[Ip-health] Fred Abbott on Jazz Photo case

[James Love]

Thanks to Fred for this very informative discussion of the Jazz Photo case,
and its relevance to US legislation on parallel imports.
Jamie

----- Original Message -----
From: "Abbott, Frederick" <FAbbott@law.fsu.edu>
To: "'James Love'" <james.love@cptech.org>
Sent: Tuesday, June 04, 2002 12:10 PM
Subject: Jazz Photo Summary

Dear Jamie,

In light of your reference to me in respect to the Jazz Photo decision, I
thought it might be useful to provide a brief summary and analysis for list
readers. This case was brought to my attention after it was recently cited
by USTR to support its position that parallel importation of patented goods
should be prohibited in the FTAA. You already provided the citation, Jazz
Photo v. ITC, (CAFC) 264 F.3d 1094, August 21, 2001.

The case involved an appeal to the U.S. Court of Appeals for the Federal
Circuit of a decision by the International Trade Commission in a Section 337
action initiated by Fuji Photo. Fuji sought to prevent importation of used
disposable cameras in which third parties had replaced film. Some of those
disposable cameras were first sold in the United States (and exported for
film replacement), and some were first sold abroad. Fuji holds a number of
patents on the disposable cameras in the United States and elsewhere.

Much of the CAFC decision involves the question whether the actions by third
parties constitute "repair" or "reconstruction" as a matter of U.S. patent
law. Under existing doctrine, a patent holder may not prevent a third party
from "repairing" a patented product that has been first sold, but may
prevent the "reconstruction" of a product. Reconstruction is treated as the
equivalent of "making" a new product, and therefore to be within the acts
the patent holder may prevent.

The ITC decided that the acts performed by third parties constituted
reconstruction, and that importation of the used and reconstructed
disposable cameras should be generally prohibited. The CAFC disagreed with
the ITC's legal analysis, holding that the acts performed by third parties
constituted "repair", and therefore were permitted as to disposable cameras
that had been first sold. That is, the rights of the patent holders to
exercise control over repair of the cameras had been "exhausted" when they
were first sold.

However, the CAFC went on to hold that exhaustion of the patent holder's
rights only took place regarding products that had been first sold in the
United States, stating:

"Fuji states that some of the imported LFFP cameras originated and were sold
only overseas, but are included in the refurbished importations by some of
the respondents. The record supports this statement, which does not appear
to be disputed. United States patent rights are not exhausted by products of
foreign provenance. To invoke the protection of the first sale doctrine, the
authorized first sale must have occurred under the United States patent. See
Boesch v. Graff, 133 U.S. 697, 701-703, 33 L. Ed. 787, 10 S. Ct. 378 (1890)
(a lawful foreign purchase does not obviate the need for license from the
United States patentee before importation into and sale in the United
States). Our decision applies only to LFFPs for which the United States
patent right has been exhausted by first sale in the United States. Imported
LFFPs of solely foreign provenance are not immunized from infringement of
United States patents by the nature of their refurbishment." (at page 1105)

The CAFC held that Fuji could not prevent importation of cameras that had
first been sold in the United States, exported for repair, then re-imported.
However, since U.S. patent rights as to cameras first sold outside the
United States were not exhausted, importation of cameras first sold and
repaired outside the United States could be blocked.

This analysis by the CAFC does not adequately address pre-existing U.S. law
on patents and parallel importation. It is particularly disappointing that
the CAFC chose to address this important question in a summary (and for that
reason, non-transparent) manner.

As is well known among those familiar with U.S. case law on the question of
exhaustion, the Supreme Court's decision in Boesch v. Graf in 1890 involved
limited and different circumstances than those in the present case. In
Boesch, the inventor of a lamp burner held parallel patents in Germany and
the United States. Under German law, there was a "prior use" exception that
allowed a third party to lawfully manufacture and sell a patented product in
Germany. The goods (lamp burners) that were sold in Germany and sent to the
United States were made and sold by a party other than the patent holder
under the prior use exception. The U.S. patent holder had not placed the
goods on the market in Germany, and had not exhausted its U.S. patent rights
with respect to those goods.

Since Boesch, there have been several important Court of Appeals decisions
holding that the United States follows a doctrine of international
exhaustion of patent rights. Among the most important of these is the
decision of the Court of Appeals for the Second Circuit in Curtiss Aeroplane
v. United Aircraft, 266 F. 71 (2d. Cir. 1920). In that case, a holder of
U.S. patents on aircraft components had licensed the British government to
produce aircraft in Canada (for use in the First World War). After the war,
the British government sold some of the aircraft it had produced to a third
party that imported them into the United States for resale. The Second
Circuit held that the U.S. patent holder, in consenting to the use of its
patent for the manufacture of airplanes in Canada, had exhausted its right
to control the importation of the resulting aircraft into the United States.


While there has been some conflicting case law at the district court level
on the question of international exhaustion of patent rights, the most
comprehensive analysis of the case law finds that the U.S. follows a
doctrine of international exhaustion in respect to patents. (See Margreth
Barrett in Northern Kentucky Law Review.) That is, at least until Jazz
Photo. In Jazz Photo, the CAFC states a principle which it derives from
Boesch v. Graf, but that case has previously and properly been limited and
distinguished by other Courts of Appeal. The CAFC fails to take note of this
contrary pre-existing case law. It is a very disappointing decision in that
it purports to dispose of a critical issue in U.S. patent law without even a
nod to its potential implications as, for example, in respect to patented
medicines first sold outside the United States.

I hope you find this useful.

Fred

Frederick M. Abbott
Edward Ball Eminent Scholar
 Professor of International Law
Florida State University College of Law
425 W. Jefferson Street
Tallahassee, FL 32306 USA
tel. +1-850-644-1572
fax +1-917-591-3112


--------------------------------
James Love mailto:james.love@cptech.org
http://www.cptech.org +1.202.387.8030 mobile +1.202.361.3040