Refurbished Cameras Cost Jazz $29,765,280.60

In Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094, 1110-11 (Fed. Cir. 2001), the Federal Circuit held that only those disposable cameras (known as lens fitted film packages or "LFFPs," above) that were "sold under" Fuji's United States patent qualified for the repair exclusion to patent infringement under the "first-sale" exhaustion doctrine:

To invoke the protection of the first sale doctrine, the authorized first sale
must have occurred under the United States patent . . . . Our decision applies
only to LFFPs for which the United States patent right has been exhausted by
first sale in the United States. Imported LFFPs of solely foreign provenance are
not immunized from infringement of United States patents by the nature of their
refurbishment.

In a parallel district court litigation, the lower court used this direction to hold that Jazz's importation, sale, and use of over forty million refurbished disposable cameras directly infringed Fuji's family of U.S. patents, and awarded total damages to Fuji in the amount of $29,765,280.60. Then, on January 14, 2005, the Federal Circuit affirmed that amount in Fuji Photo Film Co., LTD. v. Jazz Photo Corp., et al. noting that Jazz did not escape application of the exhaustion principle because Fuji or its licensees authorized the international first sale of some of the LFFPs:

[T]his court does not read the above language to limit the exhaustion principle to unauthorized sales. The patentee's authorization of an international first sale does not affect exhaustion of that patentee's rights in the United States. Jazz therefore does not escape application of the exhaustion principle because Fuji or its licensees authorized the international first sales of these LFFPs. The patentee's authorization of an international first sale does not affect exhaustion of that patentee's rights in the United States. Moreover, the "solely foreign provenance" language does not negate the exhaustion doctrine when either the patentee or its licensee sells the patented article abroad.

Read in full context, this court in [its previous decision] stated that only LFFPs sold within the United States under a United States patent qualify for the repair defense under the exhaustion doctrine. Moreover, Fuji's foreign sales can never occur under a United States patent because the United States patent system does not provide for extraterritorial effect. In [the previous decision], therefore, this court expressly limited first sales under the exhaustion doctrine to those occurring within the United States. Accordingly, the district court correctly applied this court's exhaustion precedent.

Jazz also tried to argue that the district court's application of the this part of the exhaustion doctrine should have only prospective effect because the Federal Circuit's explanation decided a matter of first impression that was not clearly foreshadowed. However, the Federal Circuit concluded that it did not need to reach the merits of this "prospective effect" contention because Jazz had waived this argument by failing to raise it in a form that requested or required a decision from the district court.

Jazz contends that it preserved this issue for appeal by moving for a stay pending
appeal: "It seems unlikely - and certainly unfair - that the Federal Circuit
could have intended [the 'exhaustion by first sale' issue], which was not even
raised by Fuji in the ITC or the Federal Circuit, to result in a holding with
devastating retroactive effect." A few phrases in a stay motion, however, are
not sufficient to apprise the district court that it must address another point
of law. Indeed, the district court in its extensive opinion did not address the
retroactive effect of the Jazz exhaustion doctrine. This court observes that the
district court provided a well reasoned and thorough analysis on a multitude of
important issues in this case. The absence of any discussion of retroactivity
strongly suggests that Jazz did not bring this issue to the trial court's
attention in a manner that requested or required analysis. The exhaustive
historical review of the repair/reconstruction doctrine is but one example of
the district court's special care to resolve issues presented by the parties.
Accordingly, this court declines Jazz's invitation to consider its retroactive
effect argument for the first time on appeal.

Ouch!