Case number

2005 (Ne) 10021

Party[Appellant-Plaintiff] Canon Inc.
[Appellee-Defendant] Recycle Assist Co., Ltd.

Decided on

January 31, 2006

DivisionGrand Panel

Holdings:
This is a case in which patent infringement is found and injunctive relief isgranted against recycled products that are made by refilling with ink thepatented ink tanks for inkjet printers after the initial ink is used up.

References:
Patent Law (Article 2(3), Article 68, and Article 100)
Reasons
I. Outline of the case
1. Facts found(1) Canon Inc. (hereinafter “Canon”) is the holder of Patent No. 3278410
entitled “liquid container, manufacturing method of the container, package of thecontainer, ink jet head cartridge consisting of the container integrated with arecording head, and liquid jet recorder” (hereinafter the “Patent”). Canon
manufactures and sells the ink tanks (hereinafter “Products of Canon”)
described in Claim 1 of the Patent (invention of liquid container; hereinafter“Invention 1”) using the process described in Claim 10 of the Patent (inventionof manufacturing process of the liquid container; hereinafter “Invention 10”).
Recycle Assist Co., Ltd. (hereinafter “Recycle Assist”) is engaged in importingand selling the ink tanks specified in the Attachment of the judgment(hereinafter “Products of Recycle Assist”). Company Z manufactured Productsof Recycle Assist by refilling with ink used Products of Canon, which were soldin Japan or overseas by Canon or its licensee.

Canon brought this action based on Inventions 1 and 10 to seek injunctive relief
in order to prevent Recycle Assist from importing and selling Products ofRecycle Assist and force it to dispose of the products.
(2) Both parties admit that Products of Recycle Assist meet every constituent
feature of Invention 1 and fall within the technical scope thereof, and themanufacturing process for Products of Recycle Assist also meets every
constituent feature of Invention 10 and falls within the technical scope thereof.
Recycle Assist argues that Canon should not be allowed to exercise the Patent
against Products of Recycle Assist, claiming “exhaustion” of the Patent inrespect of Products of Recycle Assist made from Products of Canon sold inJapan (hereinafter “for domestic sale”), and citing the reasons for the Supreme
Court judgment on the BBS Case (judgment of the Third Petty Bench of theSupreme Court of July 1, 1997, Minshu Vol. 51, No. 6, 2299) in respect ofProducts of Recycle Assist made from Products of Canon sold overseas(hereinafter “for overseas sale”). The cited holdings are as follows: if the holderof a Japanese patent or a party equivalent thereto has assigned the patented
product outside Japan, the patent holder, with regard to the product, is notallowed to exercise his patent right to claim injunctive relief in Japan against thedirect assignee, except where he agreed with the direct assignee that Japan be
excluded from the areas of sale or use with regard to the product, or against
any subsequent assignees, except where he made the same agreement withthe subsequent assignees and clearly indicated it on the product.
In response, Canon argues that Canon should not be prevented from exercising
the Patent against Products of Recycle Assist since the conduct of Products ofRecycle Assist should be regarded, in light of the process of refilling with ink
used Products of Canon, as “manufacture” of products that fall within thetechnical scope of Invention 1 and “use” of manufacturing process described in
Claim 10.

2. Issues(1) Whether Canon should be allowed to exercise the Patent for Invention 1(invention of product) against Products of Recycle Assist that are manufactured

by refilling with ink Products of Canon for domestic sale.
(2) Whether Canon should be allowed to exercise the Patent for Invention 10(invention of process) against Products of Recycle Assist that are manufactured
by refilling with ink Products of Canon for domestic sale.
(3) Whether Canon should be allowed to exercise the Patent against Productsof Recycle Assist that are manufactured by refilling with ink Products of Canonfor overseas sale.
II. Holdings of the Court
1. Issue 1(1) Exhaustion of a patent (invention of product)
Where the holder of a patent (product invention) or patent licensee has
assigned the patented product in Japan, the patent, having fulfilled its purpose,
has been exhausted, and the patent holder is no longer allowed to exercise thepatent to seek injunctive relief against acts such as using, assigning or leasing
the patented product.
However, the patent is not exhausted and the patent holder is allowed toexercise the patent when one of the following conditions is met: (i) the patented
product is reused or recycled after it has finished its service along with the lapseof its ordinary life as a product (Type 1); (ii) a third party has made modification
or replacement to the whole or part of the components that constitute an
essential portion of the patented product (Type 2). Whether the Type 1
condition is met should be determined based on the patented product byexamining whether the patented product has finished its service as a product,
whereas whether the Type 2 condition is met should be determined based on
the invention by examining whether any modification or replacement has been
made to the whole or part of the components that constitute an essential portionof the patented invention.
(2) Type 1 condition
In this case, the Type 1 condition has not been met. Since no physical change
or modification has been added to the components of the Products of Canonother than use of the filled ink, the Products of Canon can be reused as ink

