After Failing To Use Copyright & Trademark Law To Stop Printer Ink Resellers, Lexmark Finally Scores A Victory With Patent Law

from the all-about-the-control dept

Intellectual property: if you fail to block competition with one kind, apparently you can try, try again with another kind -- and eventually you'll end up in the Court of Appeals for the Federal Circuit, who will mess everything up and kill off the competition. Printer company Lexmark has been at war with alternative suppliers of ink for well over a decade. As you may be aware, printer ink is sold at a ridiculously high markup, such that one estimate (from over a decade ago) noted that in order to fill an Olympic-sized swimming pool with printer ink, it would cost you $5.9 billion (yes, with a "b") at the checkout counter of your local office-supply retailer. The printer makers have notably taken a "give away cheap crappy printers at a low cost, and make it up in seriously overpricing the ink" strategy to their businesses. This kind of thing works great until someone tries to step in and sell competing ink.

The various printer companies have tried all sorts of tricks to fight back against this, with Lexmark being one of the most aggressive (though, others, including HP and Epson, have been fairly aggressive as well). Back in the early 2000s, Lexmark started out by arguing that replacement inkjet cartridges violated copyright law. Their claim rested on the idea that resellers were "circumventing" the technological protection measures that Lexmark placed on its ink cartridges, and thus were violating Section 1201 of the DMCA, which made it copyright infringement to "circumvent" technological protection measures. While a lower court agreed, the Sixth Circuit appeals court overturned the ruling, and smacked Lexamark around a bit for abusing the DMCA -- properly noting the ridiculous end result that would occur if it bought Lexmark's argument:
"If we were to adopt Lexmark's reading of the statute, manufacturers could potentially create monopolies for replacement parts simply by using similar, but more creative, lock-out codes. Automobile manufacturers, for example, could control the entire market of replacement parts for their vehicles by including lock-out chips. Congress did not intend to allow the DMCA to be used offensively in this manner, but rather only sought to reach those who circumvented protective measures "for the purpose" of pirating works protected by the copyright statute."
That case, somewhat surprisingly, did not end there. The reseller that it had sued originally, Static Control Components (SCC), then countersued Lexmark, arguing that Lexmark violated trademark law when it basically sent a letter to every SCC customer it could find, telling them that SCC had broken the law. That case then made its way through the courts, and just about two years ago, the Supreme Court ruled against Lexmark again, and basically rewrote the rules for who could sue over a "false advertising" trademark claim by effectively throwing out all previous tests.

In that case, Lexmark didn't technically use trademark law to try to stop SCC, but very well may have abused trademark law to scare off SCC's customers.

And, of course, there was still a third option. While Lexmark had also used patent claims against SCC, the jury in the case ruled against Lexmark as well, even saying that Lexmark had misused its patents. However, Lexmark was also suing other ink sellers for patent infringement as well, and suing in the courts and using the ITC loophole as well. Basically, Lexmark will use and abuse any and all tools at its disposal to stop competition in ink sellers.

And it finally won one. Last week, the Court of Appeals for the Federal Circuit (CAFC) -- the court that is somewhat infamous for so frequently getting things wrong -- finally gave Lexmark the victory it so desperately had sought for over a decade, saying that Impression Products violated Lexmark's patents in selling its laser printer toner cartridges (which, yes, are slightly different than inkjet ink cartridges).

In this case, the key issue was basically over patent "exhaustion" and the question of if you first allowed for a sale overseas, could that product then be refurbished and resold back in the US. If this sounds familiar, you may remember that the Supreme Court ruled a few years ago in the Kirtsaeng case that you can resell goods you bought outside the US back in the US and it doesn't violate copyright law. However, CAFC in this case basically says "Sure, but that's not true with patents."
Kirtsaeng is a copyright case holding that 17 U.S.C. § 109(a) entitles owners of copyrighted articles to take certain acts “without the authority” of the copyright holder. There is no counterpart to that provision in the Patent Act, under which a foreign sale is properly treated as neither conclusively nor even presumptively exhausting the U.S. patentee’s rights in the United States.
Of course, there are other cases, mainly the well-known Quanta v. LG case that said that "exhaustion" applies to patents as well, and once you've sold a product, you can no longer use patent law to block future sales. But here, the court spends a lot of time trying to distinguish the differences between the Quanta case and this case -- basically saying that there is no exhaustion when there's a limited license, rather than a direct sale.

