Opposition Brief — Jazz Photo Corp. v. International Trade Commission

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No. 01-1376

IN THE

Supreme Court of the Cinited States ....

MAY 20 2902

FUJ] PHOTO FILM Co., LID.

JAZZ PHOTO CORPORATION

AND DYNATEC INTERNATIONAL. INC...

Petitioner,

Respondents.

On Conditional Cross-Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Federal Circuit

RESPONDENTS’ BRIEF IN OPPOSITION

JEFFREY |. KAPLAN

KAPLAN & GILMAN, LLP

900 Route 9 North

Woodbridge, New Jersey 07095

(732) 634-7634

Counsel for Jazz Photo Corp.

LARRY R. LAYCOCK

DAVID R. WRIGHT

L. DAVID GRIFFIN

WORKMAN, NYDEGGER &

SEELEY

1000 Eagle Gate Tower

60 East South Temple

Salt Lake City, Utah 84111

(801) 533-9800

Counsel for Dynatec

International, Inc.

May 20, 2002

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 - WASHINGTON, D. C. 20001

CARTER G. PHILLIPS*

STEPHEN B. KINNAIRD

MICHAEL S. LEE

JULIE N. ZAMPA

SIDLEY AUSTIN BROWN &

Woop LLP

1501 K Street, NW

Washington, D.C. 20005

(202) 736-8000

Counsel for Respondents

* Counsel of Record

QUESTIONS PRESENTED

1. Whether the replacement of film and battery in a

patented camera, which is sold preloaded with film free and

clear and without restriction by the patent owner, amounts to

reconstruction of an entirely new camera on the template of

the original.

2. Whether the patent owner may prevent reuse of a

product that is sold free and clear simply by drafting claims in

method format rather than apparatus format.

(1)

LIST OF PARTIES

In addition to the parties named in the caption, Opticolor,

Inc. was a respondent before the International Trade

Commission and an appellant before the United States Court

of Appeals for the Federal Circuit. The following additional

parties were respondents before the International Trade

Commission but were not appellants before the Federal

Circuit:

Achiever Industries Ltd.

Ad-Tek Specialties Inc.

AmerlImage, Inc. d/b/a Rainbow Products

Argus Industries

Boechs Camera LLC

Boshi Technology Ltd.

BPS Marketing

China Film Equipment Corp.

E.T. Trading Ltd. d/b/a Klikit

Fast Shot

Forcecam, Inc. |

Haichi International Inc.

Innovative Trading Co.

Labelle Time, Inc. .

Linfa Photographic Ind. Co. Ltd.

Opticam Inc.

P.S.I. Industries, Inc.

Penmax, Inc. |

aon me ee emer om

PhilmEx Photographic Film

Rino Trading Co., Ltd.

Sakar International, Inc.

T.D.A. Trading Corp.

Vantage Sales, Inc. '

Vivitar Corporation. |

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RULE 29.6 STATEMENTS

Respondent Jazz Photo Corporation (“Jazz Photo”) has no

parent corporation, and no other publicly held corporation

owns more than 10% of its stock. Respondent Dynatec

International, Inc. (“Dynatec’”’) has no parent corporation, and

no other publicly held corporation owns more than 10% of its

stock. Dynatec has filed for bankruptcy, and its successor in

interest with regard to the ongoing business concerns at issue

in this case is Grandway U.S.A Corporation (“Grandway”)

Grandway has no parent corporation, and no other publicly

held corporation owns more than 10% of its stock. On May

13, 2002, Grandway filed a motion with this Court requesting

that Grandway be substituted in the place and stead of

Dynatec in case number 01-1158

TABLE OF CONTENTS

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STATEMENT OF THE CASE ..................::::::eeseeeeeeeeees

REASONS FOR DENYING THE CONDITIONAL

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I. THE FEDERAL CIRCUIT’S DECISION ON