containers by refilling them with ink. Ink is an interchangeable part, and refillingink can be deemed to be replacement of an interchangeable part. In the marketof ink products for ink jet printers, not only genuine products including Productsof Canon but also recycled products and ink refills are available. Though qualityof recycled products is often inferior to that of genuine products, they are widely
accepted by users due to lower prices. Furthermore, recycling should beencouraged for the conservation of the environment unless it infringes uponanother party’s rights or interests. No laws or regulations prohibit the recyclingof used ink tanks. Given these factors, the Court finds that the Products ofCanon have not spent their life as a product even if the initial ink has been usedup. The Court concludes that the Products of Canon do not meet the Type 1condition.
(3) Type ２ condition
Type ２ condition is met in this case, and the Patent for Invention 1 has notbeen exhausted.
The purpose of Invention 1 is to solve the conventional problem of ink tanks,that is ink leakage at the time the ink cartridge is unsealed, while ensuring thesame effect for the conventional ink tanks, which is stable ink supply, byincreasing the quantity of ink contained in the ink tank per unit volume. In orderto fulfill the above mentioned purposes, Invention 1 contains the following
features; Constituent Feature H is a structure where the negative pressure
generating member storage chamber stores two negative pressure generating
members, and the capillary attraction at the interfaces of the two negative
pressure generating members is larger than that of the respective member.
Constituent Feature K is a structure where the ink tank contains sufficient liquid
in a manner that the whole area of the interfaces retains the ink regardless ofthe posture of the ink tank. Due to those features, a barrier is formed at theinterfaces of the negative pressure generating members to block air
communication between the members. Those constituent features are essential
parts of Invention 1. The Products of Canon lose Constituent Features H and K
by the time a certain period of time has passed after the ink is used up and theink tank is taken out of the printer. A third party produces Products of Recycle
Assist by cleaning the inside of the ink tanks of used Products of Canon, whichhave lost their essential features by then, and injecting ink into them beyond thelevel of the interfaces of the negative pressure generating members. Throughthis manufacturing process, the Products of Recycle Assist restore Constituent
Features H and K of Invention 1. Therefore, the Type 2 condition is met andexhaustion of the Patent for Invention 1 should be denied. Canon should beallowed to exercise the Patent for Invention 1 against Products of Recycle
Assist that are manufactured by refilling with ink used Products of Canon fordomestic sale.
(4) Perspective of conservation of the environment (recycling theory)
Recycle Assist argues that it is inappropriate from the perspective of soundenvironmental policy to prohibit the import and sale of recycled products suchas the Products of Recycle Assist, and that it is also inappropriate from theperspective of promoting international transactions and protecting consumer
interest to allow Canon’s exercise of the Patent because it would threaten themarket for recycled products.
Since conservation of the environment is important for ensuring wholesome andcultured living for the current and future citizens and achieving human welfare,
the fundamental philosophy of conservation of the environment must also berespected to the greatest possible extent in construing the provisions of thePatent Law. In this case, however, Canon calls on users of the Product ofCanon for cooperation in collecting used Products of Canon, and actually
collects a significant quantity of used products and reuses them as an energy
source for manufacturing cement. Given these facts, it cannot be said that only
Recycle Assist’s conduct is consistent with the philosophy of conservation of theenvironment, whereas Canon’s conduct to seek injunctive relief against theimport and sale of Products of Recycle Assist, is inconsistent with thatphilosophy.
The above holdings do not mean that the manufacture or sale of recycled
products must be prohibited in any case. No infringement should be found forthe manufacture or sale of recycled products as long as the genuine products
are not patented or the patent has been exhausted.

(5) Canon’s business model (unfair profits from the sale of genuine products)

