First Right Doctrine
What is the First Sale Doctrine and how does it apply to aftermarket imaging supplies?
If you purchase remanufactured or compatible toner cartridges, it is important that you familiarize yourself with the First Sale Doctrine. The 150 years of United States legal precedence that define the theory behind the doctrine of patent exhaustion (“first sale doctrine”) is most simply stated as:
[A]n unconditional sale of a patented device exhausts the patentee’s right to control the purchaser’s use of the device thereafter. The theory behind this rule is that in such a transaction, the patentee has bargained for, and received, an amount equal to the full value of the goods. This exhaustion doctrine, however, does not apply to an expressly conditional sale or license. In such a transaction, it is more reasonable to infer that the parties negotiated a price that reflects only the value of the “use” rights conferred by the patentee.1
When applying this doctrine to the aftermarket imaging supplies industry, it substantiates that remanufacturers are not in violation of OEM intellectual property patents because they are repairing a spent item, the patent rights for which were exhausted on the sale of that item.
This was recently upheld by the Supreme Court:
On June 9, 2008, the Supreme Court unanimously ruled in the case of Quanta Computer Inc. V. LG Electronics Inc. that the patent holders rights to use its patents were exhausted by the first sale of its products by upholding the first sale doctrine. By exhausting the patent, the patent holder cannot enforce any restrictions on the use of its product after it has been sold.2
Compatibles, on the other hand, are brand new cartridges that look identical to the OEM versions, but are not sold as new OEM. Because of the intellectual property rights OEMs maintain, many compatible cartridges are illegal. Epson, Hewlett-Packard, Lexmark and Canon have all taken some action against the more blatant producers, importers and sellers of these products.
I buy remanufactured cartridges so I am in the clear, right?
Unfortunately, this is not always the case. Due to intellectual property rights and rampant counterfeiting, remanufacturing becomes more complex by the year. There are two main issues that can cause remanufacturers to be noncompliant with the First Sale Doctrine - counterfeit cores and empties procured outside of the United States.
The first area of concern lies with what the aftermarket calls the “core.” In a recent letter to the U.S. International Trade Commission, Tricia Judge, Executive Director of the International Imaging Technology Council, clearly articulated the danger of overseas counterfeiting on the remanufacturing industry, “It is the empty shell of the cartridge, and it is a sophisticated piece of plastic and metal that is the lifeblood of the industry. Without cores, there can be no remanufactured cartridge.
Cores therefore have great value. If a core has a value of $13.00, but a newly-molded, counterfeit, compatible core can be bought for $3, the remanufacturer cannot compete. Even worse, these cores look identical to legitimate cores. Therefore, a remanufacturer runs the risk of unknowingly buying a core that violates intellectual property rights and subsequently selling it after remanufacture. He is then a potential target of a lawsuit by an OEM.” 3
Even if it is an authentic empty OEM core that the remanufacturer has procured, the First Sale Doctrine that protects remanufacturers from repairing and reselling a spent cartridge is not invoked if the cartridge was not originally sold in the United States. This was upheld in Jazz Photo Corporation versus United States International Trade Commission. The judgment stated in part -
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. 4
Many remanufacturers need to use brokers to support demand needs and may not be able to guarantee the cartridges it collects are from the United States or if they are counterfeit. This opens a window for legal complaints and can impact a customer’s business.
The Bottom Line
In short, many compatibles are illegal because they are simply copying the design of an existing product whereas remanufactured products are repairing and reusing an existing product. Clover’s collection programs and internal processes not only give them the ability to manage their own core collection but also to determine if a core is counterfeit. In doing so, they are able to ascertain the authenticity of the cores they collect and offer customers a lower price alternative to new cartridges while still respecting OEM patents.