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Remanufacturing as Industrial Sustainability: Patent Law Issues

Explore the environmental benefits and economic impact of remanufacturing, also known as "remanufacturing" or "refurbishing." Learn about the patent law issues in this industry from William A. Tanenbaum, an expert in technology, intellectual property, and outsourcing.

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Remanufacturing as Industrial Sustainability: Patent Law Issues

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  1. Remanufacturing as Industrial Sustainability: Patent Law Issues William A. Tanenbaum, Kaye Scholer LLP Chair, Technology, Intellectual Property & Outsourcing Group Green Technology Group New York Office 31959696.PPTX

  2. Which is Greener? • Paper or plastic bags? • Plastic – if you reuse • Washed or dirty car? • Dirty • Hand drier or paper towels? • Electric hand drying machine • Movies from video store or online store? • Online Based on Nov/Dec 2008 issue of Mother Jones, article by Ben Whitford 31959696.PPTX

  3. Which is Greener? (2) • Print or online newspaper? • Paper, if reading for more than 30 minutes • Air conditioner or car windows open? • A/C • Quick or slow acceleration to car cruising speed? • Quick acceleration 31959696.PPTX

  4. Commercial Perspective: What is Remanufacturing? • Disassembly of products • Cleaning, repairing and/or replacing parts • Reassemble to “like-new” or “better than new” condition • Replacement parts can be those not available at date of original manufacture 31959696.PPTX

  5. Why is Remanufacturing Environmentally Sustainable? • Reduces energy costs and environmental impact of: • Mining or extracting raw materials and natural resources • Manufacturing products • Shipping components and final product • What are the environment savings? • Saves enough natural resources to fill a train 1,100 miles lone • Saves enough energy to power 6 million automobiles 31959696.PPTX

  6. Remanufacturing is Also Known As … Rebuilt Rebuilt is synonymous with remanufacturing when used in connection with motor vehicle parts and systems but not the entire vehicle. Refurbished Refurbished is synonymous with remanufacturing of furniture systems for offices, hotel lobbies, and hospitals. Recharged Recharged is synonymous with remanufacturing when used in connection with imaging products, such as laser toner cartridges. Factory Reconditioned or Recertified Factory reconditioned or recertified is synonymous with remanufacturing when referring to consumer products, such as electrical hand tools. (Information on this and following 9 slides from Dr. Nabil Nasr of the Golisano Sustainability Institute of the Rochester Institute of Technology is gratefully acknowledged). 31959696.PPTX

  7. Remanufacturing (“Reman”) Process Generic “Reman” Process Process steps required to bring product back to a “like-new” condition. • Inspection • Disassembly • Cleaning • Restoration / Replace • Re-assembly • Qualify 31959696.PPTX

  8. Remanufacturing Industry • Recent Trends • Higher technology found in products • Increased awareness among OEMs • Caterpillar • Xerox • Delphi • Hewlett Packard • Consolidation of smaller remanufacturers in recent years • Additional growth in consumer goods U.S. Remanufacturing Industry: • 73,000 Estimated Total Firms • $53 Billion in Annual Sales • 480,000 Direct Total Employment • $2.9 Million average annual company sales • 24 Employees per company on average Source: The Remanufacturing Industry; Hidden Giant, Lund, 1996 31959696.PPTX

  9. The Benefits of Remanufacturing Approximately 85% of the energy expended in the manufacture of an original product is preserved in the remanufactured product. • Recycling Reclaims • Material • Remanufacturing Reclaims • Material • Energy from Casting, Machining, etc. • Labor from original processes • Capital • Function/Design Intent Source: MIT study on the remanufacturing of automobile component, 1981 31959696.PPTX

  10. Examples: Automotive Products • Current Products • A/C Compressors • Alternators • Engines • Fuel System Components • Rack and Pinion Steering • Starters • Steering Gear Boxes • Transmissions • Turbochargers • Water Pumps 31959696.PPTX

  11. Economic Benefit The remanufacturing economic benefit is the recovered value minus the cost to recover • Initial part cost, replacement, and yield • Demanufacturing cost • Restoration processing cost • RV = ((UMC – URC) + CRC - CDS • 9 • URC = (1/Yi)*Ci • i=1 31959696.PPTX

  12. Ecologic Benefit of Reman • The remanufacturing ecological benefit is the recovered energy and avoided environmental impact minus the impact of the remanufacturing processes. CS130 Example: 31959696.PPTX