CAMERA REPAIR IS NOT WORTHY OF

THIS COURT'S REVIEW .uu.....:ccccccccccerscrarenes

Il THE METHOD PATENT INFRINGEMENT

ISSUE DOES NOT WARRANT THIS

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TABLE OF AUTHORITIES

CASES Page

Adams v. Burke, 84 US. (17 Wall.) 453 (1873) 9

Aktiebolag v. E.J. Co., 121 F.3d 669 (Fed. Cir

1997) 5

Aro Mfg. Co. v. Convertible Top Replacement

Co., 377 U.S. 476 (1964)...... 10

Aro Mfg. Co. v. Convertible Top Replacement

Ca, S65 U.S. S96 CIGGE 002000000000: passim

Bandag, Inc. v. Al Bolser’s Tire Stores, Inc., 750

F.2d 903 (Fed. Cir. 1984) ssdeden 12

Carborundum Co. v. Molten Metal E. quip. Inno-

vations, Inc., 72 F.3d 872 (Fed. Cir. 1995). 14, 15

Champion Spark Plug Co. v. Emener, 16 F. Supp

816 (E.D. Mich. 1936). gaat aaemaenee 5, 11

Cotton-Tie Co. v. Simmons, 106 U.S. 89 (1882)... 8

Dana Corp. v. American Precision Co., 827 F.2d

755 (Fed. Cir. 1987) asinine 5, 6, 8, 11

Everpure, Inc. v. Cuno, Inc., 875 F.2d 300 (Fed

Oe, Five cnisichcccsccckecceectaeee 5

FMC Corp. v. Up-Right, Inc., 21 F.3d 1073 (Fed

Cir. 1994) 6

General Elec. Co. v. United States, 572 F 2d 745

(Ct. Cl. 1978) aie 7” 7

Glass Equip. Dev., Inc. v. Besten, Inc., 174 F 3d

1337 (Fed. Cir. 1999) 12

Hewlett-Packard Co. v Repeat-O- lype ‘Stencil

Mfg. Corp., 123 F.3d 1445 (Fed. Cir. 1997)... 3,5

Kendali Co. v. Progressive Med. Tech., Inc., 85

F.3d 1570 (Fed. Cir. 1996) ... 5

Kuther v. Leuschner, 200 F. Supp. 841 (N D. Cal

1961), aff'd, 314 F.2d 71 (9th Cir. 1963), rev'd

sub nom. Wilbur-Ellis Co. v. Kuther, 377 U.S.

422 (1964)... cas duebaceieaseus eaeeieeacand eee 4

Vil

TABLE OF AUTHORITIES -— continued

Page

Kuther v. Leuschner, 314 F.2d 71 (9th Cir. 1963),

rev'd sub nom. Wilbur-Ellis Co. v. Kuther, 377

U.S. 422 (1964) 11

Micromatic Hone Court v. Mid-West Abrasive

Co., 177 F.2d 934 (6th Cir. 1949) 6

Sage Prods. Inc. v. Devon Indus., Inc., 45 F.3d

1575 (Fed. Cir. 1995) 5

Surgical Laser Techs., Inc. v. Surgical Laser

Prods., Inc., No. CIV. A. 90-7965, 1992 WL

245892 (E.D. Pa. Sept. 16, 1992)... 6

United States Surgical Corp. v. Orris, Inc., 5 F

Supp. 2d 1201 (D. Kan. 1998), aff'd, 185 F.3d

885 (Fed. Cir. 1999) 6

Wilbur-Ellis Co. v. Kuther, 377 U.S. 422 (1964).. passim

Wilson v. Simpson, 50 U.S. (9 How.) 109 (1850) 3

STATUTES

19 U.S.C. § 1337 13

35 USC. § 271 13,14

RULE

Sup. Ct. R. 10

STATEMENT OF THE CASE

Petitioners rely on the statement of the case presented in

their own petition for certiorari.

REASONS FOR DENYING THE CONDITIONAL

CROSS-PETITION

The two questions presented by Fuji Photo Film Co.,

LTD’s (“Fuji”) conditional cross-petition are not remotely

worthy of this Court’s review. Not only were the Federal

Circuit’s rulings on these issues correct, but, as is evident by

Fuji’s own convoluted statement of the issues (Cross-Pet. 2-

3), these are inherently factbound questions of no importance

to anyone except the parties to the proceedings below. Fuji

presents no conflict of authority; to the contrary, the Federal

Circuit directly relied on all the precedents that Fuji now

states the court below “overruled,” id. at 11. See Petition

Appendix (“Pet. App.”) 9a-17a. At bottom, Fuji claims

(wrongly) that the Federal Circuit misconceived the evidence

before (and findings of) the International Trade Commission

(“ITC”) and misapplied the precedents. This Court has

admonished that “[a] petition for a writ of certiorari is rarely

granted when the asserted error consists of erroneous factual

findings or the misapplication of a properly stated rule of

law.” Sup. Ct. R. 10.

