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Varex Imaging Corp. v. Richardson Electronics, Ltd.

United States District Court, N.D. Illinois, Eastern Division

August 27, 2019

VAREX IMAGING CORPORATION, a Delaware Corporation, Plaintiff,
RICHARDSON ELECTRONICS, LTD., a Delaware Corporation, Defendant.


          John Robert Blakey J United States District Judge.

         Plaintiff Varex Imaging Corporation sued Defendant Richardson Electronics, Ltd. for patent infringement. Defendant moved to dismiss Plaintiff's complaint for failure to state a claim under Rule 12(b)(6), arguing that Plaintiff's sale of the patented invention terminated its patent rights, thereby precluding any infringement claim. For the reasons explained below, this Court denies Defendant's motion.

         A. Factual Background[1]

         Plaintiff produces X-ray tubes, including its flagship product, the MCS-7078 X-ray tube, nicknamed the Snowbird. Amended Complaint [33] at ¶¶ 10, 12. In connection with its development of the Snowbird X-ray tube, Plaintiff obtained several patents, including U.S. Patent No. 6, 456, 692 (the ‘692 patent”), entitled “High Emissive Coatings on X-Ray Tube Components, ” and U.S. Patent No. 6, 519, 317 (the ‘317 patent), entitled “Dual Fluid Cooling System for High Power X-Ray tubes.” Id. at ¶¶ 11, 27, 31. The ‘692 patent discloses “an X-ray tube with a vacuum enclosure in which a cathode generates electrons that are converted into X-rays upon collision with a rotating anode, which is supported by a rotor incorporating a highly emissive coating, and in which the bearing assembly that supports the rotor is located at least partially within the rotating anode.” Id. at ¶ 30. The ‘317 patent discloses “a system and method for cooling a high-power X-ray tube in which an X-ray tube is disposed within a housing, a first coolant in the housing absorbs heat from the X-ray tube, and a second coolant flows through a passageway within the tube that directs the flow of the second coolant proximate to a portion of the X-ray tube.” Id. at ¶ 34. The Snowbird X-ray tube incorporates the emmisive coating claimed in the ‘692 patent and the dual coolant system claimed in the ‘317 patent. Id. at ¶ 36.

         Plaintiff sells its Snowbird X-ray tubes to Toshiba/Canon for use in the Toshiba/Canon Aquilion Computed Tomography (“CT”) System. Id. at ¶ 10. For any given CT scanner, Toshiba/Canon purchases numerous X-ray tubes, as the tubes are consumables that require periodic replacement during the scanner's useful life. Id. at ¶ 16. When Toshiba/Canon returns spent Snowbird tubes to Plaintiff, Plaintiff scraps the X-ray tube insert and examines components to see if they can be refurbished and reused; the tube itself is destroyed. Id. at ¶ 25.

         Defendant manufactures and sells aftermarket components for medical devices, including an X-ray tube called the ALTA750, an alternative to the Snowbird X-ray tube. Id. at ¶¶ 37-38. Defendant manufactures the ALTA750 by combining used Snowbird components and newly-manufactured components. Id. at ¶¶ 41-44. The ALTA750 X-ray tube is then placed in a used Snowbird X-ray tube housing and sold to Defendant's customers. Id. at ¶ 45.

         Plaintiff sued Defendant, claiming that Defendant's ALTA750 X-ray tube infringes both the ‘692 and the ‘317 patents. Defendant has moved to dismiss, invoking the doctrine of patent exhaustion.

         B. Discussion & Analysis

         To survive a motion to dismiss under Rule 12(b)(6), a complaint must provide a “short and plain statement of the claim” showing that the pleader merits relief, Fed.R.Civ.P. 8(a)(2), so the defendant has “fair notice” of the claim “and the grounds upon which it rests, ” Twombly, 550 U.S. at 555 (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A complaint must also contain “sufficient factual matter” to state a facially plausible claim to relief-one that “allows the court to draw the reasonable inference” that the defendant committed the alleged misconduct. Iqbal, 556 U.S. at 678 (2009) (quoting Twombly, 550 U.S. at 570). This plausibility standard “asks for more than a sheer possibility” that a defendant acted unlawfully. Id. In evaluating a complaint under Rule 12(b)(6), this Court accepts all well-pleaded allegations as true and draws all reasonable inferences in the plaintiff's favor. Id. This Court need not, however, accept a complaint's legal conclusions as true. Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009).