  13. Ecologic Benefit (2) • Material analysis for Delco CS 130 100A alternator: • Kwh used to create one NEW alternator: 61.1 Kwh • CO2 emissions to create one NEW alternator: 66.6 lbs • Benefits from remanufacturing one thousand produced Delco CS 130 100A alternators each year: • Annual energy savings: 37,700 Kwh • Annual CO2 savings: 51,357 lbs 31959696.PPTX

  14. Eastman Kodak CompanyOne Time Use Cameras (OTUC) • Corporate Goal: Improve the environmental attributes of KODAK products throughout their life cycle • Kodak Film Products Group achieved $1.968 Billion in revenue of which OTUC are a significant contributor • Since 1990, the total number of OTUC collected reached 1.2 billion • In 2007 alone, Kodak collected 120 million single-use cameras • Since 1990, 800 million Kodak OTUC have been remanufactured and the balance sent back to other manufacturers • Approaching 100% of Kodak OTUC manufactured from recycled bodies and/or parts Source: Eastman Kodak Company 2007 Global Sustainability Report 31959696.PPTX

  15. Consumer Products • Product Evolution • Product complexity is increasing • Product lifecycle is decreasing • Residual value varies greatly • Required Competencies • Electronic board repair • Delicate surface finishing • Material handling • Remaining-life assessment • Sterilization and cleanliness 31959696.PPTX

  16. Legal Issue: How Will “New” Be Defined? • The new “new” • “New” will be equivalent to scope of warranty to repair or replace 31959696.PPTX

  17. IP Ownership • Who owns the IP in the inventions developed to improve the remanufactured product – the commissioning party or the party doing the remanufacturing? • What are the issues when the remanufactured product includes improvements owned by one or more third parties? • What is the impact of government funding? 31959696.PPTX

  18. The Patent Exhaustion Doctrine • Purchaser’s price paid to patent owners includes patent license fees • Purchaser’s customers (or transferees) do not have to pay additional patent license royalty • Put another way: patent owner (“patentee”) cannot recover license fees from purchaser’s transferee 31959696.PPTX

  19. Case Law • United States v. Masonite Corp., 316 U.S. 267 (1942) • Intel Corp. v. ULSI Systems Tech, Inc., 995 F.2d 1566 (Fed. Cir. 1993) (“The law is well settled that an authorized sale of patented product places the product beyond the reach of the patent.”) • Note: authorized first sale must have occurred under a U.S. patent (See Boesch v. Graff, 133 U.S. 697 (1890) (a lawful foreign purchase does not obviate the need for the licensee from the U.S. patentee before importation and sale in the U.S.) 31959696.PPTX

  20. How to Limit the Exhaustion Doctrine • Use contract to impose prohibition against what would otherwise be permitted • Due diligence point: review contracts for “restrictions” that would limit “rights” otherwise granted to subsequent transferee by virtue of exhaustion doctrine 31959696.PPTX

  21. Key Issue Under Case Law • “Refurbishment” used as general (and neutral) term (See Jazz Photo Corp. v. Dynatec Int’l, 264 F.3d 1095 (Fed. Cir. 2001)(Judge Newman) • “Permissible repair” vs. “prohibited reconstruction” (See Id.) • Repair generally deemed less that making a new article (product) • Must consider scope of patent claims to made determination, especially when product consists of multiple components 31959696.PPTX

  22. Repair vs. Reconstruction • Right of repair includes • Right to preserve useful life • Right to replace individual unpatented elements that themselves have a shorter life • Reconstruction includes • Making a new article (after original article, viewed as a whole, has become “spent”) • Creation of a second entity • Summary: making like new vs. making new or anew 31959696.PPTX

  23. Illustrative Cases • Jazz Photo v. Dynatec • 2009 ITC case • Fuji single use camera • Unauthorized third parties added new film to discarded single use camera • Fed Cir. Upheld activity as permissible repair because of 8 patented steps, only the 3rd step – inserting new film– was only implicated • Overruled portion of ITC ruling finding prohibited reconstruction 31959696.PPTX

  24. Illustrative Cases (2) • Sandvik v. Akteibolag v. E.J. Co., 121 F.3d. 669 (Fed Cir. 1997) • Patented drill bit included innovative drill tip • Tip could be re-sharpened a limited number of times • Federal Circuit held that cutting of and replacing tip with new material was a prohibited reconstruction • Holding rested on finding that “a new article” was made after the patented article viewed as a whole has become “spent” • Looked to intent of patentee, which contemplated re-sharpening but not reconstruction with new tip 31959696.PPTX

  25. Illustrative Cases (3) • Replacement of limited-life component, worn canvas convertible top, held to be a permitted repair, Aro Mfg. v. Convertible Top Replacement, 365 U.S. 334 (1961) • Rebuilding of discarded worn truck clutches, even on commercial scale, held to be permissible repair, Data Corp. v. American Precision Co., 872 F.2d 755 (Fed. Circ. 1987) 31959696.PPTX

