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PATENTLY SPEAKING
Ed O'Connor At Last, A Glimmer of Hope on the Horizon We will simply have to wait to see how this plays out, but we are extremely hopeful that by the time we enter 2014, we will at least have one court determining that Jazz Photo is no longer the law
Once again, as we head into 2014, the single most important legal issue for he recharger industry is the battle over the obnoxious Jazz Photo decision. As most people in the industry know by now, Jazz Photo significantly undermined the first sale extinguishment of patent rights doctrine, which had been a mainstay of this industry since the decision in HewlettPackard v. Repeat-O-Type in which I successfully represented Repeat-OType in its assertion of the repair versus reconstruction defense. Included in the Federal Circuit's decision in that case was its announcement that the first sale of a cartridge extinguished all of the patent rights in that cartridge. Partly as a result of the Repeat-O-Type decision, this industry, which was in its infancy at that time, has grown into a major international industry. Suddenly, the Federal Circuit, which had created the first sale doctrine as relates to this industry, decided, in Jazz Photo, that if a cartridge or other product was first Issue45|www.iRecyclingTimes.com
sold outside the United States, that product continued to invest all of its patent rights with the manufacturer. This was greatly upsetting to this industry, in that much of this industry depends upon the acquisition of spent cartridges throughout the world. As a further blow to the first sale extinguishment of patent rights doctrine, the Court held that it was the responsibility of the accused infringer to prove that the products were first sold within the United States. When I represented Nine Star against Epson, before the international Trade Commission, we found that Epson did not have records showing in which country its products were first sold. It had identification numbers which were limited to regions of the planet. Accordingly, it was impossible for us to show that Epson cartridges were first sold outside the United States. I recently gave a presentation in Rome to a number of European re-manufacturers who sold their products into the United States. None of them were aware of
the Jazz Photo doctrine and all were extremely disconcerted to hear of it. They were particularly disconcerted because they purchased empties from all around the world, primarily from Europe, Japan and China, and then sold the refurbished cartridges into the United States. They were shocked to discover that they were probably infringing, or at least that they would be unable to prove that they were not infringing. The Jazz Photo decision, in my opinion, is an extremely badly reasoned decision. It was predicated upon a 19th century United States case which held that patent laws in foreign countries were not applicable in the United States. That of course is a proposition without controversy, but had nothing to do with extinguishment of US patent rights upon sales in foreign countries. Nonetheless, the Court used that completely inapplicable case to establish its new doctrine. At last, there is some glimmer of hope on the horizon. The United States Supreme Court, in a recent copyright case, determined that whether a product is first sold in the United States or overseas is of no significance in terms of the extinguishment of rights in the product being sold. While the case dealt specifically with copyright rights, the reasoning is equally applicable to patent rights, or any other property rights. It was based upon a decision in England, many decades ago, relating to the sale of a horse. In my opinion, if the sale of a horse is a basis for extinguishment of copyright rights, then the sale of a horse equally is applicable to the extinguishment of patent rights. I am presently representing Impressions Products, in a case in Cincinnati Ohio,
where it has been sued by Lexmark. I have filed a motion to dismiss that case, as it relates to remanufacture products, first sold outside the United States, on the basis of the recent US Supreme Court copyright decision. In a recent conversation with the Court, the Court indicated that it would be rendering its decision shortly. We are extremely hopeful that the Court will determine that the US Supreme Court's recent copyright decision will have effectively overturned Jazz Photo. The precise legal significance of such a ruling would be limited. Because we are dealing with a federal district court, its decision would not be binding on anyone other than that particular court. In order for the decision to be a national mandate, it would have to be affirmed by the Federal Circuit in Washington DC, which would handle any appeals from the decision. As a practical matter, however, this could have a significant impact on the desire of companies to assert Jazz Photo in pursuing re-manufacturers. We will simply have to wait to see how this plays out, but we are extremely hopeful that by the time we enter 2014, we will at least have one court determining that Jazz Photo is no longer the law. In that same case, Lexmark has raised, once again, the specter of its prebate program. Under that program, those who purchase prebate labeled cartridges are prohibited from refilling or refurbishing, or having others refill or refurbish those cartridges. Lexmark raised this issue in its opposition to my motion to dismiss based on Jazz Photos being overturned by the United States Supreme Court. As a result, I filed a second motion to dismiss directed at the prebate program. I relied in large part on a decision by a federal court in Kentucky which determine that the prebate program was unenforceable under US patent law. That is the latest decision on the prebate program. Once again, because that was a decision of the District Court, as opposed to a Court of Appeals, that is not binding precedent on any other court. Nonetheless, a decision
of a district court is often persuasive to other district courts, and we are hopeful that the District Court in Cincinnati will be persuaded to follow the lead of the District Court in Kentucky. There is an irony in Lexmark raising the prebate program at this time. Lexmark is relying heavily on a Federal Circuit case which held that restrictions on patented product use may be legal, unless the restriction is for an improper purpose. In that particular case, the purported purpose had to do with medical safety, in that the device in question was a medical device. Lexmark offers no such altruistic reasons for its prebate program. It does distinguish between prebate cartridges which are less expensive and identical non-prebate cartridges which are more expensive. The issue which is tacitly raised by Lexmark’s program is whether or not Lexmark’s program is essentially an attempt to monopolize a product by inappropriate use of the patent laws. The irony is that Lexmark's assertion of its prebate program might, and I emphasize might, result in Lexmark's straightforward patent infringement case evolving into an antitrust case.
Once again, we expect that determination to be made before the end of the year. While there may be other developments on the horizon, in my opinion these are the two most significant issues which are presently being litigated, and whose determinations could have a major impact on this industry. ■ * The United States Supreme Court, in a recent copyright case, determined that whether a product is first sold in the United States or overseas is of no significance in terms of the extinguishment of rights in the product being sold. While the case dealt specifically with copyright rights, the reasoning is equally applicable to patent rights, or any other property rights.
Edward O’Connor, chair of The Eclipse Group's litigation department, has represented clients before the United States Supreme Court and the International Trade Commission and has won patent infringement and antitrust cases throughout the United States. He will speak again in Zhuhai on October 16, 2013. <efo@eclipsegrp.com>