A single use medical device (SUD) is one intended by the manufacturer to be used once and then discarded. However, many hospitals, and a growing number of commercial businesses, “reprocess” such devices, refurbishing them for further use. Owners of IP rights extending to such a device have historically had little recourse to prevent its reprocessing and resale by third parties, largely because any patent rights covering the SUD are exhausted by its first authorized sale.
On December 13, 2010, an evenly divided United States Supreme Court affirmed by default a ruling from the Ninth Circuit Court of Appeals that copyright exhaustion did not arise from the purchase of watches manufactured outside of the United States.1 The decision is widely believed to signal that US patent rights similarly may not be exhausted as to imported goods first sold outside of the country, despite earlier copyright-related precedents.
Patent exhaustion is based on the premise that patent rights extend only to the first authorized sale of the patented product. In the view of certain US courts (including ones deciding disputes among SUD manufacturers and resellers), an express prohibition on reuse or resale of a product can revive the patent monopoly.
Without clearly overruling prior decisions, a 2008 United States Supreme Court ruling in a dispute between Quanta Computer and LG Electronics2 declined to enforce such a prohibition, which appeared as a warning in a user manual that the product should only be used once by the purchaser. In the Court’s view, a more explicit limitation - such as a statement that the buyer has no right under any circumstances to resell the product - would be necessary to curtail a buyer’s right to do as it pleased with its purchase. Even then, the Court clearly preferred that the restriction be acknowledged in writing by the buyer as a condition of enforcement.
Many legal commentators believe that the Quanta decision effectively changed US law to render single-use-only notices ineffective, while others argue that it did not do so because the facts differed in cases where single-use-only limitations on medical device reprocessing or resale were enforced. The point remains to be clarified by the Court.
Until such clarification arrives, it appears that the single-use-only restrictions typically set out in user instructions will be disregarded for SUDs sold in the US (under the Quanta decision), but potentially will not be disregarded for imported SUDs purchased outside the US. However, when the first importation is made from a country in which the original device manufacturer holds ex-US patent rights, companies should examine whether resales of SUDs are generally permitted and, if so, whether the pre-importation sale exhausted those patent rights under patent laws at the point of sale. Other IP rights also may come into play. To see how such a scenario might play out, we turn to Australia, where the medical device industry has expanded dramatically in recent years.
It is expected that this year the Australian Therapeutic Goods Administration (TGA) will revise its existing policy to allow reprocessing/remanufacturing and reuse of SUDs.3 Sale and use of such devices remains subject to compliance with the requirements of the Therapeutic Goods Act 1989 (Cth) and related regulations, including the Australian Regulatory Guidelines for Medical Devices 2010 for medical devices registered on the Australian Register of Therapeutic Goods (ARTG).
As in other jurisdictions, patent rights in Australia are usually considered exhausted by the first authorized sale of a covered device in Australia. Trademark rights for SUD brand names are usually also exhausted by sale of the SUD. Assuming a trademark was originally placed on a device legitimately, it will continue serving as an indication of the origin of the SUD from which a reused device was manufactured. Thus, under Australian law, the original manufacturer’s trademark rights are not infringed by any reprocessing of used SUDs bearing the mark for resale.
This principle defeats traditional trademark-based limits on resale of SUDs in Australia. Legal strategies that address Australia's definition of “commercial reuse” may be forthcoming.
It is usually not possible to prevent original purchasers of the SUDs (such as hospitals) from themselves reprocessing and reusing SUDs for their own purposes (without providing the reused devices to others). Yet such non–commercial reusers still must comply with the requirements of the Act as regards medical devices. Because non-commercial reuse imposes significant compliance obligations, many SUD customers may not wish to themselves reprocess and reuse SUDs they have acquired.
Original manufacturers of SUDs and reprocessors alike face a shifting landscape of obligations and limitations on device resale, both domestically and through imports. A carefully implemented multi-national strategy for addressing reprocessing and resale of SUDs is required to ensure that goals of companies whose livelihoods depend, in whole or in part, on SUD sales can be fulfilled.
1 Costco Wholesale Corp. v. Omega, S.A., 131S.Ct. 565 (2010), affirming Omega S.A. v. Costco Wholesale Corp., 541 F. 3d 982 (9th Cir. 2008).
2 Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008).
3 Remanufacture or reprocessing is deemed to occur under the Act even if the used SUDs have only been re-sterilized and re-packaged.