The Impact of U. S. Court Decisions On The Remanufactured Toner and Inkjet Cartridge Market A common method for avoiding the restrictions on the manufacturing of replacement cartridges for use in OEM printers is to acquire spent cartridges and refurbish or remanufacture them primarily by refilling them with new ink and then selling them as remanufactured cartridges. Under United States Patent Law, as established in the case of Hewlett-Packard vs. Repeat-O-Type Stencil Mfg. Corp., Inc., 123 F.3d 1445 (Fed. Cir. 1997) ("Repeat-O-Type"), in which I represented Repeat-O-Type, it was established that refilling patented cartridges was permissible repair, as opposed to impermissible reconstruction. Under U.S. Patent Law, a party who purchases a product which is patented has a right to repair that product. The initial cases allowing such repair involved repairing convertible tops on automobiles. The United States Supreme Court determined that owners who had convertible tops had the right to replace the canvas, even though the convertible tops were patented. This is in opposition to impermissible reconstruction. Reconstruction under the patent laws means taking a patented product which has essentially lost its character as the original patented product and reconstructing it. The oldest case involving impermissible reconstruction involved metal straps for binding hay bales. The underlining case involved a defendant who obtained pieces of old metal straps and proceeded to solder them together to make the original strap. The court held that because the straps had been so dissembled that they had lost their identity, putting together pieces to create a new strap constituted a new making of a product in violation of the prohibition on making patented products. In accordance with the law set down in Repeat-O-Type, it became a relatively common practice, not only in the United States but around the world, for companies to acquire spent cartridges and then sell those spent cartridges to other companies which in turn cleaned them up, refilled them and sold them. In Jazz Photo Corp. v. United States, 264 F.3d 1094 (Fed. Cir. 2001) ("Jazz Photo") the Court of Appeals for the Federal Circuit entered a decision that substantially altered the landscape for remanufactured cartridges. In that case, which involved disposable cameras, the Court of Appeals for the Federal Circuit made the determination that the extinguishment of patent rights resulting from the first sale of a patented product did not apply when those first sales were made outside of the United States. In other words, if a spent cartridge was sold as an original in a country other than the United States, the purchase of that spent cartridge and its refilling and then reselling in the United States constitutes patent infringement because the patentee never lost its patent rights. The Court held that only by selling a patented product in the United States does a party lose its patent rights in that product. That decision has a potentially debilitating impact on the entire market for refurbished cartridges. I recently gave a talk in Rome, Italy, to an audience which included a number of companies that obtain spent cartridges and a number of companies who purchase and refurbish spent cartridges. Not a single person in the audience (which consisted entirely of European companies) was aware of the fact that they could be infringing U.S. patents by selling refurbished spent cartridges in the United States. Contributing to the burden on those who purchase and refurbish said cartridges is the fact that the Federal Circuit Court of Appeals also determined that the burden of proving that the cartridges were first sold inside of the United States rests with the defendant. In other words, if a company is accused of infringement for selling refurbished spent cartridges, that defendant has a burden of proving that the patentee (OEM) first sold its cartridges inside of the United States. The problem with this requirement, of course, is that it is often virtually impossible for those who purchase spent cartridges to know where those cartridges were first sold. That information is contained, if at all, in the records of the OEM that sold the cartridges in the first place. It is common for OEMs to not mark their cartridges in terms of country of origin. Sometimes they have a designation, which includes multiple countries or one or more continents. It is possible for a defendant to meet its burden of establishing that the cartridges were first sold in the United States by the use of circumstantial evidence. For example, if the spent cartridges were obtained in the United States, and there are markings that designate that the spent cartridges purchased in the United States were also sold on this continent; those two factors may contribute to establishing that the cartridges were in fact first sold in the United States by the OEM. Of course the OEM would then have the opportunity to come in and prove that those cartridges were not, in fact, first sold in the United States. The problem with all of this is, of course, that many of the companies that refurbish spent cartridges are not located in the United States and often they obtain spent cartridges from sources throughout the world. Often the companies that provide spent cartridges to refurbishers do not purchase the spent cartridges themselves from individuals but rather from countries who themselves obtain spent cartridges from, for example, bins located in places all over the planet. Those cartridges are intermixed and their point of original origin is often impossible to ascertain within a reasonable degree of probability. This Jazz Photo doctrine has been attacked, at least indirectly, in a number of courts. There is language in certain Supreme Court decisions that any sales, regardless of where those sales took place, constitute an extinguishment of patent rights. Recently, however, a panel for the Federal Circuit of Court Appeals determined that the Supreme Court statements did not mean what they appear to mean to others (including Federal Courts in California and Kentucky) and that panel reaffirmed the previous decisions from the Federal Circuit, to wit Jazz Photo. Recently, in the United States Supreme Court case of Costco Wholesale Corp. v. Omega, S.A., No. 08-1423 (U.S. Dec. 13, 2010), the Court was asked to decide the issue of first sale extinguishment of copyright rights