An MD&DI January 1998 Column
Understanding judicial precedents can help manufacturers protect their medical device patents.
As the use of remanufactured medical devices continues to increase, fueled by market demands for health-care cost containment, so too will the attention that medical device manufacturers must pay to the question of when refurbishing becomes patent infringement. Unlike the issues raised by the applicability of FDA's new quality system regulation to remanufacturers, the patent infringement issue is not new, but its importance to the device industry has been growing.1 In addition, even though the courts have long struggled with the issue of distinguishing permitted repair from infringing reconstruction, the line of where one ends and the other begins remains, at best, murky. This lack of certainty makes it difficult for manufacturers to decide how best to protect their device patents and market share in the face of competition from refurbishers. This article seeks to define the boundaries of this vexing problem by citing recent relevant case law, and, in this way, to limit the mystery and reduce the risk.
WHAT DOES A PATENT PROTECT?
A patent gives the patent holder the exclusive right to make, use, import, and sell the patented device, or, in more rigorous terms, the right to exclude all others from doing so. The patent itself contains drawings and a detailed description of the invention, but its most important part in terms of refurbishment is the patent claims paragraphs appended to the end of the patent, which identify the components or elements that make up the protected device. Normally this list is open-ended, as indicated by a legalistic use of the term comprising. Any other device containing at least all of the listed components or elements infringes the claim; adding one or more extra elements does not avoid infringement.
Assume, for example, that a combination of a needle (element A), a syringe (element B), and a handle (element C) was a new design and hence patentable. The patent claim is not infringed unless elements A, B, and C or their equivalent can be found in the alleged infringing device. If one element is left out, then there is no direct infringement, but if A, B, and C are present along with additional elements, infringement exists.
In most cases, a problem arises when a refurbisher supplies a component or assembly of components that comprises less than all of the claimed elements of a patented invention, but that in the viewpoint of the patent holder essentially makes or completes the patented device. If the aftermarket supplier intentionally provides some of the claimed elements to another party, who then uses or combines them to complete the claimed combination, the aftermarket supplier can theoretically be held liable for contributory infringement or for inducing infringement. If taken literally, this rule would mean that sale of a replacement oil filter for an automobile could be contributory infringement if the combination of the filter and engine were the subject of a patent claim.
To counter this untoward result, the courts have developed the concept that "repair" of a claimed combination does not constitute infringement but "reconstruction" of the claimed combination does. (The historical legal path leading to this distinction is outlined in the sidebar on page 146.) Unfortunately, the line that divides repair and reconstruction is rarely very distinct. The issue becomes particularly convoluted when the repair concept is applied to medical devices where the replaced element of a claimed combination is a spent component or a disposable labeled for single use to protect patient safety.
The 1961 Supreme Court ruling that is currently being applied can be stated briefly as follows: No element of a claimed combination that in itself is not separately patented is entitled to patent monopoly, however essential that element may be to the device as a whole and no matter how costly or difficult its replacement may be. The purchase of a patented device includes a license for use that includes the right to preserve the claimed combination's fitness for use insofar as it may be affected by wear or breakage. Therefore, "maintenance of the 'use of the whole' of the patented combination through replacement of a spent, unpatented element does not constitute reconstruction" and is not an infringement.2 On the other hand, if a remarketer remakes the entire claimed invention, it is considered a reconstruction and is an infringement.
THE MEDICAL DEVICE CASE LAW
The rule delineated above would appear to provide medical device manufacturers with guidance on how to proceed into the area of remanufactured medical devices. However, some recent cases confuse the issue again.
The Mallinckrodt Case. In Mallinckrodt Inc. v. Medipart Inc., the Court of Appeals for the Federal Circuit, which is the national appellate court subservient only to the Supreme Court in patent matters, ruled on Mallinckrodt's appeal regarding infringement of a patented medical device sold to hospitals for single use only.3 Mallinckrodt supplied the device as a unitary kit consisting of a nebulizer that generated a mist of radioactive material, a manifold that directed the flow of oxygen or air containing the active substance, a filter, tubing, a mouthpiece, and a nose clip (Figure 1). The radioactive material or drug was placed in the nebulizer and atomized. The patient inhaled and exhaled through a closed system in which the patented device trapped and retained any radioactive or other toxic materials in the exhalate. The device components fit into a lead-shielded container, which was provided by Mallinckrodt to minimize exposure to radiation and to ensure safe disposal of the biohazardous materials after use.