On the first question presented, the Federal Circuit

correctly applied a long, uninterrupted, and consistent body of

case law from this Court as well as the Federal Circuit in

holding that petitioners were not “reconstructing” or “making

entirely anew” a camera when they simply replaced the

unpatented and expendable film, paper label, and where

necessary, a battery, in a camera containing many dozens of

electronic and mechanical parts. The first complaint voiced

by Fuji is that the Federal Circuit allegedly “overruled” prior

case law on reconstruction by applying the repair doctrine to

articles that were fully “spent.” This is simply wrong; the

Federal Circuit specifically held (in line with this Court’s

precedent) that whether refurbishment of an article was

permissible repair depended on the remaining useful capacity

of the item (i.e., whether it is spent) and the nature of the

replacement parts and process. Pet. App. 16a. In this case,

the court of appeals determined based on the evidence of

record that the processed lens-fitted film packages (LFFPs)

retained useful capacity as a camera, and that under its

precedents and those of this Court the process associated with

the reloading of film and changing of batteries was

permissible repair under the patent laws. /d. at 9a-18a.

Fuji thus manufactures its claim of a cataclysmic change in

patent law based on a misreading of the opinion below. In the

end its claims dwindle to a factual dispute about whether

processed LFFPs are spent. .

Fuji’s related argument that reconstruction had to be

determined not based on principles of patent exhaustion, but

on an implied-in-fact license from the vendor as to the

permitted use of the article, is unsound and was directly

rejected by this Court in Wilbur-Ellis Co. v. Kuther, 377 U.S.

422 (1964). Nothing in the repair ruling below requires this

Court’s intervention, as the issue involves no error of law and

no conflict of authorities, has no general importance, and has

at best limited effect on how the precedent would be applied

to some other specific future refurbished product.

On the second question presented, Fuji complains that the

Federal Circuit improperly applied the repair doctrine to a

method claim. Fuji’s contention that the ruling below

conflicts with prior Federal Circuit precedent is baseless;

none of those cases deals with methods used to manufacture

the patented article in which rights have been exhausted. The

Federal Circuit’s opinion fully conforms with prior precedent

on the subject, and recognizes the practical reality that patent

claims can be, and usually are, drafted in both method and

apparatus format to protect any particular invention.

Moreover, as more fully discussed below, Fuji’s rights are

substantially identical whether the invention is protected by

method or apparatus claims. It would truly elevate form over

substance if the same invention, which provides the same

economic incentive for research and development and the

same reward to the patent owner, could be subject to patent

exhaustion differently depending upon the _ particular

interchangeable format selected in drafting the patent claims.

I. THE FEDERAL CIRCUIT’S DECISION ON

CAMERA REPAIR IS NOT WORTHY OF THIS

COURT’S REVIEW.

Courts have recognized for over a century that once a

patented device is sold, the patent owner’s rights are

exhausted and all subsequent owners of the device have the

right to use the product for its entire useful life, including the

right to repair that product. The right to “make” however,

remains with the patent owner. See, e.g., Aro Mfg. Co. v.

Convertible Top Replacement Co., 365 U.S. 336, 346 (1961)

(“Aro I’); Wilson v. Simpson, 50 U.S. (9 How.) 109, 125-26

(1850); Hewlett-Packard Co. v. Repeat-O-Type Stencil Mfg.

Corp., 123 F.3d 1445, 1451 (Fed. Cir. 1997). In Aro J, this

Court adopted the following test, which is the controlling

standard for this proceeding: - ‘

The decisions of this Court require the conclusion that

reconstruction of a patented entity, comprised of

unpatented elements, is limited to such a_ true

reconstruction of the entity as to “in fact make a new

article,” after the entity, viewed as a whole, has become

spent. In order to call the monopoly conferred by the

patent grant[{] into play for a second time, it must,

indeed, be a second creation of the patented entity ....

Mere replacement of individual unpatented parts, one at

a time, whether of the same part repeatedly or different

parts successively, is no more than the lawful right of the

Owner to repair his property.

365 U.S. at 346 (emphasis added; citations omitted). The

Court held in Aro / that the replacement of worn-out fabric in

patented convertible automobile tops did not constitute

reconstruction of the patented combination. /d. It

specifically rejected the “heart of the invention” test, holding:

“No element, not itself separately patented, that constitutes

one of the elements of a combination patent is entitled to

patent monopoly, however essential it may be to the patented

combination and no matter how costly or difficult

replacement may be.” Id. at 344-45 (emphasis added).

A few years after the Aro / decision, this Court revisited the

repair doctrine and again rejected a patentee’s claim of

infringement. In Wilbur-Ellis, defendant purchased second-

hand fish-canning machines that were “regarded as ‘junk’”

and had been unused for years. Kuther v. Leuschner, 200 F.

