constitutes “making” it is a matter of fact and degree. Indeed, Jacob L.J. appears to have thought that replacing any part of a patented article would involve “making” it. At [70], he said that “if Delta made a frame according to Claim 1 and fitted it with a Schütz bottle” that must produce “exactly the same” outcome as the present position. Similarly, at [64], he said that the IBC “ceased to exist when the bottle is removed” and “[w]hat remained at that stage was merely an important component [viz. the Schütz cage] from which a new IBC could be made”.

However, as mentioned above, it is a matter of degree, to be assessed in each case, whether replacing a worn or damaged part of a patented article amounts to “making” the patented article.  If, very unusually, an original Schütz IBC was in such a state that the bottle could be reused but the cage could not, it would, I think, be hard to challenge the view that putting the existing bottle in a new Schütz cage would involve “making” the claimed article.  On the other hand, if an original Schütz IBC was entirely reusable save that the detachable lid of the bottle (assuming the bottle’s design involved a detachable lid) was damaged, it could not be plausibly contended that the replacement of the lid constituted “making” the claimed article, even though the IBC would be unusable without the new lid.  In other words, the replacement of a damaged essential constituent of an IBC can constitute repairing, rather than “making”, the article.

In our respectful submission, her Honour Justice Jagot fell into error in thinking that, because temporarily the container could not work as a printing container because a hole had been pierced in it before it was resealed, was not a determinative factor in assessing whether or not there was a “making” of a new container.  Rather, the appropriate approach is to look at the whole of the container, to look at its functionality, to look at the invention claim and to ask whether, by piercing a hole to enable new ink to be inserted and sealing the hole was making a new container or modifying an existing container to enable it to be reused.

In those circumstances, in our respectful submission, the emphasis on considering whether for an instant it was unmade was in fact an error of principle.  So when one considers the printing container, it continued to exist even though in the process of modification it was inoperable until the process was completed.  So it was indistinguishable from the automobile top considered in Aro, the IBC considered in Schütz, the lens‑fitted film package which had to be broken open in Jazz Photo, the truck clutches in Dana Corp and the printer cartridges at issue in Impression v Lexmark.

The fourth error to which we point is the reliance on unclaimed features.  The Full Court took conflicting approaches to the relevance of the claimed integers of the invention.  In the passage to which I took the Court at paragraph 292 of Justice Yates’ reasons this morning, we noted that the primary judge erred – Justice Yates held the primary judge erred by confining his attention only to those features of the cartridge that could be said to embody the invention claim.

His Honour held at 293 that the correct approach was whether cartridges were in substance different articles irrespective of whether differences related to claimed features.  With very great respect, we suggest that his Honour has here fallen into a critical error.  The assessment should be by reference to the features of the invention that whether or not a modification has made…..in the making of a product should be assessed by reference to whether it has been a remaking of the product claimed. 

It is, in our respectful submission, an error to make that assessment by reference to the product put on the market rather than by reference to the product which is the subject of the claims and although his Honour appeared to recognise that he might be criticised for enlarging the patentee’s rights and denying he was doing so, we say with very great respect that his Honour has in fact fallen into the mistake that he was conscious of – that is, that by asserting that there were rights to the patentee, the infringement of which was to be assessed by a wider set of circumstances than the integers claimed in the patent and by reference to a product which was wider and included matters not confined to the integers of the claim, his Honour has adopted an approach to determining whether something was made that is wrong, it is inconsistent with Australian law, inconsistent with the approach in the United Kingdom and certainly inconsistent with the approach adopted by the Supreme Court and the Federal Circuit in the United States.

To the extent that one is looking either at the application of the doctrine of exhaustion or at an implied licence, there must be a substantive making of a new embodiment and that, in our respectful submission, must be assessed by reference to looking at the invention claimed and how much are relevant to the invention of the modifications and not by looking to something different.

Justice Jagot had a different approach.  At various points her Honour sought to relate her analysis to the integers of the claim.  For example, paragraph 166 of her reasons at line 19, there was no longer an essential integer of the claimed invention.  However, her analysis of memory in paragraphs 172, 173, plainly extended to a consideration of modifications of unclaimed features.  Her Honour accepted at 172 that the actual status of the memory is not part of the claim.  At 173, her Honour said:

the memory driven by the memory driving voltage is changed in a fundamental way by Ninestar’s actions.  The memory is changed from a status showing that the cartridge has been used so that there is no more ink to enable printing to a status so that the cartridge is full of ink and unused. 

That is, the relevant modification which her Honour identified was to the status of the memory being the very thing which she accepted at para 172 did not form part of the claim.  Yet, it was this modification to an unclaimed feature which her Honour considered to fall outside the implied licence.

Then you get into her Honour’s construction of memory ‑ was, we say, with respect, in error.  The primary judge at paragraphs 204 to 208, which is at core appeal book 68 to 69 but I need not take the Court to it, undertook a careful analysis of the expert evidence regarding the meaning of memory and the manner in which memory is used for specification.  The primary judge concluded at para 208 that memory in integer 2 means a hardware device and the claim:

is indifferent as to the information or data stored on the memory –

And at 221:

The claim leaves open the content of the information that may be stored on the memory ‑

Justice Yates, on appeal, agreed at paragraph 218.  Justice Greenwood did not directly address the issue.  Justice Jagot failed entirely to engage with the reasons of the primary judge of the expert evidence which bore on the proper construction of the term.  Had she done so, we say, with respect, she could not have reached the conclusion that the fact that the content of the memory was changed had any impact upon whether or not there was a new making of the invention because the content of the memory is not a claimed integer. 

The approach adopted by Justice Greenwood in respect of the relevance of claim features was also, we say, with great respect, inconsistent.  At paragraph 79, his Honour emphasised that the invention is defined by the claims.  At paragraph 81, his Honour emphasised that the exclusive rights are concerned with the invention as defined by the claim or claims.  Yet having emphasised that the exclusive right to confine the claims, his Honour then expressed agreement with Justice Jagot at paragraph 87 and, thus, we would say, that his Honour’s reasoning is tainted by the same errors that we respectfully suggest have fallen out of her Honour’s reasons.

In our respectful submission, it was wrong for the Full Court to consider modifications made to unclaimed features.  On this approach, a modification to a patented product bearing no relationship to the invention would result in a product infringing.  By way of analogy, if a patent was granted for a car containing a novel airbag, a patentee could retain the sale of that car if the glove box had been modified.  That, plainly, has to be wrong and, yes, that is an extreme example.  But to say that you have a particular printing cartridge with particular claimed features but a modification of a feature not the subject of a claim results in a conclusion the cartridge has been remade so that there is an infringement is exactly the same error by analogy.

The reasoning of the trial judge, in our respectful submission, is to be preferred and for this we would simply refer the Court to paragraphs 164 to 172 which the Court will find at core appeal book pages 57 to 59.  I will just check that, if I may – yes, the passage appearing under the heading “When modifications extinguish the implied licence”.  To the extent that his Honour found that categories 1, 2 and 3 did not extinguish the implied licence, he did so by making a qualitative assessment of the significance of the modifications to the invention claim and that, in our respectful submission, was the approach that has been endorsed in both the Supreme Court in the United Kingdom and the courts in the United States and is in accordance with sound principle.