Figure 1. Top and side elevational views (a and b, respectively) of Mallinckrodt's nebulizer device. Radioactive material is contained in chamber 82 and inhalation gas enters port 106 and is administered to the patient through port 92 after passing through filter and valve combination 90. Radioactive exhalant is absorbed by filter 90.
Mallinckrodt held five U.S. patents on various aspects of the device: one covered the overall combination, including the lead-shielded container, the nebulizer, and the manifold; another was directed to the structure of the manifold; and three were directed, respectively, to various aspects of the nebulizer.4 The device was sold inscribed with the words "SINGLE USE ONLY" and with a package insert stating "FOR SINGLE PATIENT USE ONLY." The user instructions called for disposal of the entire contaminated apparatus, and the hospitals that purchased the device were instructed to seal the used unit in the radiation-shielded container prior to proper disposal.
Some hospitals instead shipped the used manifold/nebulizer assemblies to defendant Medipart, which sterilized the devices using gamma radiation, checked the processed assemblies for damage or leakage, and then placed them in a plastic bag, together with a new filter, tubing, mouthpiece, and nose clip. The refurbished units were then resold to the hospitals. Mallinckrodt charged that Medipart was reconstructing the patented device through its reconditioning processes, while Medipart argued that sterilizing the nebulizer assemblies and replacing other minor components was merely repair. The trial court found that the single-use only restriction could not be enforced based on any patent law theory and agreed with Medipart that its activities were merely permissible repair.
After a lengthy analysis, the federal circuit court reversed the trial court as to the enforceability of the restriction on reuse and remanded the case for trial under laws governing sales, licenses, antitrust, and patent misuse. The court then turned to the issue of repair and reconstruction, finding that
Even an unconditioned sale of a patented device is subject to the prohibition against "reconstruction" of the thing patented. A purchaser's right to use a patented device does not extend to reconstructing it, . . . for reconstruction is deemed analogous to construction of a new device. However, repair is permissible. Although the rule is straightforward, its implementation is less so, for it is not always clear where the boundary line lies: how much "repair" is fair before the device is deemed reconstructed.5
In its examination of what was "fair," the appeals court found the single-use restriction to be the decisive issue between the parties. If the single-use restriction was enforceable, then, the court reasoned, even a repair constituted a license violation and an infringement of the patent since manufacture and sale of the original device was not licensed to Medipart. The court held the reconstruction-repair distinction to be decisive only when replacement is made in a structure whose original manufacture and sale had not been licensed by the patent holder. Therefore, the federal circuit court vacated the trial court's holding that reconditioning by Medipart was a permissible repair and remanded the case for trial.
The Sage Case. The unresolved Mallinckrodt case aside, most courts have generally been liberal in finding permissible repair in medical product cases. One example is the appeals case Sage Products Inc. v. Devon Industries Inc.6 Sage Products owned a patent to a sharps disposal system that consisted of an outer enclosure mounted on a wall and a cooperating, removable inner container that was an unpatented element of the claimed invention.7 The outer enclosure included an elongated slot, and the removable inner container, marked "BIOHAZARDSINGLE USE ONLY," had an opening aligned with the slot in the outer enclosure to receive the sharps (Figure 2). When the inner container became full, it was to be removed from the outer enclosure, and Sage's literature instructed its customers to discard the filled inner container. Sage also actively campaigned against reusing the inner container, even to the point of refusing to sell to buyers who did so. Because the outer container could last indefinitely under normal use, Sage based its business upon selling replacements for the inner container, which it clearly intended to be removable and disposable.
Figure 2. Cross-sectional side view of Sage Products' sharps disposal box. Devon made an inner container to replace element 14 within the permanent container 12.