Supp. 841, 844 (N_D. Cal. 1961), aff'd, 314 F.2d 71 (9th Cir.

1963), rev'd sub nom. Wilbur-Ellis Co. v. Kuther, 377 U.S.

422 (1964). The machines were so corroded and rusted that

extensive cleaning and sandblasting was necessary to make

them operable. 377 U.S. at 423. Originally, the machines

were designed for canning one-pound cans, but some

corrosion was so severe the only way to make the machines

work was to convert the machines to five-ounce cans. /d.

Numerous elements of the patented combination were resized

or relocated and the refurbished machines were different from.

the new ones. The machines had been procured after being

discarded as junk. This Court concluded this was repair, not

reconstruction. /d. at 424. It held: “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.” /d. at 425. 7

As Aro I and Wilbur-Ellis demonstrate, and as the Federal

Circuit has noted repeatedly, “[t]he Supreme Court has taken

an expansive view of conduct that constitutes permissible

repair of a patented combination of unpatented elements.”

Sage Prods. Inc. v. Devon Indus., Inc., 45 F.3d 1575, 1578

(Fed. Cir. 1995) (emphasis added). See also, Aktiebolag v.

E.J. Co., 121 F.3d 669, 672 (Fed. Cir. 1997); Kendall Co. v.

Progressive Med. Tech., Inc., 85 F.3d 1570, 1574 (Fed. Cir.

1996). The decisions of the Federal Circuit also show that the

bounds of permissible repair are extremely broad and

encompass every type of activity other than fully making a

new product.

This sweeping application has allowed the following

activities under the repair doctrine: full disassembly into

component parts and mixing and matching parts (General

Electric Co. v. United States, 572 F.2d 745, 780-81 (Ct. Cl.

1978) (per curiam); Dana Corp. v. American Precision Co.,

827 F.2d 755, 756-57 (Fed. Cir. 1987)), grinding (Wilbur-

Ellis, 377 U.S. at 423), sand-blasting (Wilbur-Ellis, id.),

changing parts of the patented combination — including “key”

parts (Aro /, 365 US. at 344; Dana, 827 F.2d at 756-57),

changing shapes of things (Wilbur-Ellis, 377 U.S. at 423;

Hewlett-Packard, 123 F.3d at 1449), refurbishing machines

for a use not possible when the machines were originally sold,

(Wilbur-Ellis, 377 U.S. at 423), disassembling the parts down

to all their components, separating the components, and

mixing parts from different products to be refurbished before

reassembling the products (General Electric, 572 F.2d at 780-

81; Dana, 827 F.2d at 756-57), implementation of an

assembly line to disassemble and repair products (Dana, id. at

759), cracking welds (Hewlett-Packard, 123 F.3d at 1449),

refurbishing in a manner not intended or contemplated by the

patent owner, (Hewlett-Packard, id. at 1448; Wilbur-Ellis,

377 US. at 423), refurbishing previously discarded products

regarded as junk by the original owners (Dana, 827 F.2d at

756-57; Wilbur-Ellis, 377 U.S. at 423; Champion Spark Plug

Co. v. Emener, 16 F. Supp. 816, 819 (ED. Mich. 1936)),

piacing adapters onto used products to make them work with

nonconforming parts never intended to be used with the

product (Everpure, Inc. v. Cuno, Inc., 875 F.2d 300, 301

(Fed. Cir. 1989); Surgical Laser Technologies, Inc. v.

Surgical Laser Products, Inc., No. CIV. A. 90-7965, 1992

WL 245892, at *1 (E.D. Pa. Sept. 16, 1992)), reusing items

that reached the end of their economic life but maintained

useful physical capacity (Micromatic Hone Court v. Mid-

West Abrasive Co., 177 F.2d 934, 936 (6th Cir. 1949); Dana,

827 F.2d at 756-57), and disregarding single-use only labels

(United States Surgical Corp. v. Orvis, Inc., 5 F. Supp. 2d

1201, 1203 (D. Kan. 1998), aff'd, 185 F.3d 885 (Fed. Cir.

1999) (table) (per curiam)). These illustrate the broad scope

of the right of repair. In short, courts repeatedly have

recognized that to be a reconstruction, the defendant must

truly “make” a product, similar to the way a new product is

manufactured.

Here, the Federal Circuit did no more than correctly apply

this body of case law, and specifically disavowed any notion

that it was establishing a general bright-line rule, repeating

the admonition that “it is impracticable, as well as unwise, to

attempt to lay down any rule on this subject, owing to the

number and infinite variety of patented inventions.” Pet.