GORDON J:   Mr Shavin, if I take those categories 1, 2 and 3, is your proposition any more than that each of those modifications was affected to something which was not an integer of the patent?

MR SHAVIN:   Or was peripheral to the invention; to have a making, in our ‑ ‑ ‑

GORDON J:   …..first proposition, is it not your case that each of the modifications in categories 1, 2 and 3 was a change made, which is neutral language, to something which was not an integer of the patent?

MR SHAVIN:   I cannot ‑ ‑ ‑

GORDON J:   The ink is not an integer of the patent ‑ the injection, the resetting ‑because the memory itself, the information on the memory part of the patent, is that not an underlying proposition to all of it?

MR SHAVIN:   Yes, with one exception, your Honour.  There was a hole put temporarily in the printer cartridge.

GORDON J:   Which part of the patent is affected by that hole?

MR SHAVIN:   It depends on – I am probably going against myself here.  You have a printing material container.  If you adopt what we say is the appropriate course – and this I suspect is what your Honour is putting to me – then although there was a hole put in the container that was sealed, so that it was only temporarily not a container, there was something done to an integer.  That is all.  But we would accept that there was no permanent change, nor was there a material change made because a microscopic hole was put in and then sealed.  All of the other changes and the effect of that change are as your Honour has identified, that is, they are not changes to the integers.  It is, of course, and as your Honour will appreciate, we say that even though there was a hole put in the printing container, it remained a printing container.  I just did not want to suggest, your Honour, that there was nothing done to one of the integers. 

So that it is our submission that, irrespective of whether an exhaustion or implied licence doctrine is applied, the approach of the Full Court which involved having regard to modifications to unclaimed features of the cartridge was wrong in law.  It had the effect of extending the monopoly of patent protection beyond the patented product, beyond the integers of the claimed invention to unpatented parts of the product related to claimed invention and in that way was extending in an unjustified manner the rights of the patentee and it was extending them beyond any basis that could be found within the Act. 

There is nothing in the Act giving to a patentee any right to something other than an invention as claimed, and to the extent that the Court has gone further than that, it has fallen into error, it has enlarged without justification and wrongly in law, in our respectful submission, the rights of the patentee and thus in finding infringement it has fallen into error.

That bring us to the fifth error.  The Full Court and to a lesser extent the primary judge, when considering whether the modifications resulted in the making of a new product, erred by failing to assess the materiality of the modifications by reference to the substance of the invention.  I took the Court this morning to Schutz at paragraph 67 in tab 23 of Part D of the bundle of authorities, where the Court will recall that the Supreme Court said that it is a matter of judgment and degree, but it must be done by reference to the substance of the invention.

Lord Neuberger, with whom all the other Lords agreed, explained the relevance of identifying the inventive concept or substance of the invention for the purpose of assessing whether there has been an impermissible making.  Now, this is not for the purpose of assessing infringement but for the purpose of assessing whether there has been a making.  Our friends at paragraph 75 and 76 of their outline seek to explain this away on the basis that it is a function of the UK approach of finding infringement in circumstances of variance.  We respectfully suggest our friends were in error. 

There is nothing in paragraph 67 in Schutz which refers to infringement by way of variance.  Instead, Lord Neuberger explained that whether the part replaced does not include any aspect of the inventive concept, it is more likely to involve repairing than making – that is, the inventive concept was invoked to support in Schutz a finding of non‑infringement.  So much is made clear at paragraph 78 where the second reason identified for finding a repair rather than making was the fact that the part replaced in the IBC, the bottle rather than the frame, did not embody the inventive concept.

The UK cases cited by our friends at paragraph 74 can be distinguished on the same basis.  In Aro, at 344 – in the bundle at page 363 – the argument rejected by the Supreme Court was that because the replaced parts embodied the invention there was infringement.  That argument was rejected by the Supreme Court and the Court did not reject the opposite argument, namely, that where the part replaced was generic, there was no impermissible making.  So our friends simply have inverted the findings by error.  To the contrary, so much would necessarily follow from the conclusion that even the replacement of parts embodying the inventive concept does not involve making. 

Now, in assessing whether there has been an impermissible making, the invention must be understood as a matter of substance, not a matter of form, and as recognised by the Supreme Court in Schutz, a consideration of the inventive concept ought inform any analysis of whether there has been a making and in this case, the modifications, the categories 4, 5, 6 and 7 cartridges all involve modification to parts of the cartridge which did not embody the substance of the invention.  In those circumstances, the conclusion ought to be that there has been no making, that there has simply been a modification or improvement.  Thus, in our respectful submission, in relation to each of the categories, the court below fell into error.

Now, would the Court pardon me one moment please.  Perhaps if I can just, briefly, because I am conscious of the hour, if I could just deal briefly with the remaining categories.  Category 4 is the new memory chip.  The chip replacement process was described by Justice Jagot at paragraph 167 of her Honour’s reasons, and is dealt with by the primary judge at 271.  Rather than reprogramming or resetting the memory, for category 4, Ninestar remove the PCB from the cartridge, replaced the memory chip on the PCB, replaced the PCB on another category 4 cartridge, often different to that from which it was removed.

Thus, the category 4 cartridges involved replacement of the memory chip, which is integer [2] of claim 1.  This occurred in circumstances where the substance of the invention resides in integers [4] to [11], none of which make any reference to memory, and we refer to the primary judge at 199 and 208 and the Full Court at 215.  Paragraph 2 of the patent recorded that it was common practice to equip an ink cartridge with a memory.  On any view, the significance of the part being replaced in respect of category 4 cartridges was far less than the fabric replacing the invention in Aro.

In that case, the patentee contended that the fabric was the essential or distinguishing part of the claim, yet replacement of that part was permitted by the United States Supreme Court, which emphasised that even replacement of the essential element, gist, or heart of the invention was permissible.  The extent of replacement was also far less than that in Jazz Photo. For example, at 1100 in Jazz Photo, the claim …..included an unexposed roll of film and a winding spool, and the modifications included, at 1101, replacing the winding wheel and winding new film out, and of course, breaking open the cartridge by breaking a weld, then resealing.

The memory chip was also far less significant than the part replaced in Schütz, the bottle, in one of the two primary parts of the invention.  Not only was the memory chip in this case a generic and insignificant part of the claimed invention, but the replacement of the chip did not affect how the cartridge embodied claim 1.  After replacement of the chip the cartridge embodied precisely the same combination of integers, the same physical integers, as the original cartridge supply.  The replacement of the chip was functionally the equivalent of the original chip.  It contained the same types of data, given by the same voltage, supplied by the same computer.

All that happened is that one of the 11 integers, a generic piece of hardware, was replaced with a functional equivalent.  In respect of this cartridge, Justice Jagot also held the original Epson product as sold necessarily ceased to exist most probably at the moment the printer circuit board was replaced, however, we have dealt with this, and in our respectful submission, the unmaking‑remaking argument was rejected by the United States Supreme Court in Aro and by Schütz in the United Kingdom Supreme Court.  As Aro said, it is the use of the whole combination which a purchaser buys, and that repair or replacement of the worn out, damaged, or destroyed part is but an exercise of the right to give duration to that which he owns and has a right to use as a whole.