Devon, the defendant in the patent infringement case, also made and sold an inner container for use in Sage's outer enclosure. Devon did not itself manufacture an outer enclosure, which when combined with its inner container would infringe the claims of Sage's patent. Nevertheless, Sage brought suit alleging that hospitals directly infringed the claims of its patent by using Devon's replacement container with Sage's outer enclosure and that Devon was therefore liable for contributory infringement.
In Sage Products Inc. v. Devon Industries Inc., the Court of Appeals for the Federal Circuit cited the Supreme Court's opinion in the 1961 Aro Manufacturing case, which addressed the repair/refurbishment issue,2 as well as its own decisions, maintaining that the doctrine of permissible repair was not limited to temporary or minor repairs but encompassed any repair necessary for the maintenance or the use of the whole patented combination through replacement of a spent unpatented element. Sage disputed that the full inner containers were damaged, spent, used up, or in need of repair, arguing rather that since it was physically possible to reuse the inner containers, replacing them was impermissible reconstruction. Here the federal court found Sage's argument to ring hollow because of the company's notice "BIOHAZARDSINGLE USE ONLY," which was viewed as an admission by Sage of its intention that its customers were not to reuse the inner container. Sage had also recommended that it would be prudent to replace the expendable inner container before it was completely filled. Thus, Sage was caught by its own warning message. Basically, the appellate court found that an element can be considered spent even when it is possible to reuse it. It agreed with the trial court that when it is neither practical nor feasible to continue using an element that is intended to be replaced, then that element is effectively spent. Therefore, the court found that when the inner container marketed by Sage was filled, it was effectively spent, and the user may replace it with an inner container from another supplier without infringing Sage's patent.
Sage had also argued that the patent claim did not require a "disposable" inner container but only a "removable" one; therefore, it would be possible in the future for the company to provide the patented combination with a reusable inner container and still be within the scope of the claim. The appeals court ruled that if this were in fact the case, it might have found impermissible reconstruction. However, Sage's single-use-only notice and the means by which the company marketed the inner container as disposable to ensure that customers did not reuse it persuaded the court that the facts were otherwise. The court noted that Sage also sold replacement inner containers and concluded that Sage's seeking to keep for itself the marketing of replacement parts was no more than an impermissible attempt to expand patent rights to an unpatented product. The court stated: "It is at least difficult to accept the notion that one who purchases a disposable [element of a product] under instructions to replace it [periodically] is guilty of an infringement when the buyer does precisely that."
The Kendall Case. In Kendall Co. v. Progressive Medical Technology Inc., Kendall asserted that Progressive was infringing a patent covering a medical device for applying a compressing pressure to a patient's limbs in order to increase blood flow and treat or prevent deep vein thrombosis.8 The patented combination comprised a controller/pneumatic pump for supplying pressurized fluid, a pair of pressure sleeves that wrap around a patient's limbs, and connecting tubes (Figure 3).9 Kendall intended that its customers replace the pressure sleeves after each use to avoid cross-contamination between patients and marked the replacement sleeve packaging "FOR SINGLE PATIENT USE ONLY. DO NOT REUSE." Both the plaintiff and the defendant agreed that the sleeves were intended to be replaceable since they could be contaminated by the patient's blood, body fluids, and other excretions resulting from contact with any cuts, sores, or other abrasions on the skin. The market for the replacement sleeves was substantial, representing $80 million of the $85 million in total annual sales relating to the patented device.
Figure 3. Perspective view of the Kendall system for which Progressive manufactured replacement sleeves.
After some health-care facilities had purchased replacement sleeves for the Kendall device from Progressive, Kendall sued for contributory infringement. Progressive defended based upon permissible repair. Kendall argued that the repair doctrine did not apply because the sleeves were not physically worn out when they were replaced after a single use and that they could be used repeatedly for three years or more before wearing out. The trial court found in Progressive's favor based on the concept of permissible repair, relying on the Supreme Court's decision in Aro and the federal appellate court's opinion in Sage Products to find that a hospital's replacement of pressure sleeves after a single use constituted permissible repair.