App. 10a (quoting Goodyear Shoe Mach. Co. v. Jackson, 112

F.146, 150 (1st Cir. 1901)); see also FMC Corp. v. Up-Right,

Inc., 21 F.3d 1073, 1079 (Fed. Cir. 1994) (“Each case, as it

arises, must be decided in light of all the facts and

circumstances presented ... the scope, nature, and purpose of

the patented invention .... specification and claims of the

patent, together with the condition of decay or destruction of

the patented device or machine”).

Fuji nonetheless implausibly insists that the Federal Circuit

established a “line so bright as to overrule every case that has

ever found reconstruction,” Cross-Pet. 12. That is a distortion

of the mtting below. The Federal Circuit did not hold,

implicitly or explicitly, that the right to repair persists “after

the entity, viewed as a whole, has become spent,” Aro J, 365

US. at 346; Wilbur-Ellis, 377 U.S. at 425 (repair must bear

“on the useful capacity of the old combination” of elements).

To the contrary, the Federal Circuit specifically held that the

repair doctrine “requir[es] consideration of the remaining

useful capacity of the article, and the nature and role of the

replaced parts in achieving that useful capacity.” Pet. App.

16a. The Federal Circuit thus pointedly did not ignore

whether the product was spent, but analyzed both the

condition of the article and the nature of the refurbishing

process to determine if reconstruction of an entirely new

article occurred, just as Aro / instructs. 365 U.S. at 346.

Here, the Federal Circuit held, based on the evidence of

record, that a processed LFFP retains useful capacity as a

camera, agreeing with petitioners that “all of the original

components of the LFFP except the film and battery have a

useful remaining life, and are reused.” Pet. App. 16a. Thus,

the court of appeals properly concluded that “[o]n 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.” /d. at 17a. It

is precisely because the LFFP as a whole was not spent, and

because it “otherwise [remained] as originally sold,” that it

retained capacity for use as a camera once limited repairs

were conducted. This is why the Federal Circuit ruled as it

did.

Fuji has no basis for quarrelling with the Federal Circuit’s

determination that the LFFP was not spent. The Federal

Circuit relied upon prior precedent to determine that a camera

was not spent when it needed only new film and a battery.

The precedent was properly relied upon because the camera

being repaired was far less worn out or spent than, for

example, canning machines that were completely inoperable

due to most parts being rusted and corroded (Wilbur-Ellis,

377 U.S. at 423), or gun mounts that required full

disassembly and replacement of numerous components to

work again (General Electric, 572 F.2d at 780-81). The

Federal Circuit properly determined that the activities in

question, merely replacing film, battery, where necessary, and

a paper label, could not amount to rebuilding an entire camera

if the complete disassembly, resizing, replacing of several

parts with new ones, and rebuilding of machines, was repair.

Nor did the Federal Circuit look solely to the lack of

complexity of the process used by the reloading facilities, as

Fuji complains. Rather, the Federal Circuit held that a camera

that is capable of functioning with only new film and battery

is not spent. The fact that the Federal Circuit so held by

stating that the replacement of film, battery and a label did not

amount to reconstruction, rather than by stating that a camera

needing only film, battery and paper is not spent is mere '

semantics. Whether a refurbishing process amounts to |

reconstruction, or whether the item being refurbished is spent, |

are merely “two sides of the same coin.” Dana, 827 F.2d at

759. In any event, the factbound dispute of whether a

processed LFFP is “spent” is not the type of issue that this

Court sits to review. The claimed conflict with precedent is a

phantom.

Nor does Fuji’s attempted-reliance on Cotton-Tie Co. v.

Simmons, 106 U.S. 89 (1882), dictate a different result.

Cotton-Tie involved a product that had one major part and

One minor part, a band and a buckle used to tie cotton bales.

The key fact in Cotton-Tie was that, once the original cotton

band was severed at the cotton mill, “[i]ts capacity for use as

a tie was voluntarily destroyed” /d at 94. For the

reconditioned ties, the major part — the band — was not reused,

but was replaced by patching together various pieces of used

band. /d. at 91. Nearly the entire patented item was being

rebuilt. Here by contrast, the capacity of the LFFP for use as

a camera is not destroyed when the photoprocessor opens the _

case to remove the film; the processed LFFP still has full

capacity for use as a camera and simply needs new film and a |

battery, which are always replaceable parts in any camera.