Category 5, which is the cut‑off of the interface, the interface pattern was described by the primary judge as “borderline”, though he did not expand on that conclusion.  Justice Jagot did not consider it borderline, but classified the modifications involving a new kind of adaptation.

Thus, in our respectful submission, the removal of this feature does not and cannot constitute at law the making of a new container.  The original container is there.  The original parts are there, save for that feature, not claimed specifically, has been removed.

The category 6 cartridges – the interface pattern was removed with the same memory chip.  The category 6 cartridges are described in the primary judge’s reasons at 284.  These were category 2 or category 3 cartridges which had their interface pattern removed but retained the memory chip which was replaced in the category 5 cartridges.  It follows that the modification made to such cartridges were confined to unclaimed or generic features unrelated to the substance of the invention, therefore, the changes should be regarded as mere modification, not of making.

Category 7 is a hybrid of different cartridges and PCBs.  This is analogous to the cases cited in Jazz Photo, particularly, in Dana v General Electric to which the Court will recall there was a discussion in Jazz Photo at page 1104. The category 7 cartridges are described by the primary judge at 287 to 290 of his reasons. They were category 5 or 6 cartridges which featured the additional modification that the PCB from one type of original Epson cartridge was inserted into a different type of Epson cartridge which also embodied the invention. This occurred when Ninestar ran short of matching cartridges.

Calidad contends this was a permissible modification for the following reasons.  First, it was a permissible modification under the US doctrine of exhaustion because the Court will recall that the fact you had a production line and you mixed and matched pieces, if what you were doing in the end was modifying but not making a new product which, in this case, would be a new printing cartridge, there was no infringement. 

So, in Jazz Photo at 1104, the Court will recall, in General Electric there was disassembly of patented gun mounts into component parts and reassembly without regard to where such components had originated.  This was not a reconstruction.  In Dana Corp there was disassembly and rebuilding of patented clutches, including withholding new parts, and this was also not a reconstruction.

Second, all that happened was that Seiko sold different cartridge types.  At that time, its rights in respect of those cartridge types or cartridges was exhausted.  Ninestar was free to use the components from one cartridge type, the PCB, to modify another.  In doing so, Ninestar was not creating a new embodiment of the invention, the cartridges already embodied the invention.  Rather, Ninestar was modifying a part of the cartridge over which it had acquired full legal ownership.  It did not result in any change in the embodiment of the invention as claimed.  It still embodied the same collocation of integers with the functionally equivalent parts.  So, in our respectful submission, the category 7 cartridges also did not constitute a making and, thus, did not constitute an infringement.

NETTLE J:   Mr Shavin, may I ask a question please about categories 5, 6 and 7, all of which I think had the interface pattern cut off in order that, as so modified, the cartridge could be fitted to a different printer than that for which the original cartridge was designed.

MR SHAVIN:   Yes, your Honour.

NETTLE J:   You say that is of no consequence because it is looking at the item as sold rather than the item as claimed.  Is that it?

MR SHAVIN:   Yes, your Honour, and that the printer cartridge is a cartridge ‑ as a product is still a cartridge.  There has been a modification to it, but it is not a new product. 

NETTLE J:   So if, for example, in Dana Corporation, the case about the clutches being mass reproduced or mass re‑repaired, if the modifications had changed one form of clutch, say, a…..for a Chevrolet to a different clutch…..for another brand, that would make no difference?

MR SHAVIN:   Yes, though in this case the printer is not a party to the claim.  So the only product which is claimed is the printer cartridge with the 11 integers, and the fact that that cartridge might be used or is capable of being used in different printers is not part of the claimed invention.  All that has happened is that there has been a modification of an inessential integer of the cartridge to enable it to go into different printers, but there has been no specific integer of the interface, there just has to be something, and to the extent that our friend says there is nothing then, of course, it does not infringe but we are all accepting that each of these imported cartridges infringe.  So what you have is a modification of the cartridge when enables it to go into different Epson printers.

NETTLE J:   Yes, thank you.

MR SHAVIN:   But, in our respectful submission, when one stands back and looks, you have a printer cartridge to start off with.  After the modification you have essentially the same cartridge.  It is not a new cartridge.  It is the cartridge with a modification.  It would be a distortion of language to look at that cartridge, hold it in your hand, look at the original one, hold it in your hand, and say what you have now is a completely new cartridge, a re‑made embodiment, a new embodiment, rather than to say you have the original cartridge and it has been modified.

As we know from Lord Hoffmann, “modified”, “repaired”, “improved” fall shoulder to shoulder, but do not overlap with “made”.  There is a depiction of this in the primary judge’s reasons, if I could take the Court to tab 1, page 29 of the core appeal book.

GORDON J:   Which page of the book is that?

MR SHAVIN:   Page 29, if your Honour pleases.

GORDON J:   Yes, thank you.

MR SHAVIN:   There is a figure 5 at the foot of the page.

GORDON J:   The figure on the left there which is the interface pattern on the product is what appears at figure 23 in the specification of the patent, is it not?  One has a diagram of it.

MR SHAVIN:   I believe that is so.

GORDON J:   It is…..which is at page 92.

MR SHAVIN:   Yes, it is depicted, that is correct, your Honour, but it is not claimed.

GORDON J:   I accept that.

MR SHAVIN:   Thank you, your Honour.  But yes, we agree with that, your Honour.  But when one looks at the substance of the cartridge, you still have the cartridge; you simply have an external feature that has been modified, and as a matter of language, you can see a modification to a cartridge which is otherwise the same.  It is in that way that we say it should be held not to be an infringement because it is a modified cartridge, not made as a new embodiment, a new product that newly falls within the claim and the monopoly.

The only other matter that we deal with very briefly is that we were given leave to raise at the end the appropriate form of relief.  As to that, we do not really wish to add to what is in our written outline other than to say that the form of relief granted in the end by the Full Court was a broad injunction, not in any way related to the conduct before the Court. 

If the Court is against us on all other matters – and of course our primary contention is that the Court should allow the appeal and find that there has been no infringement – we would urge upon the Court to adopt a doctrine of exhaustion.  But if the Court is otherwise against us, the difficulty of the broad form of injunction is that it will lead in enforcement proceedings dealing with in the context of contempt.

In the circumstances of the subjective character of the issues that have been canvassed with differences between the primary judge and the Full Court and the difficult issues of assessment, it is our respectful submission that that is an inappropriate balance, but we do not wish to take more of the Court’s time on that issue.

Unless there is any further manner in which we can assist the Court, those are our submissions.

KIEFEL CJ:   Thank you, Mr Shavin.  Mr Bannon?

MR BANNON: Your Honours, can I commence by addressing our second proposition in our oral outline, namely, the nature of the rights granted under 1990 Act, firstly, and direct attention to section 13 again, which appears at page 18 of the authorities Part A, tab 4. I re‑emphasise that in section 13(1) the language is:

Subject to this Act, a patent gives the patentee the exclusive rights, during the term of the patent, to exploit the invention and to authorise another person to exploit the invention.

What we submit is the reference to “exclusive rights” is to the exclusion of all others, without statutory exception, and in particular there is no limitation on the exclusion by reference to persons to whom a patentee had sold a product or a person, patentee, licensee had sold a product. 