In its finding on Kendall's appeal of the trial court decision, the federal circuit court, after reviewing the decision in Sage Products, stated that:
[a]lthough, as Kendall urges, the replacement sleeves theoretically could have been used repeatedly for three years or more before they physically wore out, this practice would not have been feasible because of the risk of contamination between patients. Kendall's customers never agreed to sterilize and reuse the sleeves. Moreover, Kendall sold its [product] knowing that, to prevent contamination between successive patients, the sleeves would have to be used once and then discarded. It marked "FOR SINGLE PATIENT USE ONLY. DO NOT REUSE." on the packaging of its replacement sleeves. Kendall thus clearly intended to permit its customers to replace the sleeves after each use; its product labeling instructed them to do precisely that. Therefore, we conclude the District Court correctly held that, consistent with Sage Products, Kendall's customers' right of repair includes the right to replace the sleeves after each use.10
The court found it to be of no significance that Kendall's patent failed to describe the sleeves as disposable or for single use only, concluding that the right of repair exists regardless of what the patent holder says about the components being replaceable. The purchaser may repair or replace any unpatented component that wears out or otherwise becomes spent, whether or not the patent holder believes such replacement to be necessary. In addition, the court found such premature repair to be the business of the purchaser of the product and not the patent holder who sold it.
Unlike in the Mallinckrodt case, where a single-use restriction placed on an entire patented device was ignored by the customers, Kendall's customers followed the company's restrictive labeling and replaced the sleeves as directed, albeit not with sleeves from the patent holder. Kendall's suggestion in the product's instructions that the sleeves should be replaced only with its own sleeve-and-tubing assemblies was regarded by the appeals court as having no contractual significance; it was considered merely a recommendation for safety and efficiency, not a customer obligation.
In the final paragraph of the Kendall ruling, the court concluded that the company had made a "sky is falling" argument when it claimed that to allow Progressive to supply replacement sleeves would make it uneconomical for companies to invent and develop devices such as the one involved in this case, where much of the profit arises from the sale of replacement elements rather than from the sale of the original device. The court's response was that it was not in a position to guess whether this catastrophic result would arise from the pricing of the original device, from failure to obtain effective patent protection for the replaceable element, or from other factors. In any case, adverse economic outcome to the patent holder had never been found as a ground for overcoming established law on patent repair.
THE HISTORICAL LEGAL PATH
A quick review of patent law history is the easiest way to understand the repair/reconstruction dichotomy. One of the earliest American cases addressing the issue is Wilson v. Simpson, a mid-19th century Supreme Court case in which replacement of cutting knives, which had an expected lifetime of 6090 days, was found to be permissible repair.1 In this case, the Supreme Court focused on the fact that the inventor did not intend the machine as a whole to be used without replacement of the knives at short intervals. The Court found that replacement of short-lived parts did not alter the identity of the claimed machine but preserved it even though not all components remained original.
The next important Supreme Court decision in this area was American Cotton Tie Co. v. Simmons, which dealt with a metallic tie for a cotton bale comprising the combination of a buckle and a band.2 In normal use the band was severed at the cotton mill. The defendant refurbished the band for reuse by riveting the cut ends together to form a usable tie. The Court found that this riveting constituted an impermissible reconstruction and, hence, was patent infringement. Here the inventor intended the device to be disposable and never contemplated the reuse of the tie.
Subsequent Supreme Court infringement cases fall on one side or other of the reconstruction/repair divide. For example, in Morgan Envelope Co. v. Albany Perforated Wrapping Paper Co., the Court found that manufacture and sale of toilet paper rolls for use in a claimed combination of the toilet paper roll and holder to be permissible repair.3 On the other hand, manufacture of phonograph records for use in a claimed combination of stylus and record was determined to be impermissible reconstruction in Leeds & Catlin Co. v. Victor Talking Mach. Co.4 However, sale of gelatin bands as replacement "stencils" in a machine used to print document copies was found to be permissible repair in Heyer v. Duplicator Mfg. Co.5
In their decisions, the lower appellate courts generally found replacement of soft or temporary parts, clearly intended to be replaceable by the original manufacturer, to be permissible repair. The right to repair also was extended to more durable parts, such as gears and shafts used in automobile axles, when, in the view of the court, the replacement parts did not constitute "the gist or essence of the invention."