Recycle Assist, criticizing Canon’s business model (i.e. selling the printer at alow price and driving the printer users to buy the genuine ink tanks at a highprice, thereby making unfair profits), argues that Canon’s exercise of the Patentwould harm consumer interest and afford excessive protection to the patent
holder.
However, there is no evidence that shows Canon’s business model is as argued
by Recycle Assist. In addition, as compensation for the disclosure of anindustrially applicable invention to the public, the patent holder is given theexclusive right to exploit the patented invention for making profit, and the patent
holder has discretion to set the prices of the patented products and otherrelated products unless there are special circumstances where such pricing isagainst public interest or public order under the Antimonopoly Law, etc.
If it is assumed, as argued by Recycle Assist, that Canon sets the price of thegenuine products at a level significantly higher than the manufacturing cost andgains excessive profits from the sale of the genuine products, it follows that
Recycle Assist also gains excessive profits considering such factors as theprice gap between the genuine products and the recycled products (the retailprice per unit is 800 to 1,000 yen for the genuine product and 600 to 700 yen for
the recycled product) and costs incurred by Canon and Recycle Assist
respectively (Recycle Assist incurs expenses for manufacturing andtransporting the recycled products but has avoided R&D costs for the patented
invention and manufacturing costs for the ink tank). Therefore, it isunreasonable for Recycle Assist to argue that Canon’s exercise of the Patentrights should not be allowed for the benefit of consumers.
2. Issue 2(1) Exhaustion of processing patent
The exercising of a process patent falls into two categories: use or assignmentof the product manufactured using the claimed process (hereinafter the“resulting product”), and the use of the process itself. The issue of exhaustion
should be discussed separately for each respective category.
In case of the use and assignment of the resulting product, the exhaustion
doctrine for a product patent is applicable. The patent is not exhausted and thepatent holder is allowed to exercise the patent where one of the following
conditions is met: (i) the resulting product is reused or recycled after it has
finished its service along with the lapse of its ordinary life as a product (Type 1);(ii) a third party has made modification or replacement to the whole or part ofthe components that constitute an essential portion of the patented invention
involved in the resulting product (Type 2).

Although the exhaustion doctrine for a product patent does not apply as it is tothe use of the patented process, the patent holder should not be allowed toexercise the patent where one of the following conditions is met: (i) the productmanufactured by the patented process is also patented as a product invention,with no difference in technical ideas between the process invention and theproduct invention, and the patent for the product invention has been exhausted,or (ii) the patent holder or patent licensee has assigned articles that are to be
used exclusively for the patented process or used for the patented process(excluding those generally available in Japan) and that are indispensable forsolving the problem through the patented invention, and the direct assignee or
any subsequent assignee uses the patented process using the assigned articles,
or uses or assigns products manufactured by the patented process using theassigned articles.
(2) Whether the exercise of the Patent should be allowed
Invention 10 is a process invention for manufacturing the liquid container
described in Claim 1, and there is no difference in technical ideas between
Inventions 1 and 10.

Invention 10 includes Constituent Features H’ and K’. Constituent Feature H’ isa process whereby a liquid container has a negative pressure generating
member storage chamber that stores two negative pressure generating
members and the capillary attraction of the interfaces of the members is higher
than that of the members. Constituent Feature K’ is the process of injecting ink
into ink tanks in such a manner that the whole area of the interfaces retains theink regardless of the posture of the ink tank. Those features are essential for
Invention 10, and the function of those features can be seen in the equivalentmembers of the Products of Canon. Since the Products of Recycle Assist are
manufactured through the process mentioned in 1(3) above, it can be said thatthe essential members are modified or replaced. Therefore, Canon is allowed toexercise the Patent for Invention 10 against Products of Recycle Assist that aremanufactured by refilling with ink used Products of Canon for domestic sale.
Regarding the use of the patented process, the conduct of Recycle Assist falls
within neither (1)C(i) nor (ii) mentioned above. Therefore, Canon is allowed toexercise the Patent for Invention 10 against the Products of Recycle Assist.

3. Issue 3(1) Product Patent
If the holder of a Japanese patent or a party equivalent thereto assigns thepatented product outside Japan, the patent holder, with regard to the product, isnot allowed to exercise his patent rights against the direct assignee except incases where he has agreed with the direct assignee that Japan be excluded
from the areas of sale or use with regard to the product, or against any
subsequent assignee except in cases where he has made the same agreementwith the subsequent assignee and clearly indicated this on the product, by
reason of the act of importing the product into Japan or using or assigning it inJapan. However, the patent is not exhausted and the patent holder is allowed toexercise the patent when one of the following conditions is met: (i) the patented
product is reused or recycled after it has finished its service along with the lapseof its ordinary life as a product (Type 1); (ii) a third party has made modification
or replacement to the whole or part of the components that constitute an
essential portion of the patented invention involved in the patented product(Type 2).

Regarding the Products of Recycle Assist sold overseas, the same reason as
mentioned in 1 is applicable. The Type 1 condition is not met, but the Type 2
condition is met. Consequently, Canon is allowed to exercise the Patent forInvention 1 against Products of Recycle Assist that are manufactured by refillingwith ink used Products of Canon for overseas sale.

(2)Process PatentFor the same reason as mentioned in 2 above, Canon is allowed to exercise thePatent for Invention 10 against Products of Recycle Assist that are
manufactured by refilling with ink used Products of Canon for overseas sale.
4. Conclusion
For the reasons mentioned above, Canon’s claims are well-grounded.
Therefore, the judgment of the first instance is reversed and injunctive relief isgranted.