The continuance of the exclusive rights, as it indicates there, is during the term of a patent.  There is no statutory foothold for a proposition that the exclusive right in whole or in part ceases or dissipates or departs from the patentee, for example, by the trigger of a sale of a patented product by the patentee.

The reference to “exploit the invention” I will come to in a moment, but I pause on the word “authorise”.  There is no limitation on how that authorisation might take place and, in particular, there is no formal requirement for it.  Indeed, many patent infringement debates involving the question of authorisation regularly involve absence of express authorisation and, indeed, implicit authorisation that arise, for example, when directors of a company are sought to be held liable for implicit authorisation or express authorisation.  In either case, there is no formal requirement.

KIEFEL CJ:   You are talking about authorisation in the contractual sense, are you, Mr Bannon?

MR BANNON:   I am talking there about the general power ‑ the right to authorise.  To exclusively authorise is not limited to a right to authorise in writing.  In other words…..and implicit licence.  The point I was just making, your Honour, is very precise:  there is no formal requirement for that.  In other words, the statute recognises, by the absence of a formal requirement, that one can have informal authorisation and we would say necessarily implicit authorisation.

By way of contrast, section 14 of the Act provides that an assignment of a patent must be in writing signed by and on behalf of the assignor and assignee.  There may be an interesting question as to whether or not, at least on one view of the US document, “exhaustion”, that at least one statement would suggest that there is a parting or a transfer to the purchaser of the patented product of an aspect of the exclusive right referrable to an individual product.

We say that is not something which is contemplated by the Act, and it is doubtful as to how that could occur.  Indeed, an assignment also gives, under our legislation, a right to sue.  It would have been a rather curious matter if exhaustion meant that there is some form of transfer to the purchaser by way of assignment of part of the exclusive right embodied in a particular product.

The invention referred to in section 13 is invention as claimed and as claimed is referred to in section 40(2), a couple of pages on:

A complete specification must:

. . . 

(b)where it relates to an application for a standard patent – end with a claim or claims defining the invention ‑

As was said in this Court in Kimberly‑Clark, to which I have not given a reference, but the Act uses the word “invention” in a number of different ways and different parts but in terms of defining the “exclusive rights” of a patentee, it is that which is set out in the claims and that is the way in which it is used in section 40(2)(b) and section 13. Could I give this reference to D’Arcy v Myriad at paragraph 14 in the reasons of the plurality which accepted such a proposition and something similar but I do not have the precise reference in the reasons of your Honours Justice Gageler and Justice Nettle.

Then the mention of “exploit” at page 49 of the volume is in relation to an invention and, relevantly, the product and, relevantly again:

make, sell . . . or otherwise dispose of it, use or import it, or keep it for the purpose of doing any of those things –

They are all individual rights, they are not cumulative.  In terms they do not suggest that if you exercise one, you lose another.  And exclusive rights are not framed by reference to any specific embodiment within a claim or produced by the patentee.  The right is framed by reference to the invention which, we say, the courts have interpreted it as the invention as claimed. 

There is no limit in the right expressed by legislation or has ever been held on the number of times or ways in which a patentee can make or authorise the making of the invention as claimed.  Thus, the making of a single embodiment by the patentees has not used up, in any sense, or exhaust the exclusive right to make the invention as claimed to the extent of that physical embodiment.  Equally, the right to make is not merged – that is a concept which could possibly apply here ‑ in an article made in accordance with the claim.  There is a merger of a right to the extent of some fraction or part of the exclusive right to make represented by an individual embodiment.  Equally, we submit, the sale of one article does not limit ‑ ‑ ‑

GAGELER J:   Mr Bannon, is it correct to refer positively to a right to make or is it a right to exclude others from making?

MR BANNON:   It is a right to exclude others, so characterised.  It is framed as an exclusive right but I think your Honour alludes to the statements of this Court and, indeed, going well back in time, that it is effectively a negative right and I think ‑ I was going to come to that, your Honour.  But, certainly, absent the Patents Act or absent a valid invention within the Act, there would be no impediment on anybody making an article in accordance with the claim.  The effect of a negative or exclusive right is no one else can do it, the patentee can do it without infringing the patentee’s own plan. 

So everything which I have said could be framed equally by saying there is no dissipation or limitation on the extent of the negative capacity of the right by dint of or reference to an individual embodiment which the patentee happens to make.  I am sorry, your Honour, I did not hear your Honour’s question to start with, sometimes our feed is a little questionable.

GAGELER J:   I am told I do not speak loudly enough, Mr Bannon.

MR BANNON:   …..your Honour, but because we do not have a visual, I cannot sense when someone is attempting to get my attention.  The visual is blurred, in some instances, attractively psychedelic.

Now, we submit that the sale of one article does not limit or exhaust the exclusive right, whether one characterises it as a positive or negative right.  Another way of putting it is, we submit, that the patentee’s exclusive right to use an article, embodying the invention, does not evaporate or disappear, to the extent it is represented by an individual article which was made by or on behalf of the patentee.

In other words, the statutory right is not framed as one subdivisible into notional fragments reflected in the making or selling of individual physical embodiments.  And the fact that the exclusive right continues for the term of the patent and it operates as against all persons, including persons to whom the patentee may have sold, we submit it was confirmed in this Court in the decision of Grain Pool of Western Australia v Commonwealth (2000) 202 CLR 479. It was a case which we advised the Court that we would additionally rely upon, and we trust that it has been provided separately, and if I could invite your Honours to go to the first page of that case.

As your Honours no doubt recall, it was a case in which the constitutional validity of Plant Variety Rights Act and Plant Breeder’s Rights Act were challenged on the basis that the rights granted in respect of plant varieties or plant breeds could only be supported by the power in the Constitution 51(xviii) to make laws with respect to patents of inventions and the particular rights granted were not, were alleged to be, or asserted to be, not within that power.

There was a particular argument, which was addressed by an intervener on behalf of the Attorney‑General for the State of Western Australia.  The particular argument is addressed and encapsulated at page 513 of the report, at paragraph 81, which records:

It was submitted by an intervener, the Attorney‑General for the State of Western Australia, that the rights each statute purports to confer upon grantees amount to rights “by way of positive authority to sell and export the protected variety”.  This was said to “stand outside the fundamental concept of a patent of invention” because it would deny other laws, particularly State laws, which regulate the sale and use of the protected variety.  The legislation, upon its proper construction, holds no such terrors.

Then in paragraph 82 their Honours ‑ the plurality say:

Sections 12 and 11 respectively of [those two Acts] identify the nature of the grant under the legislation by reference to certain exclusive rights given the grantee; the exclusive rights are of limited duration.  These regimes are consistent with well established provision in patent law.

Then their Honours set out section 62 of the Patents Act 1903 which, of course, was the provision considered by the High Court in Menck and then also the Privy Council in Menck.  Their Honours observe in Menck at footnote (157), referring to the Privy Council:

the Privy Council observed of the provision that it referred “to the grant of the right as a sole right, that is to say, put negatively, with a power to exclude all others from the right of production, &c, of the patented article”.

The “et cetera” of course captures to make, use, exercise and vend.  I will make that good:

This situation permitted, their Lordships added, “the imposition of conditions in the transactions of making, using and vending, which are necessarily an exception by Statute to the rules ordinarily prevailing [with respect to the sale of goods]”.

