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
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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
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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?




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Quick acceleration
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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
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Why is Remanufacturing
Environmentally Sustainable?


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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
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Remanufacturing is Also Known As …
Rebuilt
Rebuilt is synonymous with remanufacturing when used in connection
with motor vehicle parts and systems but not the entire vehicle.
Refurbished
Refurbished is synonymous with remanufacturing of furniture systems for
offices, hotel lobbies, and hospitals.
Recharged
Recharged is synonymous with remanufacturing when used in connection
with imaging products, such as laser toner cartridges.
Factory Reconditioned or Recertified
Factory 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).
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Remanufacturing (“Reman”) Process
Generic “Reman” Process
Process steps required to bring product
back to a “like-new” condition.

Inspection

Disassembly

Cleaning
Product
Collection &
Reverse
Logistics
Incoming
Receiving
Needed in
Production
?
No
Store until
needed
Yes
Initial
Inspection
Planned
Salvage
Disassembly/
Demanufacture
Pass Initial
Inspection
Planned Discard
Cleaning

Restoration / Replace

Re-assembly

Qualify
Failed Initial
Inspection
Remanufacturing or
Restoration
Processes
Pass
In-Process Inspection Fallout
Fail
Rework
Assembly
New Components
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Recycle
Rework
Component
Recertification
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Process
Scrap
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Final
Product
Inspection
Pass
Warehouse/
Shipping
Remanufacturing Industry

Recent Trends

Higher technology found in products

Increased awareness among OEMs



Caterpillar

Xerox

Delphi

Hewlett Packard
U.S. Remanufacturing Industry:
Consolidation of smaller remanufacturers
in recent years
Additional growth in consumer goods


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
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The Benefits of Remanufacturing
Approximately 85% of the energy expended in the manufacture of an original
product is preserved in the remanufactured product.

Recycling Reclaims


Material
Remanufacturing Reclaims

Material

Energy from Casting, Machining, etc.

Labor from original processes

Capital

Function/Design Intent
Source: MIT study on the remanufacturing of automobile component, 1981
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Examples: Automotive Products

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Current Products

A/C Compressors

Alternators

Engines

Fuel System Components

Rack and Pinion Steering

Starters

Steering Gear Boxes

Transmissions

Turbochargers

Water Pumps
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

Demanufacturing cost
Restoration processing cost
Variable
RV = ((UMC – URC) + CRC - CDS
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URC =
 (1/Yi)*Ci
i=1
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Description (normalized per design)
UMC
Unit Manufacturing Cost (cost of new)
URC
Unit Remanufacturing Cost
Ci
Remanufacturing process i
Yi
Yield of process i
i=1
core cost
i=2
initial inspection and test
i=3
disassembly
i=4
replacement part
i=5
1=6
processing
inventory cost
i=7
reassembly
i=8
final qualification
i=9
amortized reman development
CRC
Recovered material value
CDS
disposal cost
1 
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3
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







Part Material
Part Weight (grams)
Part Cost
Assembly Cost
Part ID
Initial part cost, replacement, and yield
Component