Cotton-Tie thus involves readily distinguishable facts, the

ruling below is in no way contrary to it; and regardless this

acces» amis ee oe =

Court does not sit as a court of error to review claimed

misapplication of its precedents to particular facts.

Cotton-Tie is helpful in showing that the proper analysis

depends upon the specific invention, how the claims are

drafted, and the type of product in issue, which is the same

analysis followed by the Federal Circuit in this case. Fuji

attempts to characterize Cotton-7ie and other cases as

standing for the proposition that an item is “spent” when the

item “ha[{s] fulfilled the original purchaser’s expectations,”

Cross-Pet. 20, and more broadly argues that the permissibility

of repair depends not on patent exhaustion but whether the

vendor granted an implied-in-fact license to use the good for a

specific and limited purpose. /d. at 15-18. But this Court

directly rejected that argument in Wilbur-Ellis.

In Wilbur-Ellis, machines were originally sold for the

purpose of packing fish into one-pound cans. As noted

above, the machines had been abandoned in a factory, sold as

junk to a liquidator, and sold again to another party, before

being adapted (by substantial refurbishment and resizing of

machine elements) to a completely different use from that

contemplated at the time of the first sale (the packing of five-

ounce cans). 377 U.S. at 423. The patentee argued that

because the original. use was for one-pound cans, and the

machines were spent for that purpose, reconditioning the

machines to pack five-ounce cans amounted to reconstruction

of a new article; the Court was “asked in substance to treat the

case as if petitioners [(the refurbishers)] had a license for use

of the machines on ‘l-pound’ cans.” /d. at 425. But this

Court rejected this same implied-in-fact license argument Fuji

asserts here, holding instead that because the first sales were

“outright, without restriction,” the patentee had parted with all

rights (i.e. exhausted those rights) and the implied license to

use thus passed as a matter of law under Adams v. Burke, 84

U.S. (17 Wall.) 453, 456 (1873).' See 377 US. at 425. This

holding was made despite the fact that neither the original

seller nor buyer had contemplated, either expressly or

impliedly, that the machines could be used for different sized

cans.

Thus, directly contrary to Fuyi’s claims, Cross-Pet. 18, it is

the exhaustion doctrine (and not an implied-in-fact license

based on the putative expectations of the purchaser) that

determines the scope of permissible repair, and conveys “the

right ‘to give duration to that which he owns, or has a right to

use as a whole.” Aro J, 365 US. at 343.7 In fact, Fuji’s

argument that the “implications” of the original sale were “for

single use only,” and that the Federal Circuit should therefore

have examined whether the right to reuse can be implied from

the facts and circumstances of that sale is virtually identical to

the reversed court of appeals opinion in Wilbur-Ellis, which

held that the facts surrounding the original sale gave rise to an

implied license to use only “one pound” cans, and thus, no

implied license to modify the machine for use on five-ounce

' This Court’s decision in Aro Manufacturing Co. v. Convertible Top

Replacement Co., 377 U.S. 476, 484 (1964) (“Aro JI), which Fuji

erroneously cites in support of its implied-in-fact license theory (Cross-

Pet. 17), is referring to the implied license to use as a matter of law

created by an unrestricted sale under the exhaustion doctrine. See Pet. 13-

14.

* Exhaustion creating an implied license to use an invention is the

default rule when there are no restrictions in the sale, but it is well settled

the parties by agreement can overcome the default rule and agree upon

restrictions on the owner’s use or resale of the patented article. Such a

limited license may be either express or implied from the circumstances of

a sale, but the Federal Circuit ruled that no such restrictions on the

exhaustion of rights could be implied from the first sale of LFPPs. Pet.

App. 18a-20a. Fuji contests this holding on the bizarre and unsupported

claim that implied-in-fact licenses are not contracts requiring a meeting of

the minds. But as the Federal Circuit ruled, implied-in-fact licenses are

clearly contracts, and all contracts (express or implied in fact) require a

meeting of the minds. /d. at 20a (citing Hercules, Inc. v. United States,

516 U.S. 417, 424 (1996)).

ae AAR RD RB. ta ae

cans was granted. Kuther v. Leuschner, 314 F.2d 71, 73 (9th

Cir. 1963). That decision was reversed by this Court, despite

this Court’s full acceptance of the facts found regarding the

circumstances of the first sale.*

The rule proposed by Fuji, and previously rejected by this

Court, would require subsequent owners of all used products,

and the courts, to determine what was intended and expected

by the patent owner at the time of the first sale. As Justice

Black noted in Aro J, “surely the scope of a patent should

never depend upon a psychoanalysis of the patentees’ or

purchasers’ intentions.” 365 U.S. at 355 (Black, J.,

concurring). Rather, property rights demand certainty, and

once the patent owner sells the product without restriction,

subsequent purchasers are under no obligation to assess

whether the patent owner intended or expected some other

use of the product that the patent owner may subsequently

choose to disavow.