We submit that is a statement of this Court in 2000 which is on all fours with Menck in the Privy Council, it is on all fours with IPEC v Time‑Life and, with respect, it is on all fours with any fair reading of section 62 or section 13 in combination with the definition of “exploit”.

GAGELER J:   Mr Bannon, when a patentee sells a product, in your submission, what does a buyer get?

MR BANNON:   The buyer gets title to the property as a sale of good and the buyer also gets an implied licence to use and vend.  In other words, the rights the acquirer needs are the rights which are otherwise reserved to the patentee absent such a licence, those rights not being diminished or referrable by – not being diminished in the sense that lie as against the whole word, or at least the Australian world, regardless of whether or not a member of such wider community is an acquirer of an article.

EDELMAN J:   So, on your submission, is the implied licence an aspect of the contract of sale?

MR BANNON:   Yes.

EDELMAN J:   So any relevant objective intention would have to be the objective intention of both of the parties then, would it?

MR BANNON:   Yes.

EDELMAN J:   In determining what terms there are of the implied licence?

MR BANNON:   Yes.  And the way it is framed is it is a matter of necessity.  I think Chief Justice Gibbs in Time‑Life frames it as a matter of business advocacy consistently with the rules relating to contract, or the traditional test in relation to contract.

GORDON J:   Another way of putting it, Mr Bannon, is it not, is that it is a licence to do, in a sense, uncontrolled, except for that which is prohibited.  A prohibition is going to arise either by a contract, from the way I understand you to put the submission, or what you derive as a restriction from the Patents Act itself.

MR BANNON:   Yes, and in that sense, the English cases, when they came to review them in the House of Lords, said a right to repair is not really the right way of looking at it.  It is really embodied with – a right to repair is part of the ordinary use of an article, but what it does not embrace is the right to make.  So I say the statutory dichotomy is between…..involves and ‑ ‑ ‑

KIEFEL CJ:   Mr Bannon, the Patents Act section 13 does not really appear to focus upon the position of a purchaser. It is concerned with the scope of the patent rights, so far as concerns the patentee. Does not the implied licence test rather shift the focus by putting limitations around the purchaser rather than the way patent law normally looks at it, which is to look at the limited exploitative right of a patentee as that which is an exception to monopolies?

MR BANNON:   Well, the existence of the statutory monopoly, which provides this negative right for the term of the patent as against all, without exception in relation to purchasers, has to address the fact that it exists in a world of commerce in which the patentee may choose, does not have to, may choose to make or authorise somebody to make and sell the product.  There is no collision between property rights and statutory monopoly rights.  They can happily be accommodated, as the Privy Council recognised, and we submit as the Court in Grain Pool was recognising ‑ ‑ ‑ 

KIEFEL CJ:   But, Mr Bannon, I suppose my question really is, is it not accommodated by the line of English authority by somewhat overlaying the statutory scheme?

MR BANNON:   In the sense that it is giving a benefit to the purchaser, but it is also of benefit to the patentee in the sense that if the purchaser does not get that implied licence the purchaser will not buy and the patentee vendor wants the licence to be given, or be implied, because otherwise they cannot sell the product.  So in that sense it overlays the transaction, but it is not inconsistent with it.

KEANE J:   Mr Bannon, why do you need implied licences to deal with the product?  When the product is sold, the product that embodies the invention is sold, it is in the language of the definition of “exploit”, sold or otherwise disposed of, to speak of selling is to speak of disposing of.  The property is sold.  It is owned by the purchaser and, subject to some restriction, the purchaser can do with it as he or she wills.

MR BANNON:   The restriction lies in 13.

KEANE J:   Why is there a necessity for any implication to make good, or to make efficacious the agreement of sale and transfer?

MR BANNON:   Because there is an exclusive right in relation to use and in relation to vending, so once the property is in the hand ‑ ‑ ‑

KEANE J:   But, Mr Bannon, it is a patent.  It is not a magic pudding.  If you exercise the right to sell then you have exploited the patent.  You have exercised your right.  You do not have a right to sell and then come again.

MR BANNON:   Yes, but the statutory monopoly is a negative right to stop anybody including the purchaser from selling the article sold or from using it and that is why the implied licence ‑ ‑ ‑

KEANE J:   But surely not if A sells a patented product to B and that is all there is to the transaction, surely you accept that A cannot then seek to prevent B from onselling the chattel?

MR BANNON:   I agree with your Honour but not for the reason your Honour might think or be suggesting to me.  The reason is because there is an implied licence granted to the purchaser to exercise what otherwise is the exclusive right of a patentee, namely, to use and vend that article.

KEANE J:   What I am asking you about is why do you speak in terms of implication?  Implication is something that reflects the necessity to give business efficacy to the transaction.  Here, you do not need it because the patentee has sold and disposed of the product that embodies the invention.

MR BANNON:   The purchaser is still subject to the fact that any use of our product will infringe the exclusive right.  That is what this Court said in paragraph 83 when it said – it approved – the provision refers to – referring to Menck:

“to the grant of the right as a sole right, that is to say, put negatively, with a power to exclude all others” –

and “all others’ includes the persons to whom the product has been supplied and that is why they say in a situation ‑ ‑ ‑

KEANE J:   Yes, but that is speaking of the right of a patentee to exploit.  So, when the right to…..is exercised, it has happened.  You do seem to want to regard this negative right to prevent others from doing things as a magic pudding, that it can be exercised again and again.

MR BANNON:   I have that personal desire, your Honour, but what we rely upon is the statutory language which has been accepted by this Court as a negative right.  It is a power to exclude all others.  The “all others” necessarily, absent a statutory exception includes a purchaser and, therefore, it must follow that in the hands ‑ ‑ ‑

KIEFEL CJ:   I think “the others” in relation to a sale would normally be the – exclude all others from being a vendor, would it not?

MR BANNON:   And a user.  That is why they say this permitted ‑ this situation which is this Court saying this situation - the character of the negative right against all others permitted the imposition of conditions in the transactions of making and using and vending was necessarily exception by statutes of the rules ordinarily.  That could only be true if those conditions were empowered by the continuance of the negative right notwithstanding goods have left the patentee.

KEANE J:   So, if a vendor sells and transfers and becomes aware that the purchaser intends to destroy the article, the vendor patentee can get an injunction to restrain the purchaser from destroying the article because the vendor has the exclusive right to use and keep it.

MR BANNON:   No, because the vendor has given a licence implicitly to the purchaser to use the article.  The Court in this case referred, in footnote (157), not only to Menck in the Privy Council at page 22, but also to the judgment of Justice Stephen in IPEC v Time-Life:

where his Honour distinguishes the different consequences with respect to licensing which flow from the distinction between the patentee’s monopoly and the rights of a copyright owner in a literary work.

Those references are to pages 548 to 553, if I can take your Honours to that passage, which appears in the material in C9 of the reference.  At page 220 of the volume, which is page 549 of the authority ‑ ‑ ‑

EDELMAN J:   Which tab is this?

