Lexmark lose out in Patent case
But judge’s rulings affirmed printer maker’s toner-cartridge program
FRANKFORT –Lexmark International lost a court battle on Friday when a jury ruled that it failed to prove that Static Control Components induced toner-cartridge remanufacturers to violate Lexmark patents.
Lexmark had alleged that Static Control, by making a chip that bypassed a Lexmark patent-enforcement mechanism, had encouraged some of its customers to directly infringe on Lexmark’s patents.
And while Friday’s verdict in U.S. District Court was decidedly in Static Control’s favor, it does not nullify the Lexmark program at the center of the case. The judge in the case earlier ruled the program is valid, as well as ruling in Lexmark’s favor on several key issues before and during the trial.
The verdict does not entitle Static Control to seek monetary relief from Lexmark. The company had initially sought damages by claiming Lexmark violated antitrust laws, but the judge threw that claim out.
But Static Control used claims of anti-competitive measures by Lexmark as a defense in the case. The jury agreed, though that portion of its verdict is only an advisory for the judge, who will have the final say.
Static Control hailed the jury’s verdict as a victory for the consumer.
“I think this is a very pro-consumer, money-saving, economically sound decision for the American consumer,” said Static Control CEO Ed Swartz after hugging his general counsel Skip London. “This gives the consumer a choice he would not have, had Static Control not fought Lexmark.”
Cartridges in crosshairs
The 5-year-old case centers on toner cartridges for Lexmark’s laser printers. At the root of it is the Lexmark Return Program(Prebate Program), which offers upfront discounts to toner cartridge buyers if they agree to return the cartridge after a single use to Lexmark and not other remanufacturers. Lexmark then remanufactures the cartridges and resells them.
The presence of third-party remanufacturers has grown over the last decade, siphoning off profits from printer companies who rely on profit-rich ink and toner, since printers are often sold for little or no profit.
The case between Lexmark and Static Control involves only laser-printer toner cartridges. The customers of the Return Program are generally large companies, which purchase the cartridges through contractual agreements.
The case grew out of a past decision by Lexmark to include a chip on its Return Program toner cartridges that determined whether they had been remanufactured. If they had, the cartridge turned itself off and would not print.
The legal battle began when Static Control developed a chip that turned off Lexmark’s, allowing remanufacturers to buy up empty Return Program toner cartridges, install Static Control’s chip and then resell them.
The chip was one of thousands of products produced by Static Control, which helps remanufacturers repair toner cartridges and then resell them.
Lexmark has said the chip violates the single-use patent license it includes on the Return Program cartridges. The company also offers non-Return Program cartridges that come with no license agreement and can be remanufactured by third parties if the customers wish.
Since Friday’s verdict does not invalidate the Return Program, it “kind of maintains the status quo,” said Tom Carpenter, a vice president and senior equity analyst at Hilliard Lyons in Louisville. Carpenter’s firm or its affiliates beneficially owned at least 1 percent of Lexmark’s stock at the end of May.
Charlie Brewer of industry tracker Lyra Research concurred that the ruling doesn’t change the remanufacturer landscape; however, “the aftermarket as an industry will feel re-energized after having lost a lot of high-stakes, high-visibility battles … over the years.”
Brewer said the ruling also crowns Static Control “as the champion of the aftermarket.”
“It re-establishes them as the company that stepped up to the plate and fought all the way,” he said.
Result not one-sided
The case was not a complete victory for Static Control, though, as Judge Gregory Van Tatenhove had ruled against it on several parts of the case before and during trial.
For instance, Van Tatenhove found earlier this month that Static Control directly infringed on a Lexmark patent in the production of an encoder wheel used on the toner cartridges.
The encoder wheel, as well as the chip, were prominently discussed in Lexmark’s closing arguments.
Lexmark attorney Mark Banner said Static Control sold the two parts necessary to successfully remanufacture and sell a working Return Program cartridge.
“They were selling everything you need as a remanufacturer to infringe,” he said. He went on to say that Static Control “knew or should have known” that the remanufacturers were infringing.
In the course of the case, three major cartridge remanufacturers who were supplied by Static Control were found to have violated Lexmark’s patents. The three had made counter-claims against Lexmark but settled and admitted the validity of the company’s patents.
Van Tatenhove also threw out Static Control’s claims that Lexmark violated antitrust laws with its Return Program.
The North Carolina company used anti-competitive allegations, though, as part of its defense, and the jury in almost all cases agreed with Static Control.
It agreed that Lexmark has market power in the aftermarket for its toner cartridges and has used it to unreasonably restrain competition.
Static Control also alleged that Lexmark’s non-Return Program cartridge labels mislead consumers. Lexmark had rebutted that the labels were color-coded differently and included different part numbers. Still, the jury agreed, for the most part, with Static Control’s claims.
The jury also agreed with Static Control’s claims that Lexmark improperly placed patent licenses on some toner cartridges it sold to IBM.
Those parts of the verdict, though, are merely an advisory opinion to Van Tatenhove. Van Tatenhove asked the attorneys after the verdict was announced to file certain documents with the court on those advisory opinion issues within about a month. He will issue his decision sometime after that.
Neither company made any immediate comment about appeals in the case, though London, of Static Control, said he suspects “there will be plenty of appeals.”
What does this all mean for us at Stinkyink towers?. Basically Static Control manufacture all of the components that go into refilled toner cartridges and are probably one of the biggest if not the biggest manufacturers of components in the World. If Lexmark had won the ruling then the availability of refilled/recycled cartridges would have been severly reduced, which in turn reduces consumer choice and availability. We wholeheatedly support Static in their endeavours to fight the Original Equipment Manufacturers (OEM’s) in this, because if one of them wins the others will all weigh in
