This presentation contains Attorney Advertising. 131959696.PPTX Remanufacturing as Industrial Sustainability: Patent Law Issues William A. Tanenbaum, Kaye

This presentation contains Attorney Advertising.1 31959696.PPTX

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


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


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


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


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


RebuiltRebuilt is synonymous with remanufacturing when used in connection with motor vehicle parts and systems but not the entire vehicle.

RefurbishedRefurbished is synonymous with remanufacturing of furniture systems for offices, hotel lobbies, and hospitals.

RechargedRecharged is synonymous with remanufacturing when used in connection with imaging products, such as laser toner cartridges.

Factory Reconditioned or RecertifiedFactory 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).

Remanufacturing is Also Known As …


Remanufacturing (“Reman”) Process

Yes

NoStore until

needed

Assembly

Disassembly/Demanufacture

Cleaning

Product Collection &

Reverse Logistics

IncomingReceiving

Planned Discard

Remanufacturing or Restoration Processes

Needed in Production

?

Initial Inspection

Planned Salvage

Pass InitialInspection

Process Scrap

Failed Initial Inspection

Component Recertification

In-Process Inspection Fallout

Pass

Recycle

Rework

Fail

Warehouse/Shipping

Final Product

Inspection

Rework

Pass

New Components

Generic “Reman” ProcessProcess steps required to bring product back to a “like-new” condition.

· Inspection

· Disassembly

· Cleaning

· Restoration / Replace

· Re-assembly

· Qualify


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


Approximately 85% of the energy expended in the manufacture of an original

product is preserved in the remanufactured product.

Source: MIT study on the remanufacturing of automobile component, 1981

· Recycling Reclaims

· Material

· Remanufacturing Reclaims

· Material

· Energy from Casting, Machining, etc.

· Labor from original processes

· Capital

· Function/Design Intent

The Benefits of Remanufacturing


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

http://www.m3bmw.com/gallery/parts/11.engine/water.pump.02.jpg


Economic Benefit

Lin

e N

umbe

r

Top

Lev

el

Com

pone

nt

Par

t ID

INDENTED BILL OF MATERIALS Ass

embl

y C

ost

Par

t Cos

t

Par

t Wei

ght (

gram

s)

Par

t Mat

eria

l

1 1.0 Alternator Assembly2 1.0.1 Thru Bolt 10.67 Steel3 2.0 Drive End Assembly4 2.0.1 Nut 16.08 Steel5 2.0.2 Lock Washer 7.59 Steel6 2.0.3 Pulley 186.09 Steel7 2.0.4 Spacer 9.71 Steel8 2.0.5 Fan 131.21 Steel9 2.0.7 Spacer 17.65 Steel

10 2.1 Front Housing Assembly11 2.1.1 Front Housing $5.00 407.18 Aluminum13 2.1.2 Bearing Retainer 10.65 Steel14 2.1.3 Bearing $0.80 64.00 Steel15 2.2 Rotor $6.00 2200.0016 2.2.1 Bearing $0.80 14.00 Steel17 2.2.2 Coil Windings 315.00 Copper18 2.2.3 Bobbin 361.00 Iron19 2.2.4 Core (w/ Fan) 1219.00 Steel20 2.2.5 Screw --??? - Steel21 2.2.6 Shaft 217 Steel 22 2.2.7 Slip Ring 20 Copper23 2.2.8 Spacer 2.82 Steel24 3.0 Slip Ring End Assembly25 3.0.1 Stator Lead Cover $0.20 5.54 Plastic26 3.0.2 Rear Housing $5.00 306.99 Aluminum27 3.0.3 Baffle 19.56 Plastic28 3.0.4 Pin (3) - Small Plastic 0.05 Plastic29 3.0.5 Outer Nut 3.23 Steel30 3.0.6 Inner Nut 1.59 Steel31 3.0.7 Output Terminal Stud 9.89 Steel32 3.0.8 Output Terminal Insulator (Plastic Cap) 1.13 Plastic33 3.0.9 Screw (3) - Torx Head (2.74 g each) 8.22 Steel36 3.0.10 Tolerance Ring 1.15 Plastic37 3.1 Stator $6.00 1148.7138 3.1.1 Coil Windings 457.20 Copper39 3.1.2 Laminate (Frame) 656.00 Iron40 3.2 Brush Holder Assembly 15.2841 3.2.1 Brush Holder $1.00 9.16 Plastic42 3.2.2 Brush (2) $0.50 2.44 Carbon43 3.2.3 Brush Spring (2) $0.10 0.53 Steel44 3.3 Rectifier $3.95 114.9245 3.3.1 Capacitor 2.23 Plastic46 3.3.2 Cover 8.81 Plastic47 3.3.3 Diode (3) 3.09 Silicon48 3.3.4 Heat Transfer Grease na other49 3.3.5 Heat Sink, Neg 42.27 Copper50 3.3.6 Heat Sink, Pos 45.57 Aluminum51 3.3.7 Insulator 1.25 Plastic52 3.3.8 Rivets (2) 0.62 Copper53 3.3.9 Screws (3) - small silver phillips head 0.55 Steel54 3.4 Regulator $0.5055 3.4.1 Case 33.08 Plastic