MR BANNON:   It is tab 9 in volume C.  This is part of that in which the Court in Grain Pool is referring with approval.  At page 549 at about line 25 of the book, after referring to Betts v Willmott:

The significance of these authorities and their irrelevance in the present case –

that is, a case in which it was argued that there was an implied licence in relation to a copyright work:

is made clear by . . . National Phonograph.  Before going to that case I state my own reasons . . . They should, I think, be seen as confined to the quite special case of the sale by a patentee of patented goods and as turning upon the unique ability which the law confers upon the patentees of imposing restrictions upon what use may after sale be made of those goods.  If the patentee, having this ability, chooses not to exercise it and sells without imposing any such restrictions, the purchaser and any successors in title may then do as they will with the goods, for they are then in no different position from any purchaser of unpatented goods.  But, to ensure that consequence despite the ‑ ‑ ‑

KEANE J:   Exactly - that is what I have been suggesting to you.

MR BANNON: 

But, to ensure that consequence, despite the existence, albeit in the instance unexercised, of this power on the patentee’s part, the law treats the sale without express restriction as involving the grant of a licence from the patentee authorizing such future use of the goods as the owner for the time being sees fit.  The law does this because, without such a licence, any use or dealing with the goods would constitute an infringement of the patentee’s monopoly in respect of the use, exercise and vending of the patent.

GORDON J:   Mr Bannon, as I put to you, if you put that proposition in positive terms, the middle sentence means that the implied licence is a licence to do as the new owner of the product wished to do with it – absent express restriction.

MR BANNON:   Yes. 

GORDON J:   By contract?  Then, does it extend ‑ ‑ ‑

MR BANNON:   Yes.

GORDON J: The implied licence does not extend to the other limb of section 13 which is the “make” limb.

MR BANNON:   That is right, exactly.  I did say “contract” before – it must inevitably be contract.  I was going to take your Honours to what Justice Isaac said in the High Court – whether it is strictly a matter of contract or refers to the ability of any person with a right who has the capacity to confer a licence – that is another way of looking at it as well.  But, certainly – as we will see – Chief Justice Gibbs, in this case referred to it as a matter of business efficacy and, indeed, Justice Stephen is referring to it as a matter of necessity as well.  But, your Honours, if I may say so…..in the sense of does not include “make”.  

GAGELER J:   In relation to a successor in title – as I think Mr Menck was – it cannot be a matter of contract, can it?

MR BANNON:   No.  The licence carries with it a power – I think the way to analyse it would be it is a licence in the vendor – sorry, the purchaser – to do as they would wish with it which would include the power to sell or use and when they sell to confer on the recipient implicitly the same licence which is carried through from the patentee and that seems to be the way the case is treated.  

GAGELER J:   If the recipient in fact is sold – if the sub‑purchaser is sold the goods without notice of any restriction by the patentee, what is the analysis then, in your submission?

MR BANNON:   Then implicitly they have the right to use and vend but not make and that is, of course, make an embodiment within the terms of the patent.

GAGELER J:   You say that is an implied licence that is somehow to be attributed to some sort of objective intention on the part of the patentee in making the…..sale, do you?

MR BANNON:   Yes.

EDELMAN J:   It is a form of proprietary effect, then, to the licence that is given. 

MR BANNON:   Yes, we accept that.  If one continues at the bottom of page 549, it says:

A sale of goods manufactured under patent is thus a transaction of a unique kind because of the special nature of the monopoly according to a patentee; the licence, whether absolute or qualified, which arises upon such a sale is attributable to the existence and character of that monopoly.  Absent that monopoly, peculiar to patents, there is no occasion for any licence.  The buyer of monopoly‑free goods, goods not the subject of patent rights, obtains by his purchase title to and possession of the goods and with it, of course, goes the ability, subject to the relevant laws of the jurisdiction in question, to use and deal with the goods as he sees fit.

His Honour goes on to explain that does not apply vis-à-vis copyright.  Then his Honour continues, still within the passage, cited with approval by the Court in Grain Pools, at about line 33 on the same page, that is 550 of the report:

To make good what I have said I turn to the advice of Lord Shaw of Dunfermline in the National Phonograph Case.

His Honour identifies the nature of that case and at about line 40 identifies the fact that:

Lord Shaw, first described the position of the buyer of ordinary, as distinct from patented, goods . . . a purchaser might use and dispose of what he bought as he thought fit; if he contracted with the vendor as to any restrictions he would be bound in contract but no restrictive condition would run with the goods.  To reconcile this general principle with a patentee’s monopoly “to make, use, exercise, and vend . . . their Lordships thought, no collision of principle and had been achieved over “a long period of years in England by decisions which are consistent and sound”.  Their Lordships’ judgment goes on to state the result of that reconciliation:

“…the general doctrine of absolute freedom of disposal of chattels of an ordinary kind is, in the case of patented chattels, subject to the restriction that the person purchasing them, and in the knowledge of the conditions attached by the patentee, which knowledge is clearly brought home . . . shall be bound by that knowledge and accept the…..limitations.  These limitations are merely the respect paid and the effect given to those conditions of transfer of the patented article which the law, laid down by statute, gave the original patentee a power to impose.”

Their Lordships then go on to state that where there is a sale of patented goods without evidence of the imposition of conditions . . . there will then arise an implied licence for the undisturbed and unrestricted use of the goods; the fact of such a sale negatives the existence of any restrictive conditions, brought home to the person for the time being the owner of the goods.

Then, lastly, within the passage, could I go to page 552 of the volume, at about line 25 ‑ ‑ ‑

KIEFEL CJ:   Mr Bannon, is not Justice Stephen simply summarising the effect of what is said by Lord Shaw ?

MR BANNON:   And applying it, your Honour, in distinguishing such a case from the case before the Court.

KIEFEL CJ:   Well, that is so, but I suspect you are asking us to infer some kind of tacit approval by his Honour of the line of authority, but his Honour was of course obliged to accept it.  It was the Privy Council which had not been overturned by any decision of this Court.

MR BANNON:   But his Honour’s statement at 549 – he indicates, firstly, the reason why he states these authorities as irrelevant and he is there making the statement by reference to the nature of the novelty right granted by ‑ ‑ ‑

KEANE J:   But if there is no restriction brought home to the notice of the purchaser at the time of sale, then it is just like the ordinary purchaser of chattels.  The situation is just like an ordinary purchaser of chattels.

MR BANNON:   No, because statutory monopoly precluding the making of goods ‑ ‑ ‑

KEANE J:   Okay.  But do you accept that the only aspect of the monopoly that is left that can be invoked is the power to prevent a making of the product after sale?

MR BANNON:   Well, that is the relevant one for our purposes, but we are ‑ ‑ ‑

KEANE J:   But it is only one, is it not? 

MR BANNON:   I would have to trawl through the other ones and just answer that question categorically, but it is the relevant one for our purposes.

KEANE J:   Whether it is the relevant one or the only one, it is a right to prevent someone else making the good, making the chattel, the product that embodies the invention.

MR BANNON:   Yes.

KEANE J:   And it is not in any way concerned to prevent people repairing or prolonging the life of the product they bought.  It is in no way subjecting their rights to do those things to the say so of the patentee.

MR BANNON:   Well, “repair” we agree with.  “Prolonging the life of” is a pregnant expression which needs definition.

KEANE J:   Well, it is different from “making”, is it not?  It is different from “making”.  “Making” is speaking of an article of the invention, an embodiment of the invention.

MR BANNON:   Yes.

KEANE J:   That is what they are prevented from doing.

MR BANNON:   …..

