Background: Supply of spare parts as patent infringement
There is a constellation (or fact pattern) in patent cases which at first may sound unlikely, but which – upon closer inspection – proves to be both common as well as of economic interest: The patentee sells a patented product which consists of separable parts to a customer. Under general principles of patent law, the patent rights vis à vis the sold product become exhausted: the patentee cannot prohibit the customer from using or even selling the product.
Now, as a result of the use of the product made by the customer, one of the parts of the product succumbs to daily wear and tear and the customer would therefore like to replace this part. However, he does not acquire the part from the patentee but from a third party. This is prone to make the patentee unhappy, as he usually wants to profit from supplying his own spare parts for his products. And in cases where the spare parts are essential to the invention the subject of his patent, he may have every right to prohibit the third party from supplying such parts on the basis of indirect patent infringement.
However, the line between non-infringing repair and indirect infringement is a difficult one to draw. At the same time, the economic importance of this situation is proven by the fact that the German Federal Supreme court has in recent years been presented with several opportunities to discuss such cases and shape the case law on this subject.
In the recent decision “Palette Container II” (BGH decision of 17 July 2012, docket number X ZR 97/11) which will be discussed below this distinction was further addressed. Also, it became apparent from this case that the distinction is important even for some cases of direct patent infringement.
To assess “Palette Container II” correctly, a short overview over the pertinent case-law is necessary. According to the older case-law, the line between (non-infringing) repair and (infringing) re-manufacture should be drawn according to the question whether the act in question creates a new infringing embodiment or keeps the character of the originally sold product.
While some consider this to be a very general and rather unhelpful distinction, the Federal Supreme Court gave some further guidance in “Impeller Counter” (BGH GRUR 2004, 758): As a rule of thumb, every feature that is explicitly named in the claims of the patent is to be regarded as an essential means of the invention and, thus, the supply of such a thing constitutes a potentially indirect infringing act. Further, the above distinction needs to take into account the interest of the patentee in the economic exploitation of the invention on the one hand and the interest of the customer in the use of the product he purchased on the other hand. If, e.g., the new part is something that usually has to be replaced during the lifetime of the product due to attrition, this may signify repair and not remanufacture. However, if by virtue of the exchange or replacement, the advantage of the patent is realised again, there may be a case of remanufacture. This was later confirmed in the “Wheel tread” decision (BGH GRUR 2006, 837). This decision further added that if the technological or economic advantage of the invention is reflected in the new or replacement part, one could not find that the patentee has fully exploited the invention by the first sale of his product.
In “Pipette System” (BGH GRUR 2007, 769), the court considered a case where the exchange (or replacement) was not made due to attrition but for hygienic reasons: the alleged infringer sold new needles for the pipette system sold by the patentee. Here the Federal Supreme Court stressed that it is decisive if the new (or replacement) part embodies the physical properties or function of the invention. In this case, the patented invention was directed to an easier connection of the needle to the pipette. Thus, the Federal Supreme Court denied the patentee’s request for an injunction. Further, it found that giving the patentee a monopoly in selling mass market needles for its pipettes went beyond the economic interest protected by the patent.
The Decision in "Palette Container II"
The new decision “Palette Container II” now considers a different angle of this difficult distinction. The case revolved around an eponymous palette container consisting of a plastic container for liquids and a surrounding stabilizing metal wire frame. The invention protected by the patent related to a specific welding of the wireframe to make it more stable.
The Defendant bought old palette containers from the customers of the exclusive licensee of the patent. He then replaced the old plastic containers while keeping the wire frame to sell the completed product as “re-manufactured”. The exclusive licensee filed an action against the Defendant asserting direct patent infringement. The Federal Supreme Court agreed with the first two instances which had denied the Plaintiff’s request on the grounds that the rights under the patent are generally exhausted by the first sale of the product. The first and second instance courts had then discussed whether the container related to an essential means of the patented invention and came to the conclusion that this was not the case. However, the Federal Supreme Court stated that one has first to assess whether it is the customary view in the trade that the container is exchangeable before discussing whether the container was an essential means of the patented invention.
This would depend on the views of the customers for the product. If, e.g. the customers would think that usually in a palette container with an unusable container that container would not be replaced and the remaining parts would be without any worth, then this could never be a case of repair but only one of a new manufacture of the product. In this particular case, the Defendant had received a great many old palette containers for free, because the customers considered them to be useless and without any worth. This could – according to the Federal Supreme Court – point towards a re-manufacture of the palette containers and away from a repair. The case was remitted to the Higher Regional Court for an assessment of the customary view in the trade.
The “Palette Container II” decision leads away from an assessment of the line between (non-infringing) repair and (infringing) re-manufacture which is based only on a consideration of the asserted patent. The Federal Supreme Court has made it clear that the customary view in the trade as to whether customers for the patented product would expect parts to wear out and be replaced during the life of the product will play an important role in future cases. While some might think that a token price paid for the used products may be enough to convince a court that there is only a repair, because the product then is still considered to possess some value, this seems improbable. The courts will undertake a comprehensive weighing of all factors to decide the cases.
In fact, the decision in the “Palette Container II” case opens up the opportunity for patentees to attack the “refurbishment” of products themselves for patent infringement, possibly even if the exchanged part is not an essential means of the invention, provided that the customary view in the trade supports the notion that it is remanufacture and not repair which is taking place.
Here it is also noteworthy that while the Court of Appeal for England and Wales commented that the advertising of a product as “re-manufactured” supported their finding of an (infringing) new manufacture of the patented product (see Schütz (UK) v Werit (UK),  EWCA Civ 303) the German Federal Supreme Court did not regard a similar statement as indicative of an infringing new manufacture.
Thus, in Germany at least, patentees will have to look at the objective circumstances in order to establish that the refurbishment of the patented product is an infringement.
Other items in the Patents Update newsletter for January 2013:
> China: Two recent Supreme Court decisions open up greater possibilities for amendment of Chinese patents>
> England: The PCC - A review of the first four patent cases to come to trial in the PCC
> England: The Patents Court exercises its jurisdiction to grant a pan-European declaration of non-infringement
> England: Patent litigation statistics for 2011 and 2012
> England: The Patent Box
> Germany: Stay of first instance infringement decisions in standard essential patent actions
> Holland: Cross-border patent litigation revival 'Solvay vs Honeywell'
> Spain: Some interesting peculiarities of Spanish Utility Models
> EU: Unitary Patent Regulation and Unified Patent Court Agreement