  26. General Conclusion from Case Law • Not many cases • Many are older • Historically, cases have taken expansive view of scope of permissible repair • Query: will advanced technology remanufacturing result in change in case law? • General conclusion: prohibited reconstruction generally required finding that new article (in a patent sense) was created, vs. only a portion of claimed invention • Prediction: expansion of remanufacturing will lead to new round of cases 31959696.PPTX

  27. “Portion” vs. New Article Analysis • “Portion” is less than all of claimed steps in patented invention • Even if portion is embodied in inventive concept, it is less than entirety of claimed steps constituting the patented invention • Cases also look to whether “refurbished” portion had a useful life of shorter period than entire patent • Some cases also looked to whether patentee intended that purchases would replace or repair portion (because of its shorter useful life) 31959696.PPTX

  28. Green Implications • Will remanufacturing products to obtain “green” benefits be deemed permitted repair or prohibited reconstructions – given the commercial objective of reman • Issues when reman is designed to allow a portion of product to be continuously upgraded with improved version to take advantage of advancing technology • But does incorporating a more advanced chip from a third party supplier constitute infringement of that third party’s patents? 31959696.PPTX

  29. Patentee Arguments to Overcome Finding of “Repair”? • Argue that “repair” was not contemplated • Argue that upgrades are not standard repair of worn idem 31959696.PPTX

  30. Looking Ahead • Predict use of more expansive contractual provisions, from both licensees and licensors to clarify scope of rights • What result when refurbishment includes enhanced or “new” technology • Even if permissible repair of “old” patent, use of “new” technology may require licensee for that patentee • Patentees will argue that provider of enhanced technology is liable for inducing or contributory infringement 31959696.PPTX

  31. Questions and Answers • William A. Tanenbaum • Kaye Scholer LLP, New York Office • wtanenbaum@kayesholer.com 31959696.PPTX

  32. William A. Tanenbaumwtanenbaum@kayescholer.com • William A. Tanenbaum is the international chair of Kaye Scholer’s Technology, Intellectual Property & Outsourcing Group, a partner in the GreenTech Group and resident in the firm’s New York office. Chambers identifies him as an “internationally recognized intellectual property, technology and outsourcing lawyer” and concluded that he “has built one of New York City’s most outstanding transactional IT law practices.” It awarded him “Recommended” ratings in both “Technology and IT Outsourcing” and “Business Process Outsourcing,” and named him as a “Notable Practitioner” at the national level in Business Process Outsourcing. He regularly advises clients on strategic intellectual property concerns, privacy, data security, data transfer, information life cycle management and competitive intelligence matters, in both transaction and litigation contexts. 31959696.PPTX

  33. William A. Tanenbaum(continued) • Mr. Tanenbaum is the founder and co-chair of PLI’s annual Outsourcing Conference, the founder and co-chair of its Green Technology conference, a regular lecturer at industry outsourcing conferences. He chairs Kaye Scholer’s GreenTech breakfast seminar series and presents a monthly series of webcasts on Green law topics. He is a past President of the International Technology Law Association (formerly the Computer Law Association) and is listed in Who’s Who in America, the International Who’s Who of Business Lawyers, the Guide to the World’s Leading Litigation Experts and the Guide to the World’s Leading Patent Law Experts. He is the privacy and data protection columnist for the New York Law Journal, co-author of a book on privacy law and has been quoted in The Economist magazine as an expert on IP law. His articles have been used at Harvard and other law schools. He graduated from Brown University (degree with highest honors and Phi Beta Kappa) and Cornell Law School. 31959696.PPTX

  34. Kaye Scholer LLP • Kaye Scholer LLP is a leading international law firm with offices in New York, Chicago, Los Angeles, Washington, DC, West Palm Beach, London, Frankfurt and Shanghai. Our more than 500 lawyers represent public and private companies, governmental entities, financial institutions and other organizations in matters across the United States and around the world. Our ability to handle sophisticated representations has consistently attracted clients who depend on the highest standard of legal counsel. • Kaye Scholer’s ability to meet both domestic and international clients’ high standards is also evident to our peers. Kaye Scholer has been recognized in 17 transactional and litigation practice areas in Chambers USA: America’s Leading Lawyers for Business, and 27 of our lawyers are ranked in their respective areas of practice. Chambers & Partners lists and ranks firms, practices and lawyers, based on interviews with thousands of in-house counsel and private practice attorneys. 31959696.PPTX

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