Lexmark Affects Licensing Agreements Again

Commentary by K. Matthew Dames, executive editor.

With all the recent information law activity surrounding file sharing, broadcasting, and Google Print, an interesting licensing case involving Lexmark slipped under my radar.

Lexmark, of course, is the printer and cartridge manufacturer that unsuccessfully tried to leverage the Digital Millennium Copyright Act (DMCA) to keep competitor cartridge printer from developing similar cartridges. Lexmark has sold discount toner cartridges for its printers that only Lexmark could re-fill and that contained a microchip designed to prevent Lexmark printers from functioning with toner cartridges that Lexmark had not re-filled. Lexmark’s actions are familiar: use technology to lock in customers while eliminating competing products.

A North Carolina company called Static Control Components (SCC) mimicked Lexmark’s computer chip and sold it to companies interested in selling remanufactured toner cartridges. In December 2002, Lexmark sued to stop the sale of SCC’s computer chips.

Lexmark raised three theories of liability, including one in which Lexmark claimed that SCC’s product copied Lexmark’s Printer Engine Program, thereby violating the DMCA (specifically Section 1201(a)(3)). After an evidentiary hearing, a federal district court in Kentucky ruled that Lexmark had shown a likelihood of success on each claim and entered a preliminary injunction against SCC. A federal appeals court reversed the district court’s ruling in October 2004.

At the time, it seemed the October 2004 decision was the end of this controversy. But earlier this month, the Electronic Frontier Foundation’s Deep Links blog reported that a federal appeals court earlier this month has given a green light to a new Lexmark tactic: combining licensing and patent law to create the same customer lock-in effect that the company failed to achieve via the DMCA.

Says EFF’s Fred von Lohmann:

According to Lexmark, the ‘single use only’ label on the boxes of their ‘Prebate’ printer cartridges creates an enforceable contract between Lexmark and consumers. By opening the box, you’re agreed to the contract. It’s a variant on the ‘shrinkwrap license’ that used to appear plastered on software. … If you step outside the bounds of the ‘contract’ (by giving your spent cartridge to a remanufacturer), you’re suddenly a patent infringer. More importantly, Lexmark can sue cartridge remanufacturers for ‘inducing’ patent infringement by making and selling refills.

Later in the same post, Von Lohmann points out that patent owners may “exploit this decision as an opportunity to impose over-reaching restrictions on formerly permitted post-sale uses.” I would counter that the same effect can be achieved through drafting an artfully crafted license. And the interesting thing about pursuing the license route is that it is considerably less expensive to draft a restrictive license than to apply for and receive a patent (even with the Patent & Trademark Office’s rather liberal current standards for awarding technology patents to large corporations).

EFF Deep Links. The Shrinkwrapification of Patented Goods. Sept. 2, 2005.

See also:

The Gripe Line Weblog. Lexmark Wins the Right to Sue Its Customers. Sept. 8, 2008.

United States Court of Appeals for the Ninth Circuit. Arizona Cartridge Remanufacturers Assn., Inc. vs. Lexmark Intl., Inc. (.pdf). Aug. 30, 2005.

CopyCense™: K. Matthew Dames on the intersection of business, law and technology. A business venture of Seso Digital LLC.

Written by sesomedia

09/22/2005 at 10:00

Posted in Uncategorized

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