## Facts

- Fuji Photo Film Co., Ltd. (Fuji) owned a family of U.S. patents covering disposable cameras, also called lens-fitted film packages (LFFPs).
- Fuji marketed the cameras for one-time use and disposal, while also running collection and recycling efforts for used camera shells.
- Jazz Photo Corp., related entities, and Jack Benun (collectively, Jazz) obtained used Fuji camera shells, largely from overseas sources, and arranged for refurbishment in multiple factories in China.
- The refurbishment involved disassembly and reassembly steps, insertion of new film, and replacement or restoration of components so the cameras could be resold and reused in the United States.
- The dispute followed an earlier International Trade Commission (ITC) proceeding, in which the Federal Circuit held that certain refurbishment of LFFPs first sold in the United States could qualify as permissible “repair” under patent exhaustion rather than infringing “reconstruction.” See *Jazz Photo Corp. v. ITC*, 264 F.3d 1094 (Fed. Cir. 2001).
- Separately, Fuji sued Jazz in the U.S. District Court for the District of New Jersey for patent infringement based on Jazz’s importation and sale of refurbished LFFPs.
- The district court found that most of the refurbished cameras at issue were first sold outside the United States and therefore were not subject to exhaustion of Fuji’s U.S. patent rights.
- The district court held Jazz liable for direct infringement (and also found induced infringement), found only a small subset of cameras qualified for the repair defense, and awarded damages based on a jury’s reasonable-royalty rate (reported as $0.56 per camera) applied to tens of millions of units (about 40 million, with only a small fraction excluded as repair).
- The district court declined to increase damages under 35 U.S.C. § 284 and denied Fuji a permanent injunction.
- Jazz appealed the infringement and damages rulings; Fuji cross-appealed the refusal to increase damages and the denial of a permanent injunction.

## Issues

1. Whether Jazz proved that its refurbishment and resale of the accused LFFPs fell within permissible “repair” (and thus within patent exhaustion), rather than infringing “reconstruction,” for the units at issue.
2. Whether Fuji’s authorized sales of patented LFFPs outside the United States exhausted Fuji’s U.S. patent rights, permitting Jazz to import and sell refurbished foreign-first-sold units in the United States.
3. Whether the damages award based on the jury’s reasonable-royalty rate and the district court’s unit count was supported by the record.
4. Whether the district court erred in declining to increase damages under § 284 and in denying a permanent injunction.

## Decision

- The Federal Circuit affirmed the district court’s judgment that Jazz was liable for direct infringement and induced infringement for the bulk of the refurbished LFFPs.
- The court affirmed that patent exhaustion (and any associated repair right) applied only to LFFPs first sold in the United States under the U.S. patents, and that foreign first sales did not exhaust Fuji’s U.S. patent rights.
- The court affirmed the district court’s determination that Jazz failed to carry its burden to prove a broad repair defense (including because Jazz lacked reliable, complete proof of qualifying refurbishment steps at multiple factories).
- The court affirmed the reasonable-royalty damages award.
- The court affirmed the district court’s refusal to increase damages and its denial of a permanent injunction.

## Legal Principles

- A defendant asserting a repair/exhaustion defense bears the burden to prove that the accused activity falls within permissible repair and that the items qualify for exhaustion.
- Patent exhaustion for U.S. patent rights requires an authorized first sale within the United States; authorized foreign sales do not exhaust U.S. patent rights because U.S. patents have no extraterritorial effect.
- Refurbishment may be treated as permissible repair only within the limited scope recognized by exhaustion and only for qualifying units; the factfinder may reject a repair defense when proof of the refurbishing process and unit provenance is incomplete or not credible.
- A reasonable-royalty award will be affirmed when supported by evidence and when the trial court’s findings on unit counts and exclusions are not clearly erroneous.
- Decisions on increasing damages under § 284 and granting permanent injunctive relief are discretionary and are reviewed for abuse of discretion.

## Conclusion

The Federal Circuit affirmed liability and remedies against Jazz for importing and selling refurbished Fuji disposable cameras where most units were first sold abroad, holding that foreign first sales did not exhaust Fuji’s U.S. patent rights and that Jazz failed to prove a broad repair defense; the court also affirmed the reasonable-royalty damages award and the district court’s denial of increased damages and a permanent injunction.


Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368 (2005)