‘Repair’ defence to patent infringement and the perils of hindsight bias

MMD Design and Consultancy Limited v Camco Engineering Pty Ltd [2023] FCA 827

21 July 2023

Federal Court of Australia

Rofe J

Highlight

The repair defence entitles the purchaser of a patented product to repair it or retain a third party to do so.  But this right does not extend to remaking the entire product under the guise of repair so as to avoid patent infringement.

Background

MMD Design and Consultancy Limited owns a patent entitled “A tooth construction for a mineral breaker”, AU2004289510 (the Patent).  A mineral breaker/sizer is used in mining to break mineral ore into smaller sizes.  The machine has teeth with sacrificial covers welded to each other and/or the tooth-shaped support body underneath.  The covers are formed of degradable parts which need replacing after prolonged use.  Camco Engineering Pty Ltd provided an after-market repair service by which it dismantled the tooth constructions down their base components, replaced the worn out covers and rebuilt the tooth constructions, initially for MMD under contract, a service it continued to provide directly to MMD customers in competition with MMD, after its contract with MMD terminated in 2015.

MMD alleged Camco infringed the Patent by supplying five unauthorised welded tooth constructions to mines operated by BHP, Fortescue Metals and South32.  MMD also asserted that Camco engaged in misleading and deceptive conduct in breach of the Australian Consumer Law (ACL) by failing to warn its customers of the existence of the Patent and that Camco’s acts infringed certain claims of the Patent.

Camco asserted it did not infringe, and (alternatively) it characterises its services as ‘refurbishment’ or repair which Camco had undertaken as agent for the miners, which is permissible under the exhaustion doctrine.  It denied the ACL allegations, and cross claimed for revocation on the grounds of lack of manner of manufacture, novelty, inventive step, and fair basis.

Neither party was successful, with the result that the patent was held valid but not infringed by Camco because of a successful design-around strategy.  Rofe J found that, had it been infringed, the ‘repair’ defence would not apply as Camco’s ‘repairs’ would amount to an impermissible remaking of the invention rather than permissible repair.

MMD appealed to the Full Federal Court on 19 September 2023.

Key Issues

The doctrine of exhaustion and the repair defence

The critical question to be determined is whether Camco engaged in ‘permissible repair’ or ‘impermissible manufacture’, following the principles set out by the High Court in 2020 in Calidad v Seiko ¹.  The Court in Calidad confirmed that a patentee’s rights to exploit a patented product (that is, to “make, hire, sell or otherwise dispose of or use” the product), are exhausted on sale of the product.  The Court held that the ‘exhaustion doctrine’ prevails over the alternative ‘implied licence’ doctrine but neither doctrine entitles the purchaser to recreate or manufacture new products that fall within the scope of the claims.

In Calidad, the defendants modified Calidad’s patented single-use printer cartridges to make them refillable.  The High Court held this was a permissible repair because it did not involve “unmaking” and “remaking” the product nor replicating the patented elements.  The High Court contrasted this to the circumstances addressed in a UK decision, United Wire² in which the defendants stripped down patented shifting screens to their frames (likened to a “skeleton or chassis”) and secured new mesh screens.  This was deemed equivalent to purchasing frames on the open market and then using them to create a new assembly, leading to a finding of patent infringement.

Validity and hindsight bias in inventive step evidence

A secondary aspect of this case was the court’s approach to independent expert evidence led by Camco.  The expert was shown MMD’s patent before being shown any prior art, none of which were considered common general knowledge (CGK).  The expert was unaware of problems related to bolted tooth constructions when he read the prior art.

Outcome

Justice Rofe rejected MMD’s submission  on construction, and consequently rejected the infringement and ACL claims.  For the latter, it was pertinent that Camco had obtained legal advice, and held an honest belief that the repaired products did not infringe.

Despite the finding of non-infringement, Justice Rofe considered Camco’s ‘repair defence’.  She observed that when Camco dismantled the construction down to the support body by removing the covers, it effectively unmade the tooth construction, and ‘remade’ a new one when putting it all back together.  Her Honour likened the remaining support body (which was not technically repaired) to the “skeleton or chassis” in United Wire, and considered the Camco services an impermissible repair not covered by the doctrine of exhaustion.  Consequently, had there been infringement, the repair defence would not have exempted Camco.

Rofe J noted that the patent’s claims specifically pertained to a tooth construction for a mineral breaker and not to a complete mineral breaker that happened to include tooth constructions.  Had MMD claimed the entire mineral sizer together with the tooth construction, Camco’s repair defence may have succeeded.

Justice Rofe was critical of the preparation of Camco’s expert evidence which was “impermissibly assisted by hindsight.”   Unconventionally, materials scientist Dr Paul Huggett, Camco’s sole expert witness, was provided the patent before he was provided with 5 pieces of prior art.  He was not asked to carry out literature searches or opine on what he would have done in light of common general knowledge (CGK) alone or in combination with the art before he studied the patent.  In providing his evidence, Dr Huggett conceded that ‘he started with the solution presented in the Patent’.

Camco also failed on the grounds of novelty and fair basis.

MMD filed a notice of appeal on 19 September 2023.

Implications

Subject to the appeal, this decision highlights the importance of distinguishing between permissible repair and impermissible manufacture in patent law. Modifications must not replicate the combination of claimed features in a patent claim if they are to qualify as permissible repair under the exhaustion doctrine.

Additionally, the case underscores the perils of expert evidence tainted by hindsight bias in expert evidence and reinforces that practitioners must remain vigilant to avoid such bias.  Camco has provided an example of what not to do in the preparation of expert evidence in Australia.

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¹ [2020] HCA 41
² [2001] RPC 24

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