In summary, the Federal Circuit properly applied a long

line of precedent to the specific patent claims and products in

issue here, and correctly determined that the mere

replacement, after the last picture was snapped, of film and

battery in a camera that was perfectly functional both before

and after that last picture was taken did not amount to the

reconstruction of the entire camera. There was nothing

improper about such an analysis; there is no inconsistent

precedent from this Court or any other Circuit; and nothing

the Federal Circuit did requires this Court’s intervention.

Moreover, Fuji’s claim that repair rights depend upon uses

contemplated, pursuant to a theory of noncontractual implied-

in-fact licenses, is inconsistent with the precedents of this

Court.

> Numerous other cases subsequent to Cotton-Tie have upheld a

subsequent purchaser’s nght to repair the item after the first purchaser

finished using the product. Dana, 827 F.2d at 758-60; Champion, 16 F.

Supp. at 821-22 (Discarded spark plugs collected from service stations

after being thrown out may be permissibly repaired. ).

il. THE METHOD PATENT INFRINGEMENT ISSUE

DOES NOT WARRANT THIS COURT'S REVIEW.

In its second question presented on infringement of its

method patents, Fuji attempts to conjure up a conflict with

prior Federal Circuit precedents by misstating those

authorities, which have nothing to do with the exhaustion of

patent rights in the methods used to manufacture the article

sold. There is no conflict whatsoever, and the Federal

Circuit's holding that patent rights in the method for loading

film into a camera during manufacture are exhausted by an

unrestricted first sale, such that a subsequent purchaser may

repair the camera by reloading film, is indubitably correct.

Fuji’s reliance, Cross-Pet. 22-24, upon Glass Equipment

Development, Inc. v. Besten, Inc., 174 F.3d 1337 (Fed. Cir.

1999), and Bandag, Inc. vy. Al Bolser’s Tire Stores, Inc., 750

F 2d 903 (Fed. Cir. 1984), is misplaced. In both of those

cases, the issue before the Court was whether the sale of an

unpatented product implied a right for the defendant to

practice a patented method using that product. In both cases,

the unpatented sold product could have been used to practice

many different methods, only one of which was patented.

Thus, in Bandag, the question was whether sale of tire

retreading equipment authorized the purchaser to use that

equipment to practice a patented method of retreading given

that the equipment had many other unpatented uses, 750 F.2d

at 924-26; in Glass Equipment, the question was whether the

sale of hinged corner keys gave the purchaser the right to use

those keys to practice a patented method of assembling spacer

frames for insulated windows, where the keys could be used

for other purposes. 174 F.3d at 1340-41. Under the facts of

these cases, the patent owner had not sold a_ product

embodying the patented method to the defendant and thus had

never received any compensation for his rights in the method

patent in the purchase price of the article. Where the method

was not embodied in the article itself, absent other factors,

there was no reason to imply that a license to the method had

eeeniniinei

been granted as a matter of law by the first sale of the

product, when the product also had potential noninfringing

uses. Notably, under such facts, the patent owner has no right

to restrict sales of the product by anyone, since the product is

a staple article of commerce suitable for noninfringing uses.

35 USC. § 271(b), (c). His patent is useless against sales of

the product.

The facts of the present .case are drastically different

because, unlike Bandag and Glass Equipment, this case does

not involve a product which is sold and may be used by the

defendant to practice any one of several methods, only one of

which is patented. Instead, this case involves a patented

method used by the patent owner to maintain the exclusive

right to manufacture the products in issue, and the first sale

by the patent owner of those products free and clear of all

restrictions.