KEANE J:   One needs to come to the question whether what is being done is a making on the footing that where there has been a sale of a good and there has been work upon it, it is a strong thing to say that the person who has made the product – I beg your pardon – it is a strong thing to say that the person who has purchased the product has by doing work upon that product made a product which is the embodiment of the invention.

MR BANNON:   Well, it may or may not be, your Honour.

KEANE J:   It is a strong thing to say that, “I have made that which I have bought”.

MR BANNON:   The way it is put is, one has made a new embodiment.

KEANE J:   Yes.

MR BANNON:   I appreciate that is at the pointy end of where we already are on this, but my current endeavour is to persuade your Honours that your Honours should stay with what the Court has adopted, we say correctly, namely, that implied licence is a necessary and correct approach with an issue such as this.

KEANE J:   Except you are not talking about an implied licence.  You are talking about an implied restriction.  You are not talking about something that is a licence which permits things to be done.  You are talking about an implied limitation on what the owner of a chattel may do with it.

MR BANNON:   What we are talking about is that, absent the authority for the patentee, they cannot even use the product they provide…..they can vend it.  So they need something from the patentee because the monopoly continues unabated and the reconciliation ‑ ‑ ‑ 

KEANE J:   Mr Bannon, are you saying that without a positive grant from the vendor of a patented article the purchaser cannot use the article as it sees fit?  It can be prevented by the patentee from using it as it sees fit, even if there has been no restriction agreed at the time of sale?

MR BANNON:   I am not sure what the words “positive grant” entail, your Honour.  What we simply say is, consistently with the authorities, that the sale imports, implicitly, a licence to do something which would otherwise infringe the patentee’s monopoly.  Then if one then goes to page 552, at about line 38, again that is part of the material referred to in Grain Pools.  We refer to what appears in the last paragraph on that page.

GORDON J:   Is that the paragraph that commences “The origin of and reason for”?

MR BANNON:   That is, your Honour, yes:

The origin of and reason for the existence of the concept of the grant of an implied licence to use patented goods, arising upon a sale of those goods unaccompanied by any express restriction as to their future use, lies in the patentee’s monopoly which otherwise would extend to the use to which the patented goods are put . . . Without such a licence, implied or express, a purchaser might not lawfully put those goods to use; hence the need for a licence and, on a sale by the patentee without express restriction, for the law’s implication of a licence.

That is what his Honour says over on page 553, the second‑last paragraph on that page:

It is for this reason that I regard as misconceived the appellant’s reliance upon cases in the unique field of patent law –

to seek to import a licence.  So it was a matter which had to be addressed by the Court in addressing the implied licence argument.  It was part of their reasoning process.  We would respectfully submit it was essential to it.  Then, although not specifically referred to by the Court in Grain Pool, nevertheless can I also refer your Honours to what Chief Justice Gibbs said in that case at 541 to 542 of the report. I appreciate my learned friend has read to your Honours what appears at the bottom of page 541, and I think over to the top of page 542. Could I pick it up in the next paragraph:

One obvious difference ‑

about a third of the way down the page, or line 20 on the book:

in form between the Patents Act 1952 . . . and the Copyright Act is that the former Act does not contain any provisions similar to those of ss. 37 to 38 of the latter.

Then skipping a sentence, after the reference to Pfizer v. Ministry of Health, his Honour continues: 

However there is another important difference between the law of patent and the law of copyright.  By the grant of a patent in traditional form, a patentee is granted exclusive power to “make, use, exercise and vend” the invention.  The sale of a patented article, by the patentee, would be quite futile, from the point of view of the buyer, if the buyer was not entitled either to use or resell the article which he had bought.  It therefore seems necessary, in order to give business efficacy to such a sale, to imply a term that the patentee consents to the use of the patented article by the buyer and those claiming under him.

Justice Gageler, there is express reference to the sub‑purchaser point:

The law accordingly does ordinarily imply the consent of the patentee “to an undisturbed and unrestricted use” of the patented article (National Phonograph Co. of Australia Ltd. v. Menck).  To make such an implication, for the purpose only of avoiding the restrictions upon the use of the article that would otherwise be imposed by the patent, seems to be perfectly consistent with the ordinary rules governing the implication of terms in contracts. 

So this Court had no difficulty understanding or applying or correlating rights of property and the statutory monopoly.  Nor, I venture to suggest, did the Court in Grain Pools and we respectfully submit that the legislation is intractable and leads as a matter of necessity to the requirement for such a licence. 

EDELMAN J:   Is your point essentially that if a contract is made between the patentee and another party for the use of the invention, that would not ordinarily carry with it a licence for the other party to sell?  If one then reverses it and asks, well, if the contract is made – is one of sale then unless there is an implied licence it would not carry with it the right to use.

MR BANNON:   Yes, that is exactly right, your Honour.

EDELMAN J:   In other words, they are all alternative prohibitions or alternative restrictions rather than being cumulatively caught up with one another?

MR BANNON:   Yes, they do not merge.  They are expressed as individual exclusive rights and they may or may not apply in particular circumstances and in the case of a transaction involving…..involving the patentee, as your Honour said, it depends on the nature of the…..  Then if I could take your Honours to Menck in the Privy Council 12 CLR 15 and in the volume it is tab 11 in volume C of the authorities, and if I may refer your Honours to page 22, which is the page referred to by this Court in Grain Pool in the footnote and capturing it at line 30, or the paragraph about two‑thirds of the way down the page:

The real point of difficulty is enforcement of that principle –

That is the principle referred to above in relation to the sale of goods, in effect, the ordinary sale of goods:

without impinging upon something else, namely, the right of property granted by the State and by way of monopoly to a patentee . . . “to make, use, exercise, and vend . . . This is, of course, with reference to the grant of the right as a sole right -

Then there is a reference to the negative proposition.  Then their Honours – their Lordships quote “to make, use, exercise and vend . . . in such manner as to him seems meet” and in the next sentence it is said:

This is, of course, with reference to the grant of the right as a sole right, that is to say, put negatively, with a power to exclude all others from the right of production, &c –

The “et cetera” there is plainly referring to the capturing of the collocation of the words quoted immediately above it:

and also with reference to the imposition of conditions . . . 

In the opinion of their Lordships it is perfectly possible to adjust the incidence of ownership of ordinary goods with the incidence of ownership of patented goods in such a manner as to avoid any collision of principle.  In their Lordships’ view this has been done for a long period of years in England by decisions which are consistent and sound. 

Then at page 24, near the top of the page there is a passage about four lines down which begins:

All that is affirmed is that the general doctrine of absolute freedom of disposal of chattels of an ordinary kind is, in the case of patented chattels, subject to the restriction that the person purchasing them, and in the knowledge of the conditions attached by the patentee, which knowledge is clearly brought home . . . shall be bound by that knowledge . . . These limitations are merely the respect paid and the effect given to those conditions of transfer of the patented article which the law, laid down by Statute, gave the original patentee a power to impose.  Whether the law on this head should be changed and the power of sale sub modo should be withdrawn or limited is not a question for a Court.  It may be added that where a patented article has been acquired by sale, much, if not all, may be implied as to the consent of the licensee to an undisturbed and unrestricted use thereof.  In short, such a sale negatives in the ordinary case the imposition of conditions and the bringing home to the knowledge of the owner of the patented goods that restrictions are laid upon him.

