March 7, 2023

Patent News

The IP High Court reversed the District Court decision ruling that the enforcement of the patent violated the Antitrust Act

The Intellectual Property High Court (“IP High Court”) reversed the Tokyo District Court decision ruling that enforcement of the patent against refilled toner cartridges violated the Antitrust Act and constituted an abuse of rights, and granted the patentee's request for an injunction and damages on the grounds that the enforcement of the patent was not in violation of the Antitrust Act (IP High Court, March 29, 2022, Case No. 2020(ne)10057).

Summary of the case
Ricoh Co., Ltd., the plaintiff in the first instance ("Plaintiff"), is a manufacturer and seller of printers and toner cartridges, and owns three patents (“Patents”) relating to the physical structure and arrangement of electronic components used in toner cartridges.

DS Japan Co., Ltd., and two companies, the defendants in the first instance ("Defendants"), refill used Plaintiff's toner cartridges with toner and sell refilled toner cartridges. The background of Defendant's sale of the refilled toner cartridges that are the subject of this lawsuit (“Refilled Products”) is as follows.

 (i) The Plaintiff's toner cartridge has an electronic component that is an implemented product of the invention ("Plaintiff Electronic Components") attached to it, and when the Plaintiff's toner cartridge is installed in the Plaintiff's printer, information recorded in the memory of the Plaintiff Electronic Components is read and the remaining toner level is displayed in stages, and when the remaining toner level is low, a warning for toner replacement is given.

 (ii) The Defendants refill used Plaintiff's toner cartridges with toner and sell refilled toner cartridges. When the Plaintiff’s used toner cartridges were refilled with toner and installed in the Plaintiffs' printers, printing could be performed without any problem, but the remaining toner level was displayed as question mark "?” with unusual indication saying that "a non-genuine toner bottle is loaded”. No warning for replacement of toner was given, and when the toner was used up, "toner is running out" was displayed on the toner cartridges. Therefore, the Defendants previously rewrote the data in the memory of the Plaintiff Electronic Components (old products) so that the remaining toner level could be displayed, and then sold the refilled products.

 (iii) Then, the Plaintiff took measures to restrict the rewriting of the memory of Plaintiff Electronic Components for certain models of Plaintiff's printers ("Rewrite Restriction Measures").

 (iv) Because the Defendant could not rewrite the memory due to the Rewrite Restriction Measures, in order to be able to display the remaining toner level of the refilled toner cartridges, the Defendants removed the Plaintiff’s Electronic Components from the Plaintiff's toner cartridges ("Plaintiff's Products") and replaced them with electronic components manufactured by the Defendants (“Defendant Electronic Components”) and sold the Refilled Products.

The Plaintiff filed a lawsuit seeking an injunction and compensation for damages against the Refilled Products which are sold together with the Defendant Electronic Components, on the grounds that the Defendant Electronic Components infringe the Patents.

The Tokyo District Court and the IP High Court made the following decisions regarding (a) exhaustion and (b) abuse of rights.

District Court Judgement
(a) Exhaustion
The District Court held that exhaustion was not established for the act of replacing the Plaintiff Electronic Components with the Defendant Electronic Components.

(b) Abuse of rights
Article 21 of the Antitrust Act provides that this Act shall not apply to acts found to constitute the exercise of rights under the Patent Act, etc. The District Court established the general theory that, in light of the purpose of Article 21 of the Antitrust Act, even in infringement suits based on patent rights, if the exercise of patent rights by the patentee is likely to impede fair competition, such as by unreasonably interfering with transactions between a competitor and the other party, it may be considered an abuse of rights as impeding "industrial development" of the purpose of the Patent Act or derogating from the purpose of the patent system.

The District Court then found the following facts.

 (i) If Defendants sell refilled cartridges without replacing the Electronic Components, the Defendant can avoid infringement of the Patent. However, in such case, the remaining toner level would be displayed as “?”. Such cartridges are unlikely to be widely accepted by users due to concerns about quality, and are unlikely to meet the bidding conditions of public tenders and it puts the Defendants at a significant competitive disadvantage.

 (ii) There is no evidence to suggest that it is possible to manufacture a refilled product that allows for a remaining toner level indication while avoiding infringement of Patents.

