What is the ‘Exhaustion of Rights’ Doctrine with Patents?

The Exhaustion of Rights Doctrine is the principle that extinguishes a patentee’s rights after the product has been sold. The Exhaustion of Right Doctrine has only recently been introduced to Australia after the High Court decision in Calidad v Seiko Epson [2020] HCA 41 (Calidad v Seiko Epson),which effectively overturned the longstanding ‘implied licence’ doctrine. 

Calidad v Seiko Epson

Background Facts

• Seiko Epson Corporation (Seiko) sells ink cartridges under the name of Epson.
• After the ink cartridges were used a third party organisation, Ninestar Image, would purchase the empty cartridges from various sources and modify the cartridges. 
• Calidad then purchased these modified cartridges from Ninestar to sell in Australia. 
• Seiko held the patent to the original ink cartridge and commenced proceedings against Calidad, alleging them of breaching their role as patentee
• At trial the primary judge applied the implied licence doctrine found in National Phonograph Company of Australia Ltd v Menck (1911) 12 CLR 15 and held that the modifications infringed Seiko’s patent
• On appeal, the Full Federal Court found in favour for Seiko
• Calidad further appealed to the High Court.

Decision in the High Court

In a 4:3 majority, the High Court held that the exhaustion of rights doctrine would be applicable to patented products, aligning Australia with the principles followed in various international countries including USA and Europe. 

This decision means that the patentee will effectively exhaust their exclusive rights after the first purchase of the products, this decision will still allow patentees to create the product in alignment with the patent. Patentees who wish to retain such exclusive rights after sale will now need to do this through explicits conditions in a contract. 

How Does the Exhaustion of Right Doctrine Affect You?

Introducing the exhaustion of right doctrine ensures consistency in Intellectual Property law that is globally recognised. Repairers do not need to be as weary of the implied licence doctrine and the risk of infringing any existing patents, this widens the scope of the possibility of further modifications and repairs. Patentees may need to reevaluate and modify their intellectual property strategy and consider the need for further contracts. 

If you would like further information or advice on how the exhaustion of doctrine might affect you and your business, reach out to us through the contact form or by calling us on 1300 377 997.