Then, at 28, the first complete paragraph, about seven or eight lines down:

In their Lordships’ opinion, it is thus demonstrated by a clear course of authority, first, that it is open to the licensee, by virtue of his statutory monopoly, to make a sale sub modo, or accompanied by restrictive conditions which would not apply in the case of ordinary chattels; secondly, that 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; while thirdly, the owner’s rights in a patented chattel will be limited if there is brought home to him the knowledge of conditions –

The rest of the paragraph we rely upon. Now, against that background, could I address the approach taken by Chief Justice Griffith in the High Court decision. His Honour, at page 261 of the volume - this is tab 10 of volume C, within the volume it is 261, within the court report it is page 508, and there, at line 30, or the paragraph towards the end of the page, his Honour sets out the terms of the section which his Honour was considering, namely section 62 of the Patents Act, which includes, obviously, the words “make, use, exercise, and vend”.

The last sentence of that paragraph:

The Act does not confer on him a right to enjoy his own domain, but to prevent other persons from trespassing upon it.

Then at page 511 of the report or 264 of the book, his Honour, in the last paragraph at about line 38:

But the same considerations do not apply to a patented article made and sold by the patentee himself or his licensee, and which has therefore come into lawful existence and circulation as a chattel, the owner of which is entitled to make such use or disposition of it as he pleases, unless forbidden by Statute.  Such an article may be regarded, to use the American phrase, as having “passed out of the limit of the monopoly”.  In my opinion, the words “use the invention” –

and this is the critical aspect of his Honour’s reasoning:

mean put the invention, i.e., the idea, in practice for the purpose of bringing some new thing into existence, or effecting a physical change in some existing thing, and do not mean or include the case of making use of the product of the invention except in the case where the product has been brought into existence without the licence of the inventor.

We say, with the greatest respect, that is not the construction adopted by the Privy Council.  It is not the construction which has been adopted by – or accepted in Grain Pool or Time‑Life – and, we respectfully submit, it does not arise out of the words of section 62. To confine use in that way is saying no more than use the invention to make something, which gives no meaning to “make”. Then, his Honour adds an exception to what is the general rule – or except in the case where the product has been brought into existence without the licence of the inventor.

We submit that that construction is a bad construction – if I can put that clearly. It does not arise from the clear words of section 62 which his Honour was construing. But it is the critical finding. We say, that construction would not commend itself to your Honours as it has not commended itself anywhere else. But his Honour, at least, recognised he had to deal with the word “use” in the statute. If I may say so, that is all he could do with it. But, again, with the greatest of respect, we submit that it is not an approach which sits happily with the words in section 62 or, indeed, with section 13 and the definition of “exploit”. Then, at line 22, his Honour said:

Having regard to the manner in which the word “vend” came to be introduced into the Statute book, and to the recognized rule that the legislature is not to be taken to have made a change in the fundamental principles of the common law without express and clear words announcing such an intention, I think that the words “vend the invention” mean to put the product of the invention in the possession of the public, and do not refer to any sale of the article after it has once, without violation of the monopoly, become part of the common stock.

Again, this is an essential aspect of the reasoning and again similarly we submit it is a construction which is not open on the clear words of the section.  His Honour’s reference to:

Having regard to the manner in which the word “vend” –

came in, the manner seems to be what is referred to in the paragraph preceding it and we respectfully submit there is nothing in that paragraph which would cause “vend” to be given any meaning than its ordinary meaning, which was indeed adopted by the Privy Council and indeed by subsequently in many, many cases, but that is the critical aspect of his Honour’s reasoning.

Can I just also draw your Honours’ attention to this.  At page 509 his Honour refers to at line – and your Honours I think have been – took your Honours to this – the reference in Webster’s Patent Reports.  His Honour was not suggesting otherwise, but it is important to read what was actually said there:

the law is thus stated in a note to the case of Crane v. Price –

So that has actually come from Crane v Price and if one takes a moment to look at what Crane v Price is about, Crane v Price is a case dealing with the issue as to whether or not a so‑called patent of improvement was a valid  patent – was a version of patents which is called a patent of improvement which the language was once in our Act but has since gone but it notionally still exists in this sense.

There is a power in somebody who does not own a patent but sees on the publication of a patentee an invention, uses that invention in terms of research and development by way of statutory exception to the otherwise exclusive right, and invents something which is an improvement on that, claims a patent for it and can get the exclusive rights in the patent, as the authorities indicate that the patent for improvement cannot be worked unless the person who wants to use it, including the patentee, has the licence of the original patent because these sorts of patents proceed on the basis that they embody the invention of the previous grant of patent.

The point of that little discursus is to explain what your Honour said, a reference to patent for improvement, but Crane v Price has nothing to do to stop it and it is unclear why the author of the learned Webster’s Patent cases added that note or what it was referable to, but we will supply your Honours overnight a soft copy of that case and your Honours can see the note ‑ ‑ ‑

BELL J:   Was that the passage that is said to have been referred to by the United States Supreme Court in Bloomer v Millinger?

MR BANNON:   Yes, I am told it was.  And I think at the time I notionally confirmed that.  I do not have it in my head, but yes.

BELL J:   Do we take it that the note was referred to with approval by the United States Supreme Court?

MR BANNON:   I have been handed a copy of it.  Perhaps I can read out what it says about it.  I am reading from Bloomer v Millinger at the bottom of page 351 of the report:

Hence it is obvious, that if a person legally acquires, by licence or purchase, title to that which is the subject of letters patent –

he may continue to use it until it is worn out or he may repair it or improve upon it as he pleases in the same manner as he is dealing with the property of any other kind.  Webster’s Patent cases 413, note P.  So, yes, your Honour, that is the document by way of approving it. 

The only point of that was to indicate that it does not come from a case itself as the orders note and I do not think the order actually sources the source of that proposition, in any event. 

KIEFEL CJ:   Before we adjourn, could I – I am sorry, Mr Bannon, did I cut you off?  Is there something else?

MR BANNON:   No, your Honour. 

KIEFEL CJ:   Before we adjourn, could I just make an inquiry of the parties, the initial estimates only took argument into a portion of tomorrow morning.  I take it…..we are commencing another case, as you would be aware, at 2.15.

MR BANNON:   Yes, I thought I would be in the saddle a bit earlier than I was.  I think I will take – my guestimate is ‑ I think our estimate is still the same, how long we will take, so I am not sure where that leads.

KIEFEL CJ:   Yes.

MR BANNON:   Can I just add one other matter, your Honour.  May we have the liberty of sending to the Court section 51(3) of the Trade Practices Act – we already have, sorry.  We have sent to the Court 51(3) of the Trade Practices Act, now repealed as it turns out, which was the section which saved certain conduct relating to licences from certain divisions of the Trade Practices Act.  It has now been repealed.  I will say something about that tomorrow but that is for your Honours’…..in particular, a matter your Honour Justice Keane raised about the intersection between competition law and patent law.

KIEFEL CJ:   Yes, thank you, Mr Bannon.  The Court will adjourn to 9.30 am tomorrow for pronouncement of orders and otherwise to 10.00 am.

AT 4.21 PM THE MATTER WAS ADJOURNED
UNTIL WEDNESDAY, 12 AUGUST 2020