 (iii) The Rewrite Restriction Measures are beyond the scope of necessity and lack rationality as a measure to ensure the accuracy of remaining toner level indication.

The District Court found that the Plaintiffs, by taking the Rewrite Restriction Measures despite the absence of sufficient necessity and reasonableness (see (iii) above), created a situation in which the Defendants were significantly disadvantaged in competition in the toner cartridge market (see (i) above) unless the Defendants infringed the Patents (see (ii) above), and then the Plaintiff enforced the Patents.

(c) Conclusion
The District Court held that the Plaintiff's series of acts, taken as a whole, unreasonably interfered with the transactions between the Defendants, who are competitors with the Plaintiff in the toner cartridge market, and users of toner cartridges, therefore, such Plaintiff’s acts were in violation of the Antitrust act, as an obstruction to fair competition. The District Court dismissed all of the Plaintiff's claims, finding that the Plaintiff's exercise of Patents was in violation of the purpose and intent of the Patent Act and constituted an abuse of rights.

The Plaintiff appealed to the IP High Court.


IP High Court Judgement
(a)  Exhaustion
The IP High Court held that exhaustion was not established in this case, as same as the District Court Judgement.

(b) Abuse of rights
The IP High Court followed the decisional framework of the District Court regarding abuse of rights, but reversed the District Court's conclusion by making different findings regarding (i) through (iii), which the District Court found as follows.

 (i) If refilled cartridges that have not had the Defendant Electronic Components replaced are inserted into the Plaintiff’s printer, the remaining toner level would be displayed as “?”, but "ready to print” would be also displayed and printing could be done without any problem. Therefore, users would not be concerned about the printing function. In addition, users can deal with the problem of not knowing how low the remaining toner is by preparing spare toner in advance, so the inconvenience of users is not considered to be significant. Therefore, it can be said that there are users who choose such refilled cartridges in consideration of the functional difference and price difference between refilled cartridges that do not indicate the remaining toner level and genuine cartridges. Furthermore, it cannot be said that a remaining toner level indication is a condition for public bidding. Therefore, even if the remaining toner level is displayed as "?”, the Defendants would not be significantly disadvantaged in terms of competition.

 (ii) It is technically possible to manufacture electronic components that do not infringe the Patent by devising the shape of the electronic components and having them display the remaining amount. Based on the facts in (i) and (ii), the degree of disadvantage to the Defendants due to this rewriting restriction measure is considered to be small.

 (iii) The reason for the Rewrite Restriction Measures is to eliminate the adverse effect of not being able to control the accuracy of remaining toner level indication in refilled products manufactured by third parties, when inserting such refilled cartridges in the Plaintiff’s printers. The Plaintiff’s assertion that the Rewrite Restriction Measures are installed only in high-end products as a business strategy has a reasonable rationale.

(c) Conclusion
The IP High Court held that the Plaintiff's enforcement of the Patent cannot be said to be in violation of the Antitrust Act as an obstruction of trade to competitors, therefore, found no abuse of rights. The IP High Court granted the patentee's request for an injunction against the Refilled Products and damages.


Comments

The District Court Judgement was a rare decision in which the court ruled that the exercise of patent rights violated the Antitrust Act and constituted an abuse of rights, and much attention was focused on how the IP High Court would decide the case. The IP High Court reached a different conclusion from the District Court because of the difference in the factual findings in (i) through (iii) above, and in particular, the fact that (ii) infringement of the patent was avoidable may have influenced the conclusion (i.e., the District Court found that the Defendants were forced to infringe the patent as a result of the Rewrite Restriction Measures by the Plaintiff, but according to the IP High Court's finding, this is no longer the case).

While agreeing with the conclusion of the original decision, Professor Tamura criticized that the issue should be resolved not by the Antitrust Act but by the theory of exhaustion or the abuse of rights doctrine on the ground of avoiding exhaustion. The IP High Court did not reject the framework of the District Court Judgement, which denied the establishment of exhaustion and judged abuse of rights from the viewpoint of whether it violated the Antitrust Act, but we believe it is necessary to look into the future, including whether such a judgment framework will be used in similar cases.


Written by: Ms. Kiyoko Nakaoka (Attorney at Law, Patent Attorney)