And the crux of its reasoning: "if we rule otherwise, that would really upset pharmaceutical companies who want to charge cheaper rates overseas and don't want to see those cheap drugs resold back in the US." Basically, there are neat business models that would be upset by geographical arbitrage:
At the same time, the conduct challenged here can have benefits. Lexmark’s Return Program provides customers an immediate up-front benefit: a choice between two options, one offering them a lower price in exchange for the single-use/no-resale limitation. And a company in Lexmark’s position could have a plausible legitimate interest in not having strangers modify its products and introduce them into the market with the quality of modifications (including ink refills) not subject to Lexmark’s control: lower quality of remanufactured cartridges could harm Lexmark’s reputation.... A medical supplier in Mallinckrodt’s position plausibly may have similar reason to believe that reuse, when not under its own control, carries a significant risk of poor or even medically harmful performance, to the detriment of its customers and its own reputation. Such interests are hardly unrelated to the interests protected by the patent law—the interests both of those who benefit from inventions and of those who make risky investments to arrive at and commercialize inventions.
Of course, that was the same argument that publishers made in the Kirtsaeng case, and the Supreme Court rejected it, so it seems like there's at least a decent chance that should SCOTUS take this up on appeal, it may be yet another opportunity to smack CAFC around for getting things totally backwards (now becoming something of an annual tradition at SCOTUS).

There is a dissent from Judge Dyk (with Judge Hughes) that suggests that the majority's decision here does not make sense in following Supreme Court precedent -- and recognizing that the majority has just set up CAFC for yet another smackdown. The dissent notes a long line of cases saying that patent exhaustion is a thing and finds it troubling that the ruling ignores all that, and suggests SCOTUS won't particularly like CAFC ignoring it all.
The majority’s justifications for refusing to follow Supreme Court authority establishing the exhaustion rule misconceive our role as a subordinate court.

First, the majority characterizes the statement of the exhaustion rule in the Supreme Court cases as mere dictum because in those cases there was either no restriction imposed or the restriction would otherwise violate the antitrust laws. But the cases impose no such qualification on the rule announced. The Supreme Court has repeatedly advised the courts of appeals that our task is to follow the rules proclaimed by the Court, and not to attempt to distinguish Supreme Court cases on their facts...
Not surprisingly, Impression Products has suggested it will appeal to the Supreme Court, so this case is far from over. However, once again, we see how companies will use intellectual property law however they can to try to block out competition.

Filed Under: cafc, copyright, copyright exhaustion, dmca, exhaustion, false advertising, ink, patent exhaustion, patents, printer ink, printers, supreme court, trademark
Companies: lexmark


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  • icon
    Arthur Moore (profile), 16 Feb 2016 @ 4:05pm

    Supreme court power

    It really makes me wonder just how much power the supreme court has. I mean if the CAFC keeps doing so badly, does SCOTUS have any options aside from continually smacking them down?

    To be fair, SCOTUS is powerful enough that they could wipe out entire categories of patents or copyrights with a pen stroke. The question is if CAFC keeps it up can they just explicitly say that they don't consider anything that court does as binding?

    reply to this | link to this | view in chronology ]

    • icon
      John Fenderson (profile), 16 Feb 2016 @ 9:04pm

      Re: Supreme court power

      The way it's supposed to work is: the SC is as powerful as either of the other branches of government and has considerable authority, but its domain is slightly different than the other branches. Congress makes law, the courts interpret law, and the White House enforces law. So, a SC solution would have to be of the "interpret law" sort, the nuclear option of that being to declare some aspect of the law unconstitutional in some way.

      Doing so wouldn't change the law, but it would make congress either implicitely agree with the SC decision or to rework the law to remove the SC objection.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 16 Feb 2016 @ 4:09pm

    When buying a printer one of the things I consider is the availability of third party toner. A nice advertised feature would be if a printer company disclosed their toner specs and promised not to go after third party toner makers.

    So what is particularly innovative of this specific toner anyways? If the sole purpose of the uniqueness of the toner and toner cartridge are to prevent the toner and cartridge from being compatible with other printers that's not a patent worthy innovation.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 16 Feb 2016 @ 4:54pm

    One would think the market is ripe for competition, why do all/most? printer companies all take the same lameass business model?

    reply to this | link to this | view in chronology ]

    • icon
      Arthur Moore (profile), 17 Feb 2016 @ 1:09am

      Re:

      The interesting thing is this is about a laser printer. The laser printer segment has typically not actually run using the razor blade model. That's why a laser printer with the same features as an inkjet costs several hundred more dollars.

      Thing is, these printers are typically bought by businesses or prosumers. While some businesses might stick to buying only brand name, everyone else who hears about this might re-evaluate if Lexmark is someone they want to continue doing business with. Brother makes some pretty good and inexpensive lasers after all.

      reply to this | link to this | view in chronology ]

    • identicon
      Wendy Cockcroft, 17 Feb 2016 @ 6:18am

      Re:

      It's monopoly privilege protectionism. Once you start to think of your temporary monopoly privilege as a property right it's impossible to get out of the protectionist mindset that engenders. This can all be summed up in the phrase, "Git off mah lay-and!" and a picture of a hick with a shotgun.

