Federal judge rules against Lexmark

Lexmark International lost a battle earlier this week in its seven-year litigation against a North Carolina company that provides supplies to companies that remanufacture printer cartridges.

The case between the Lexington-based printer maker and Static Control Components began in 2002 and centers on a program that offers Lexmark customers upfront discounts on toner cartridges 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 program keeps some cartridges out of the hands of remanufacturers and refillers, who over the past decade have siphoned off the profits from printer companies. The printer companies rely on profit-rich ink and toner, because printers are often sold for little or no profit.

The case grew out of a past decision by Lexmark to include a chip on its Lexmark 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 court battles have gone both ways over the years. On Tuesday, a federal judge in Kentucky reversed his previous ruling, which had favored Lexmark, now saying the program is invalid under patent law.

Lexmark said Thursday, though, that the ruling does not end the "popular program," as it is valid under contract law and it will continue.

Judge Gregory Van Tatenhove had previously ruled that Lexmark's patent rights do not expire after the cartridge's first sale as part of the Lexmark Return Program, previously called the Prebate Program. But a 2008 U.S. Supreme Court ruling has overturned such a theory, Van Tatenhove wrote in his order.

Applying the ruling, the judge said Lexmark "attempts to reserve patent rights in its products through post-sale restrictions on use imposed on its customers ... (and) this is what (the Supreme Court ruling) says Lexmark cannot do."

An attorney for Static Control did not return a message Thursday, but the company's Web site proclaimed victory with a message reading, "Federal Judge Agrees with Static Control. Prebate Ruled Invalid!!"

Lexmark had argued that the Supreme Court ruling did not apply because its Return Program toner cartridges were sold on certain conditions.

However, Van Tatenhove said, "sales of Lexmark Prebate cartridges were unconditional.

"Anyone could walk into a store carrying Lexmark Prebate cartridges and purchase one. Anyone could purchase Lexmark Prebate cartridges directly through its Web site," he wrote. "No potential buyer was required to agree to abide by the Prebate terms before purchasing a cartridge."

As Lexmark pointed out, though, Van Tatenhove also wrote, "This is not to say, however, that state contract law may not be invoked."

Static Control had argued that contract law would not permit the program, either, but Van Tatenhove previously ruled against that argument, noting the program established "contracts of adhesion" so named because consumers could essentially "take it or leave it."

"We want to stress that the March 31 ruling does not invalidate our successful Lexmark Return Program, which we will continue," Lexmark spokesman Jerry Grasso said. "Lexmark is assessing its next possible steps, which may include an appeal of this recent decision."

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