Lexmark toner-cartridge program at center of ongoing litigation

A seven-year court battle between Lexmark International and a North Carolina company that provides supplies to companies that remanufacture printer cartridges has reached a final ruling in U.S. District Court.

Last month, Judge Gregory Van Tatenhove dismissed a number of claims by Lexmark and Static Control Components and said they "shall recover nothing." The ruling ended with a note saying the companies could present arguments that the other should pay for costs and attorneys' fees but cautioned that in "close and difficult" cases, costs are sometimes denied as "a proper exercise of discretion."

The case may be far from over, though.

In an Oct. 26 motion, Lexmark asked for a new trial, citing several arguments including that the jury's verdict in part of the case "was against the weight of the evidence at trial." The company also argued that pre-trial rulings "set the stage for irrelevant, inadmissible and highly prejudicial evidence to be presented to the jury."

Static Control Components has already filed notice of appeal with the U.S. Court of Appeals for the Sixth Circuit in Cincinnati.

The case between the Lexington-based printer maker and Static Control Components began in 2002. It centers on a program eventually called the Lexmark Return Program, which offers Lexmark customers up-front 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 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 Components 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.

Van Tatenhove ruled in favor of Static Control on two counts, saying "this court declares that the computer software code on Static Control's reengineered replacement microchips for use with (various Lexmark printers) sold after February 24, 2004, does not infringe any Lexmark copyright."

He also ruled that the manufacture, distribution and sale of microchips for use with the same printers do not violate a certain section of the federal Digital Millennium Copyright Act.

He ruled in favor of Lexmark, though, on a specific patent infringement claim "but with no remedy being entered on said claim."

Lexmark spokesman Jerry Grasso said the company would not comment on ongoing litigation but noted that "it is likely we will appeal."

An attorney for Static Control Components did not return messages.

The court battles have gone both ways over the years.

"Unfortunately this is how the legal system has evolved, especially with patent law," said Tom Carpenter, vice president and senior equity analyst at Hilliard Lyons in Louisville, in describing the length of time it has taken for the case to be considered.

"Laser cartridges are a large profit pool and that's important for Lexmark to protect," he said.

Asked whether Lexmark should be spending the court costs elsewhere in its business, Carpenter called it "a delicate balance."

"The company's justified in defending its patents, technology and profit pools, but as an investor, you'd prefer not to see perpetual litigation," he said. "However, in this case, it may be the nature of the beast with Lexmark and the remanufacturing industry."