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)*Cii=1

1 a 1.0.1

2.0.1

2.0.2

2.0.3

2.0.5

c

d

e

f

ID Processa Remove 3 Thru Boltsb Hammer on front plate to separate front housing assemblyc Remove Nutd Remove Lock Washere Remove Pulleyf Remove Spacerg Remove Fanh Remove rotor from front housingj Remove bearing retainerk Remove bearingl Remove bearing from rotorm Inspect and replace slip ring as necessary

n Remove stator lead plastic capo Desolder stator and removep Remove baffleq Remove output terminal outside nutr Remove output terminal inside nuts Remove output terminal studt Remove output terminal insulatoru Remove screwsv Desolder and remove brush holder assemblyw Remove rectifier and voltage regulator assemblyx Desolder rectifier and regulator contacts

2.0b

b

Delco CS130 Level 1 Demanufacturing Process 3/24/08R. German

3.0 3.0.1n

3.1o

p 3.0.3

q 3.0.5

3.0.6r

3.0.7

3.0.8

s

t

u 3.0.9

v

x.x.x“Action Required” parts from BOM

x.x.x

Action handled at next higher assembly

Level 2 Remanufacturing ProcessRecover high value items that have been removedRecycle remaining material

2.2

2.0.4

g

h

2.2.7

2.2.1l

m

3.2

2.1h

2.1.2

2.1.3

j

k

2.1.1

3.2.1

3.2.2

3.2.3

3.3

3.4

w

x

CS130Alternator

Disassembly

Drive End Housing

Stator

Rotor

Rectifier

Regulator

Slip RIng End

Housing

Labor: 98 sec

TestClean:

Light Blast

Test Clean

Test: Ground

TestPolish

Test: Hi-pot

Clean: Wire Brush

Visual Inspection

Visual Inspection

Re-varnish

Prep threads and Bearing

bore

Prep threads and Bearing

bore

Paint core area

Clean: Thermal and Blast

Clean: Thermal and Blast

Re-tin Leads

Labor: 30 sec

Labor: 114 sec

Labor: 30 sec

Labor: 118 sec

Labor: 60 sec

Labor: 60 sec

Brush Holder

Clean:Ultrasonics

Labor: 10 sec

Total Including Disassembly:

520 sec

Variable Description (normalized per design)

UMC Unit Manufacturing Cost (cost of new)

URC Unit Remanufacturing Cost

CiRemanufacturing process i

YiYield of process i

i = 1 core cost

i = 2 initial inspection and test

i = 3 disassembly

i = 4 replacement part

i = 5 processing

1 = 6 inventory cost

i = 7 reassembly

i = 8 final qualification

i = 9 amortized reman development

CRCRecovered material value

CDSdisposal cost


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:


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


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


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


Legal Issue: How Will “New” Be Defined?

· The new “new”

· “New” will be equivalent to scope of warranty to repair or replace


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?


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


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.)


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


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

This presentation contains Attorney Advertising.

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

22 31959696.PPTX


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


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


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)


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


“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)

This presentation contains Attorney Advertising.

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?

28 31959696.PPTX


Patentee Arguments to Overcome Finding of “Repair”?

· Argue that “repair” was not contemplated

· Argue that upgrades are not standard repair of worn idem


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


Questions and Answers

· William A. Tanenbaum

· Kaye Scholer LLP, New York Office

· [email protected]

mailto:[email protected]


William A. [email protected]

· 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.


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.


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.

Documents

This presentation contains Attorney Advertising. 131959696.PPTX Remanufacturing as Industrial Sustainability: Patent Law Issues William A. Tanenbaum, Kaye