involving the sale of watches overseas. Many expected that the Supreme Court would take this opportunity to reverse Jazz Photo, either explicitly or implicitly by overturning the Ninth Circuit court of Appeals which had held that the overseas first sales of Omega watches do not extinguish Omega's copyrights, and that the importation and resale of those watches by Costco constituted copyright infringement. In a rather unusual course of action, the Supreme Court in a four to four split decision affirmed the Ninth circuit and left in place the copyright extinguishment doctrine enunciated by the Ninth circuit. This decision was unusual in that there were four judges on each side of the issue. Four judges were in favor overturning the decision and four judges were in favor of maintaining it. Of course, there are nine judges on the Supreme Court, but one of those judges, the newly appointed Justice Kagan, did not participate in the decision. Had Justice Kagan participated in this case, the case would have had to have been decided one way or another. Under the law of the Supreme Court, if the justices are evenly divided, the prior ruling stands as the law. What does this mean then for the law of patented extinguishment rights? Actually, it still leaves the issue unsettled by the United States Supreme Court. During the oral argument Justice Breyer stated, "...but my guess is that the first sale doctrine applies just as much to goods that come from abroad as to goods that are here at home." That quote appears to be exactly the opposite of the decision in Jazz Photo. The reason that the Costco v. Omega case does not resolve the issue is that there are certain peculiarities in the copyright statute, which were relied upon by Omega, to the effect that their copyright rights were not extinguished by the first sale doctrine. Those particular statutory provisions were expressly included in the copyright laws but are not included in the patent laws. Since there was no written decision by the United States Supreme Court one does not know what was the basis for the Court's decision. Nonetheless, because it dealt with the peculiarities of copyright law, this decision does not stand as the law, as it relates to first sale patented products. So far the only decisions relating to the extinguishment of patent from foreign as opposed to US sales, are the Jazz Photo decisions by the Federal circuit. Again, these decisions by the Federal Circuit were made by panels only. A panel of the Federal Circuit consists of three judges. A panel decision can be overturned by what is called an en banc decision, which is a decision by the entire Federal Circuit. Such en banc decisions have not yet been made nor has there been any review of the Jazz Photo decisions by the United States Supreme Court. The issue of whether or not Jazz Photo is proper law has been raised again in the Federal Circuit. Should the Federal Circuit again affirm Jazz Photo, there are still various options, including the option of seeking en banc review by the Federal Circuit and or seeking review by the United States Supreme Court. In light of the split decision in the Costco case, as well as the remarks by Justice Breyer during the Costco hearing, it would appear that there is a chance that the United States Supreme Court may take this case and overturn the Jazz Photo decisions. Fundamentally, it is our belief that the Jazz Photo decisions are terrible law and the Jazz Photo decisions have been widely criticized in academic circles for their lack of solid legal foundations. In the meantime, Jazz Photo remains as the bugaboo of the remanufacturing industry, which is doing nothing other than attempting to bring a lower cost product to the consumer. Ed O’Connor serves as chair of The Eclipse Group’s litigation department. His expansive career includes serving as a Public Defender in Palm Beach County, Florida; serving with Air Force J.A.G., where he wrote patent applications in computer technology, space exploration and advanced weapons systems; as well as in the capacity of senior intellectual property and litigation attorney with Intel where he was responsible for managing the organization’s worldwide litigation. Ed has represented clients before the United States Supreme Court and the International Trade Commission and has won patent infringement, antitrust, and other intellectual property cases throughout the United States. He has won cases before the United States Courts of Appeal for the Federal Circuit, the Second Circuit, the Fourth Circuit, the Fifth Circuit, the Seventh Circuit, the Ninth Circuit, and the Eleventh Circuit. He has also served as lead attorney in complex cases before the Panel on Multidistrict Litigation. Among the clients he has represented in litigation are Kawasaki (antitrust, defense); Nike (patent, defense); and Thermos (trade dress, defense). Ed is an internationally recognized expert on intellectual property law, with a lecture circuit that includes New York, Los Angeles, Zurich, Dusseldorf, Rome, Prague, Shanghai, Zhuhai, and Singapore. He is frequently used as a resource by the Intellectual Property Bar, and has authored three books on intellectual property law and litigation published by the American Bar Association. He was designated by the American Bar Association, Intellectual Property Law Section, Special Committee on Litigation Planning and Budgeting, as an attorney “having significant patent litigation experience as identified by the managing partners of the approximately one hundred largest intellectual property law firms”. Ed maintains a multitude of professional designations and affiliations, to include being listed in Martindale Hubbell’s Bar Register of Preeminent Lawyers, as well as a member of the Multi-Million Dollar Advocates Forum. Additional active designations include chairman emeritus, Intellectual Property Committee, Torts and Insurance Practice Section, for the American Bar Association; A Fellow of the Litigation Counsel of America; Intellectual property advisory board member at Indiana University School of Law (Bloomington), 1st chairperson of the Student-Facility Committee on Teaching at Indiana University School of Law (Bloomington); and supervisor of the Student Extern Program at Yale University Law School. Ed holds a B.S. in physics, calculus minor from the University of Michigan, and received his J.D. from Indiana University. He can be reached at efc@eclipsegrp.com.