      The minute we stop using the phrase "intellectual property" except to call it out for the lie that it is, we'll stop seeing crap like this being pulled. As long as we allow them to get away with framing it in terms of protecting their owner's rights, they'll keep working to expand them and we'll keep wondering why we're always on the back foot.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 16 Feb 2016 @ 5:34pm

    If at first you don't succeed...

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 16 Feb 2016 @ 6:01pm

    Lesson learned

    Avoid Lexmark printers, relegate to black list. They do have competitors, I can remind them, compete or die a slow death. The classic example is Kodak and the cheap camera, expensive film- processing, business model. How is that working for you?

    reply to this | link to this | view in chronology ]

  • identicon
    Rekrul, 16 Feb 2016 @ 8:16pm

    I got a Lexmark inkjet printer/scanner/copier many years ago. The ink cartridges never gave anywhere near the amount of pages claimed on the package. Eventually, I stopped buying cartridges for it and just did without. The few times I've needed to print something, I've gone to Staples or asked a friend.

    I used to see Lexmark ink cartridges in the stores next to Epson, HP and Canon, but now I can't recall the last time I saw a Lexmark product in a store. I thought they had gone out of business.

    reply to this | link to this | view in chronology ]

  • identicon
    Pixelation, 16 Feb 2016 @ 8:17pm

    What better way to stifle competition/innovation

    Copyright/Patent.

    Yay.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 16 Feb 2016 @ 8:37pm

    Hey Lexmark, let us know how that government granted monopoly works out for you.

    reply to this | link to this | view in chronology ]

  • identicon
    anonymous, 16 Feb 2016 @ 9:27pm

    Lexmark

    Never have bought one, and now I never will.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 16 Feb 2016 @ 9:47pm

    Lexmark, who?

    Won the battle.

    Lost the war.

    R.I.P.

    reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 17 Feb 2016 @ 4:26am

    so why have none of the arguments here been used against the entertainment industries? i suppose it's because they pay Congress' salaries!

    reply to this | link to this | view in chronology ]

  • identicon
    Guy Knows, 17 Feb 2016 @ 5:16am

    What people never hear about are the multitude of customer complaints about print quality that turn out to be caused by the counterfeit or refilled toner cartridges. Unfortunately, Lexmark has to spend time dealing with irate customers who (either knowingly or not) purchased a non-genuine item which screwed up their printer.

    If your counterfeit Viagra caused your willie to fall off, it's not Pfizer's fault for trying to stop the fakes. Same goes for printer cartridges (without the willie risk).

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 17 Feb 2016 @ 6:59am

      Re:

      But is that really the argument here?

      Some disreputable company makes a really poor knockoff replacement for your companies product - what does one do?

      Oh my!

      reply to this | link to this | view in chronology ]

    • icon
      John Fenderson (profile), 17 Feb 2016 @ 10:58am

      Re:

      The problem you're describing is one that can be minimized through inexpensive educational efforts. Big warnings near the cartridges that using unautorized ink voids your warranty would do the trick.

      But that's not what these companies do. Instead, they engage in behavior that legally restricts how I can use equipment that I own.

      reply to this | link to this | view in chronology ]

    • identicon
      Rekrul, 19 Feb 2016 @ 6:01pm

      Re:

      What people never hear about are the multitude of customer complaints about print quality that turn out to be caused by the counterfeit or refilled toner cartridges. Unfortunately, Lexmark has to spend time dealing with irate customers who (either knowingly or not) purchased a non-genuine item which screwed up their printer.

      None of which would be an issue if the printer companies didn't charge outrageous amounts of money for the ink cartridges. There's no way you can convince me that $25-30 is a fair price for what amounts to a plastic box containing a couple ounces of ink. Not to mention those ripoff "color" cartridges that always run out of one color far in advance of the other two. Plus you often have to waste ink printing alignment sheets because the stupid printer can't seem to remember the last setting if it hasn't been used in a while.

      The entire design of typical inkjet printers is setup to get people to waste money on grossly overpriced ink cartridges. I've never had a laser printer, but I imagine a similar idea applies to toner cartridges.

      Epson is now making "tank system" printers where you simply take a bottle of ink and refill the ink reservoirs in the printer. Yes, they cost more, but bottles of ink to refill all the tanks multiple times costs less than a single set of ink cartridges that will probably run dry after a couple dozen pages. I've been hoping that other companies would jump on the bandwagon and drive the price down somewhat.