Top Level
The remanufacturing economic benefit is the
recovered value minus the cost to recover
Line Number
Economic Benefit
INDENTED BILL OF MATERIALS
1.0
Alternator Assembly
 1.0.1
Thru Bolt
10.67
Steel
2.0
Drive End Assembly
 2.0.1
Nut
16.08
Steel
 2.0.2
Lock Washer
7.59
Steel
 2.0.3
Pulley
186.09
Steel
3/24/08
 2.0.4
9.71
Steel R. German
Delco Spacer
CS130 Level 1 Demanufacturing Process
 2.0.5
Fan
131.21
Steel
 2.0.7
Spacer
17.65
Steel
ID
Process
a
1
1.0.1
2.1
Front Housing Assembly
a
Remove 3 Thru Bolts
b
Hammer on front plate to separate front housing assembly
 2.1.1
Front Housing
$5.00
407.18 Aluminum
c
Remove Nut
b
2.0
d
Remove Lock Washer
 2.1.2
Bearing Retainer
10.65
Steel
e
Remove Pulley
 2.1.3
Bearing
$0.80Spacer 64.00
Steel
f
Remove
g
Remove Fan
c
2.0.1
2.2
Rotor
$6.00
2200.00
h
Remove rotor from front housing
j
Remove
 2.2.1
Bearing
$0.80bearing retainer
14.00
Steel
k
Remove bearing
 2.2.2
Coil Windings
Copper
l
Remove bearing 315.00
from rotor
d
2.0.2
m
Inspect and replace
slip ring as necessary
 2.2.3
Bobbin
361.00
Iron
b
n
Remove stator lead
plastic cap
 2.2.4
Core (w/ Fan)
1219.00
Steel
e
2.0.3
o
Desolder stator and remove
 2.2.5
Screw --???
Steel
p
Remove baffle
q
Remove output terminal
 2.2.6
Shaft
217 outside nutSteel
r
Remove output terminal inside nut
2.0.4
f
 2.2.7
Slip Ring
20 stud
Copper
s
Remove output terminal
t
Remove output terminal insulator
 2.2.8
Spacer
Steel
u
Remove screws 2.82
v
Desolder and remove brush holder assembly
3.0
Slip Ring End Assembly g 2.0.5
w
Remove rectifier and voltage regulator assembly
n
3.0
3.0.1
 3.0.1
Stator Lead Cover
$0.20 rectifier and
5.54
Plastic
x
Desolder
regulator contacts
 3.0.2
Rear Housing
$5.00
306.99 Aluminum
2.1
h
3.1
 3.0.3
Baffle o
19.56
Plastic
2.1.2
 3.0.4
Pin (3) - Small Plastic
0.05
Plastic
j
 3.0.5
Outer Nut
3.23
Steel
3.0.3
p
k
 3.0.6
Inner Nut
1.59
Steel
2.1.3
 3.0.7
Output Terminal Stud
9.89
Steel
q
3.0.5
Clean:Level 2 Remanufacturing
Prep threads Process
Drive End
Visual
 3.0.8
Output Terminal Insulator (Plastic
Cap) 2.1.1Thermal
1.13
Plastic
and
Bearing
Recover high
value items that have
been
removed
Housing
Inspection
and Blast
 3.0.9
Screw (3) - Torx Head (2.74 g each)
Recycle remaining material 8.22 bore Steel
r
3.0.6
 3.0.10
Tolerance
Ring
1.15
Plastic
Slip RIng
Clean:
Prep threads
3.1
Stator
$6.00
1148.71
Visual
Thermal
and Bearing
h
2.2End
s
3.0.7
Inspection 457.20
 3.1.1
Coil Windings
Copper
Housing
and Blast
bore
 3.1.2
Laminate (Frame)
656.00
Iron
l
2.2.1
3.2
Brush Holder
Assembly
15.28
t
3.0.8
Test: HiClean:
Re-tin
 3.2.1
Brush Holder
$1.00
9.16
Plastic
Stator m
Re-varnish
2.2.7 pot
Wire Brush
 3.2.2
Brush (2) CS130
$0.50
2.44
Carbon Leads
u
3.0.9
Alternator
 3.2.3
Brush Spring
(2)
$0.10
0.53
Steel
3.2
3.3
Rectifier Disassembly v
$3.95
114.92
Test:
Paint core
Rotor
Ground
 3.3.1
Capacitor Labor:
2.23 Polish Plastic
3.2.1
area
3.3 98 sec
w
Test
 3.3.2
Cover
8.81
Plastic
 3.3.3
Diode (3)
3.09
Silicon
3.2.2
x
3.4
Brush
Clean:
 3.3.4
Heat Transfer
Grease
na
other
Holder
Ultrasonics
 3.3.5
Heat Sink, Neg
42.27
Copper
3.2.3
 3.3.6
Heat Sink, Pos
45.57
Aluminum
 3.3.7
Insulator
1.25
Plastic
Clean:
Rectifier
Test
“Action
Required”
Light Blast
 3.3.8
Rivets
(2)
0.62
Copper
x.x.x
from BOM
 3.3.9 partsScrews
(3) - small silver phillips head
0.55
Steel
3.4 Action
Regulator
$0.50
handled at
Regulator
Test
Clean
 3.4.1
Case
33.08
Plastic
x.x.x next higher
assembly
Labor: 30 sec
Labor: 30 sec
Labor: 114 sec
Labor: 118 sec
Labor: 10 sec
Labor: 60 sec
Labor: 60 sec
Total Including
Disassembly:
520 sec
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:
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Ecologic Benefit (2)


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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
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Eastman Kodak Company
One 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
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Consumer Products


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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
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Legal Issue: How Will “New” Be Defined?

The new “new”

“New” will be equivalent to scope of warranty to repair or
replace
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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?
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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

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Put another way: patent owner (“patentee”) cannot recover
license fees from purchaser’s transferee
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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.)
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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
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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
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Repair vs. Reconstruction



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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
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Illustrative Cases

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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
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Illustrative Cases (2)

Sandvik v. Akteibolag v. E.J. Co., 121 F.3d. 669 (Fed Cir.
1997)

Patented drill bit included innovative drill tip


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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
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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)
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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
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“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)
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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

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But does incorporating a more advanced chip from a third
party supplier constitute infringement of that third party’s
patents?
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Patentee Arguments to Overcome Finding of
“Repair”?

Argue that “repair” was not contemplated

Argue that upgrades are not standard repair of worn idem
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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


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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
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Questions and Answers

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William A. Tanenbaum

Kaye Scholer LLP, New York Office

wtanenbaum@kayesholer.com
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William A. Tanenbaum
wtanenbaum@kayescholer.com

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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.
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William A. Tanenbaum
(continued)

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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.
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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
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