Other appellate courts found replacement of old parts with new parts to constitute an infringement only if the new parts so "dominated the structural substance of the whole" as to justify the conclusion that the device had been made anew. On the other hand, where the original parts remaining after replacement constituted such a large part of the device as to dominate the new parts, the court would find permitted repair. To lend even more confusion to an already confused state, other lower courts also extended the right of repair to replacement parts that improved or altered the performance of the patented device. Still other cases found impermissible reconstruction when burned out light bulbs covered by Edison's patents were remanufactured by adding new carbon filaments.
Following the enactment of the current Patent Act in 1952, the Supreme Court rendered its decision in Aro Mfg. Co. v. Convertible Top Replacement, which continues to be cited as the controlling precedent on the issue of repair or refurbishment.6 The Aro case involved a patent on a convertible top mechanism for automobiles, which claimed the combination of a flexible top fabric, a supporting structure, and a sealing mechanism, all mounted on the automobile body. The convertible tops in question were replacements for cars made by General Motors, which held a license from the patent holder. Because the fabric tops typically lasted only three years, Aro Manufacturing Co. had a brisk business supplying replacements; however, Aro Manufacturing did not hold a license for the patent.
The trial court held the sale of the replacement tops to be contributory infringement. The First Circuit Court of Appeals, which reviewed the district court's judgment, affirmed it, finding that the life of the fabric is not so short, nor is the fabric so cheap, that an owner would rationally believe that replacing it was only making a minor repair. Here the appeals court applied a rule based on the preponderance of the replaced element versus the other elements of the claimed combination.
The six to three Supreme Court decision reversed both the trial court and the appellate court and found permissible repair. American Cotton Tie Co. v. Simmons and Wilson v. Simpson were cited by the Court as the continuing twin pillars of the American rule of law regarding repair versus reconstruction. The durability and expense required to replace a part or whether the part was essential were not considered relevant. Rather, the Court held that no element of a claimed combination that in itself is not separately patented is entitled to patent monopoly, however essential it may be to the combination and no matter how costly or difficult its replacement. The Court also held that purchase of a patented device includes a license for use that includes the right to preserve the claimed combination's fitness for use insofar as it may be affected by wear or breakage. The Court, therefore, held that "maintenance of the 'use of the whole' of the patented combination through replacement of a spent, unpatented element does not constitute reconstruction."
1. 50 U.S. (9 How.) 109, 13 L.Ed. 66 (1850).
2. 106 U.S. (16 Otto) 89, 27 L.Ed. 79, 1 S.Ct. 52 (1882).
3. 152 U.S. 425, 433, 38 L.Ed. 500, 14 S.Ct. 627 (1894).
4. 213 U.S. 325, 53 L.Ed. 816, 29 S.Ct. 503 (1909).
5. 263 U.S. 100, 68 L.Ed. 189, 44 S.Ct. 31 (1923).
6. 365 U.S. 336, 5 L.Ed.2d 592, 81 S.Ct. 599, 128 USPQ 354 (1961); rehearing denied, 365 U.S. 890 (1961).
LESSONS FOR OEMS
Many original equipment manufacturers in the medical field are in the same position as Kendall. The most expensive part of their patented combination device is permanent and is sold for little if any profit, while the least expensive component is disposable and represents the majority of the manufacturer's profit. The lessons for these manufacturers from the recent cases are fairly clear. The older doctrines of "intent of the patentee" and "preponderance of original versus replaced parts" (see sidebar) have been swept away. If the disposable item is in itself unpatentable, its replacement when spent will most likely be found permissible repair. Such replacement could include not only single unpatented elements like the pressure sleeves for the Kendall device, but unpatentable multiple-component subassemblies such as the manifold/nebulizer assembly, filter, tubing, mouthpiece, and nose clip of the Mallinckrodt product. In addition, the decision of when to repair seems to be entirely up to the purchaser. Certainly, whenever the reuse of a component raises a risk of patient contamination, that component is deemed to be spent; various warnings by the manufacturer do not seem to influence this matter. The inclusion of single-use labeling does not prevent repair by the purchaser (although failing to warn of single-use requirements may well violate FDA rules or visit liability upon the manufacturer). The fact that a contaminated component could be sterilized and acceptable for reuse does not seem to make any difference either, since Kendall's sleeves could have been sterilized.