The distinction is important because (unlike the

patentholders in Bandag and Glass Equipment) Fuji has

already received compensation for all of its manufacturing

patents, including the method claim, in the price of the

product (or in the royalties from licensees who manufacture

or sell the product). Fuji is the only entity entitled to sell new

products made by this method. No other entity could have

manufactured them in the United States, absent a license from

Fuji, nor could such product be legally procured from a

source in the United States, since this would involve

infringement of the method patent. Moreover, even if a

defendant made such products outside the United States, it

could not import those products because Fuji’s method claim

may be used to preclude importation of products made by a

patented method even when that method was used to make

the product abroad. /d § 271(g). Indeed, if this litigation had

involved only a single method claim and no other patent

rights, Fuji’s rights to proceed in the International Trade

Commission under 19 U.S.C. § 1337 would have been exactly

the same, and all of the remedies to which Fuji would be

entitled would also have been the same.*

Accordingly, Fuji’s economic position, and the payment to

which it is entitled for its patent rights, is exactly the same

whether or not its patent was on the camera itself, or on the

method used to make all of the cameras at issue. In either

case, Fuji may prevent others from selling such cameras in

the United States regardless of where they were made, may

license other entities to sell the cameras, may sue for

infringement if someone sells the cameras, and may prevent

manufacture of the camera in issue. This is because for all

cameras in issue, importation of the camera means

infringement of the method claim.

Indeed, it is common practice to draft patent claims in both

method and apparatus format, and many, if not most, United

States patents include both apparatus and method claims.

Fuji’s economic position and incentive to invent based upon

the patent laws is identical in either case, and it would thus

elevate form. over substance if the doctrine of patent

exhaustion were applied differently depending upon the rather

arbitrary choice of whether the patent draftsman chose to

include method claims for the same invention in the patent.

Accordingly, the Federal Circuit properly applied this Court’s

precedent relating to patent exhaustion in a manner that

prevents Fuji from collecting plural royalties for the same

patent rights.

The remaining case relied upon by Fuji is also inapplicable

to the facts here. Carborundum Co. v. Molten Metal Equip.

Innovations, Inc., 72 F.3d 872 (Fed. Cir. 1995), involved the

* Note that this would not be the case in the situation of Bandag or

Glass Equipment, cited by Fuji, Cross-Pet. 22-24, where the product may

be used to practice numerous methods, only one of which was patented.

Such product could be freely imported by anyone, since there are

numerous noninfringing uses to which it may be put, and the product itself

is not patented. 35 U.S.C. § 271(b), (c).

sale of an unpatented product which was used to build a

patented combination. The Federal Circuit held that because

the patented combination itself had not been sold, patent

exhaustion did not occur. Jd. at 879-80. Notably, the Federal

Circuit explicitly stated that if the entire patented combination

had been sold, patent exhaustion would have occurred. /d. at

879. Therefore, Carborundum has nothing to do with

whether a method claim is subject to patent exhaustion.

Carburundum does state that the first unrestricted sale of

patented product would automatically exhaust all patent

rights, which is what the Federal Circuit correctly held. /d

In the present case, the only use of the camera sold by Fuji

is to take pictures. To prevent a party from loading film into

the camera would prevent that party from taking pictures after

the first roll of film is used up, which would amount to a

restriction that the camera may be used only once. But

because Fuji’s rights under the method claim are essentially

the same as if they only had a product patent, allowing such a

restriction would violate this Court’s precedent set forth in

Aro I, and Wilbur-Ellis, and would impose after the fact

restrictions on subsequent purchasers of the product. For

example, under Fuji’s view, if a carmaker had patented a

necessary method for injecting a lubricant into a car engine

during its manufacture, no auto repair shop would be able to

change that lubricant to ensure that the owner could continue

use of the car, even though the carmaker’s patent rights were

exhausted by the unrestricted first sale of that particular

automobile. While a patented method whose sole use is in the

repair of a product and which has not been subject to patent

exhaustion may provide for a royalty to the patent owner

when the repair is performed, that is not the case here.

Instead, Fuji seeks to collect a first royalty when the product

is manufactured, or equivalently, to keep for itself a

monopoly on manufacture of the product through use of its

method patent, and then to collect a second royalty under the

same patent when the same product 1s repaired by the owner.

See Pet. 13-16. This is clearly untenable.

Accordingly, the Federal Circuit properly applied the

precedent of this Court and its own precedent in rejecting

Fuji’s position. The purported conflicts of authority that Fuji

drums up are nonexistent. The Federal Circuit’s application

of longstanding law to the facts of this case was proper, and

no error requiring this Court’s intervention has been shown.

CONCLUSION

Fuji’s conditional cross-petition should be denied in all

respects.

Respectfully submitted,

JEFFREY I. KAPLAN CARTER G. PHILLIPS*

KAPLAN & GILMAN, LLP - STEPHEN B. KINNAIRD

900 Route 9 North MICHAEL S. LEE

Woodbridge, New Jersey 07095 JULIEN. ZAMPA

(732) 634-7634 SIDLEY AUSTIN BROWN &

WooD LLP

Counsel for Jazz Photo Corp. 1501 K Street, N.W.