      For plain black printing, I've been toying with the idea of setting up an old dot matrix printer. It's slower and noisier, but you can easily get several hundred pages out of a single ribbon.

      reply to this | link to this | view in chronology ]

  • identicon
    Anonymous Coward, 17 Feb 2016 @ 5:38am

    There you go

    Congress did not intend to allow the DMCA to be used offensively in this manner, but rather only sought to reach those who circumvented protective measures "for the purpose" of pirating works protected by the copyright statute."

    If you are not pirating the works, the DMCA doesn't apply to you.

    reply to this | link to this | view in chronology ]

    • identicon
      Anonymous Coward, 17 Feb 2016 @ 7:01am

      Re: There you go

      "If you are not pirating the works, the DMCA doesn't apply to you."

      Huh?

      You really can not imagine a situation where someone could be in technical violation of the DMCA while at the same time not being a bloody pirate?

      reply to this | link to this | view in chronology ]

  • icon
    DannyB (profile), 17 Feb 2016 @ 6:23am

    MISUSE of a patent

    A patent gives you a monopoly. To protect your right to sell the patented thing.

    Is Lexmark somehow claiming that their INK is special in some way? (Not the cartridge. Not the mechanism. Not the printer. But the INK ITSELF.)

    If yes, then these third party ink manufacturers are not infringing an ink patent, because their ink is different.

    If no, then what Lexmark is doing is misusing a patent on some other mechanism to prevent other parties, and the end user from engaging in their own private transaction to buy/sell ink for the printer the customer owns. Or said differently, Lexmark is misusing a patent monopoly on some mechanism to create another monopoly that they should not rightfully have on getting a different kind of ink into the printer.

    reply to this | link to this | view in chronology ]

    • identicon
      Isma'il, 17 Feb 2016 @ 8:42am

      Re: MISUSE of a patent

      What I'm waiting for is an argument on Lexmark's behalf that the buyer of the printer buys a license to use the printer, rather than buying the printer itself, thereby allowing Lexmark to dictate what brand of ink they use. I wouldn't be surprised if they go down that road, being that media companies (software, DVD/Blu-Ray, CD, etc) have done the exact same thing.

      reply to this | link to this | view in chronology ]

  • icon
    Mason Wheeler (profile), 17 Feb 2016 @ 7:59am

    Wow. They use Mallinckrodt as an example?

    Mallinckrodt is probably the sleaziest pharma company you've never heard of. They aren't anywhere near as well-known as Pfizer or Bayer, but they're a major player in one important sector of the market: opioid painkillers. They make dangerous, highly-addictive pain medication and push doctors and dentists (often without proper training in the mechanics of addiction) to prescribe it to patients.

    A non-trivial percentage of those patients end up hooked, and eventually the well-meaning, reasonably ethical doctor realizes what's going on and refuses to write more prescriptions for them, not wanting to enable addicts. Unfortunately, this leaves the patient addicted to opioids and without a legitimate way to get their fix, and all too often they turn to heroin.

    Eventually, if their addiction doesn't kill them, (or if they're smart enough to skip the heroin step and get help right away,) they end up in treatment. You treat heroin addiction with a medicine called Methadone, which can calm the symptoms of opioid addiction without producing the same highs as heroin or pain meds. It's not perfect, and it's not cheap, as Methadone treatment is quite a long-term solution, but people can and do get clean from it.

    Guess who principal manufacturer of Methadone in the USA is? That's right: Mallinckrodt. It's quite the profitable racket they've got going on, when you think about it...

    reply to this | link to this | view in chronology ]

  • icon
    Bob Webster (profile), 17 Feb 2016 @ 9:36am

    No Lexmark for Me

    This is enough for me to stop buying Lexmark printers. I've never used 3rd party ink, but I do not like the idea of Lexmark abusing patent law, especially to extort money from its customers. A company might be better off to value its customers enough to offer them what they want. This seems to be yet another poor decision made in a clueless boardroom.

    reply to this | link to this | view in chronology ]

    • identicon
      Guy Knows, 19 Feb 2016 @ 7:02am

      Re: No Lexmark for Me

      Lexmark is not extorting anyone. They sell 2 types of cartridges--one that you can refill to your heart's content, and one that (in exchange for a cheaper price) you AGREE to return it empty to Lexmark. The issue is that the agreement is violated when the second type of cartridge is refilled and/or resold.

      reply to this | link to this | view in chronology ]

  • identicon
    jim ladd, 17 Feb 2016 @ 11:43am

    Why You Should Boycott All Lexmark Products

    reply to this | link to this | view in chronology ]


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