An obvious way around this situation seems to be use of the licensing claim cited in the Mallinckrodt case. Such a situation is rather like the marketing strategy of software vendors who never actually sell a program but merely license their software to end-users. Unfortunately, while software subject to copyright is a natural candidate for licensing, it is far from clear that an attempt to license a device for a single use will always avoid the repair problem. It also should be kept in mind that the Mallinckrodt case represented an instance where an entire patented unit was refurbished. Thus, a similar device requiring total refurbishment probably would be a good candidate for a single-use license, but it remains to be seen to what extent single-use patent licenses can be imposed unilaterally on purchasers by OEMs to avoid the refurbishment or repair defense. It will be very important for OEMs to mark such a unit appropriately and to obtain customer execution of a license agreement if possible. Failing this, a "shrink-wrap" license document should be included with the device.
Device OEMs should also consider several other ways to control disposables intended for use in patented products. One method would be to develop an agreement similar to the reagent rental technique that has been used for clinical chemistry devices. In those instances, the instrument requiring disposables is leased to the customer at a favorable rate in return for an agreement to purchase all disposables from the equipment manufacturer. This approach is probably tenable only when the cost of the device is fairly high and a large amount of disposables will be consumed.
Another step, seemingly obvious, is to obtain patent protection for the key disposable elements of a device. Frequently a manufacturer licenses a patented device from a researcher who had the original patent written to cover only the primary invention and not any potential disposables. A similar situation may arise with in-house R&D, when only the key invention is patented. It is imperative that product development personnel be involved early in the patenting process so that any novel aspects of the disposable components also can be considered for separate patent protection.
Viewing the patent infringement issue from another perspective, those manufacturers wishing to supply a disposable component for a patented device should check carefully to see if there is any patent protection covering the disposable. While "patent pending" marks may be used solely for deterrent value, they should be taken seriously before launching a major disposable supply business. Postmarket suppliers also should investigate the original devices to see if a viable single-use license exists. If it does, refurbishing an entire patented device could be considered infringement. If there is no single-use license and the disposable is clearly unpatentable, however, then current law strongly favors the replacement part manufacturer.
Medical equipment manufacturers seeking to protect their products from patent infringements involving the refurbishment or replacement of various components need to understand the principles behind recent court rulings. Although current law favors postmarket suppliers, there are steps that OEMs can take to strengthen their positions.
1. Basile EM, Quarngesser SS, "Remanufactured Devices: Ensuring Their Safety and Effectiveness," Med Dev Diag Indust, 19(1):153166, 1997.
2. Aro Mfg. Co. v. Convertible Top Replacement, 365 U.S. 336, 5 L.Ed.2d 592, 81 S.Ct. 599, 128 USPQ 354 (1961); rehearing denied 365 U.S. 890 (1961).
3. 24 USPQ2d 1172 (CAFC 1992).
4. U.S. Pats. 4,782, 828; 4,529,003; 4,456,170; 4,251,033; and 4,116,387.
5. 24 USPQ2d at 1180.
6. 33 USPQ2d 1765 (CAFC 1995).
7. Reissue U.S. Pat. 33,413.
8. 38 USPQ2d 1917 (CAFC 1996).
9. U.S. Pat. 4,253,449.
10. 38 USPQ2d at 1921.
Daniel L. Dawes, JD, is of counsel, and Stefan Kirchanski, PhD, JD, is an associate in the firm of Graham & James LLP (Costa Mesa, CA).