         In moving to dismiss Plaintiff's complaint, Defendant argues that Plaintiff's right to assert an infringement claim with respect to the Snowbird X-ray tube ceased with the sale of the tube to Toshiba/Canon. Defendant argues that, because its ALTA750 tube is essentially a refurbished Snowbird tube, Plaintiff's claims are barred by the doctrine of patent exhaustion and must be dismissed under Impression Products, Inc. v. Lexmark International, Inc., 137 S.Ct. 1523 (2017).

         In Lexmark, the patentee designed, manufactured, and sold laser printer toner cartridges to consumers and held a number of patents covering components of those cartridges and their use. 137 S.Ct. at 1529. Impression Products, a remanufacturer, acquired empty Lexmark toner cartridges, refilled them, and resold them. Id. Lexmark sued for patent infringement, and Impression Products moved to dismiss, invoking the doctrine of patent exhaustion. Id. at 1529-30. The Supreme Court agreed with Impression Products that Lexmark's patent rights were exhausted when it sold the cartridges: the Court noted that, although the Patent Act grants patentees the right to exclude others from making, using, offering for sale, or selling their inventions, the longstanding doctrine of patent exhaustion limits that right to exclude. Id. at 1531. “When a patentee chooses to sell an item . . . [that] sale terminates all patent rights to that item.” Id. (quoting Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625 (2008)).

         Defendant here similarly argues that, when Plaintiff sold its Snowbird X-ray tubes to Toshiba/Canon, its right to exclude others from using, making, or selling those tubes terminated. As a result, Plaintiff no longer has patent rights to enforce against Defendant as to those tubes, and any infringement claim based on the tubes necessarily fails. As explained below, however, Plaintiff's sale of the tubes does not necessarily end the matter.

         Under the doctrine of patent exhaustion, “the initial authorized sale of a patented item terminates all patent rights to that item.” Quanta Computer, 553 U.S. at 625. “The right of use transferred to a purchaser by an authorized sale ‘include[s] the right to repair the patented article.'” Auto. Body Parts Ass'n v. Ford Glob. Techs., LLC, 930 F.3d 1314, 1323 (Fed. Cir. 2019) (quoting Kendall Co. v. Progressive Med. Tech., Inc., 85 F.3d 1570, 1573 (Fed. Cir. 1996)). But the right of repair does not “permit a complete reconstruction of a patented device or component.” Id. (citing Helferich Patent Licensing, LLC v. N.Y. Times Co., 778 F.3d 1293, 1303-05 (Fed. Cir. 2015); Kendall, 85 F.3d at 1573-74). See also Robert Bosch LLC v. Trico Prod. Corp., No. 12 C 437, 2014 WL 2118609, at *2 (N.D. Ill. May 21, 2014) (“The unrestricted sale of a patented product ‘exhausts' the patentee's right to control the purchaser's use of the product. After the sale, the purchaser ‘has the rights of any owner of personal property, including the right to use it, repair it, modify it, discard it, or resell it, subject only to overriding conditions of the sale.' But the right to repair the purchased product does not include the right to ‘construct an essentially new article on the template of the original, for the right to make the article remains with the patentee.'”) (quoting Jazz Photo Corp. v. International Trade Com'n, 264 F.3d 1094, 1102, 1105 (Fed. Cir. 2001)).

         Thus, it is not enough to find that Plaintiff sold the tubes to Toshiba/Canon. The sales notwithstanding, the Court must go on to analyze whether Defendant's conduct amounts to a “permissible repair” of the spent X-ray tube, or whether Defendant ...

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