Recharger Magazine

Judge’s Corner

Lexmark Threatens the Cartridge Remanufacturing Industry ... Again

• By Tricia Judge
• Jul 01, 2012

Lexmark International has sent threatening letters to companies that bought cores from Canada-based Greentec. Once again, the OEM is using its legal team to find new ways to extort business instead of earning it.

Lexmark is trying to enforce its patent rights for cartridges and cores that were first sold outside the United States and therefore perhaps outside the patent exhaustion doctrine’s jurisdiction. This area of law is unsettled, and Lexmark is taking a very aggressive action based on shaky authority.

The letters assume the recipients are liable for patent infringement. They then go on to measure damages far in excess of what Lexmark is likely to receive if they sue the recipients. Moreover, the settlement letter includes provisions mandating future audits of the recipients’ core supplies.

Such provisions make the settlement unconscionable. And Lexmark has engaged in anti-competitive behavior before; almost 15 years ago to the day, Lexmark announced its Prebate marketing program.

The entire remanufacturing industry, its supporters and customers responded to Prebate with incredulity and questioned how Lexmark could get away with such anti-competitive tactics. Yet through the Prebate program, Lexmark instilled enough fear, uncertainty and doubt to arrest the remanufacturing of Prebate cartridges. (Static Control Components successfully proved Prebate illegal under patent law in 2009.)

And here we go again

Until recently, cores moved across borders readily, especially with trading partners such as those in Canada. Then the OEMs started securing limited and general exclusion orders, typically against the unwanted, patent-infringing clones out of Asia.
Then Epson took things a little further and introduced restrictions on imports in its customs paperwork. Its basis for doing so is most likely founded on a decision rendered about five years ago in the appellate case of Jazz Photo v. Fuji Film. That decision        supported the proposition that patent rights are exhausted on the first sale if the item was first sold in the U.S. It did not extend patent exhaustion, however, to items first sold outside the United States.

Now Lexmark has gone even further and employed that decision to threaten anyone that has Lexmark cartridges imported. The letter states that the recipient must pay 20 to 100 percent of Lexmark’s lost profits on the sale of “accused cartridges.” There are roughly 20 popular cartridge types listed as the “accused cartridges.”

The proposed “settlement” would require recipients to pay Lexmark for lost profits and be subjected to future audits as to Lexmark core sources. Settlement letters generally propose a negotiated middle ground, but Lexmark’s “settlement” asks for more than Lexmark would likely be entitled to if it actually brought a case against the recipients.

Letter recipients that contacted Lexmark’s lawyers received little assistance in resolving the matter. As a matter of fact, they were further threatened. “Please note that — in addition to Lexmark cartridges — any Dell, IBM, Toshiba, Nashuatec, Unisys, or Source Technologies cartridges that your company imported and/or sold, irrespective of whether they were obtained from Greentec or someone else, are also ‘Accused Cartridges’ unless you can provide documentary evidence that Lexmark’s patent rights in the cartridges were exhausted,” read one response that mirrored others. “This is because Lexmark performs private-label manufacturing for these companies and the cartridges are identical to the cartridges sold under Lexmark’s own label.

“In this regard, you will need to identify each company (or person), other than Greentec, from whom you acquired any Lexmark, Dell, IBM, Toshiba, Nashuatec, Unisys, and/or Source Technologies cartridges within the past 6 years, irrespective of whether the cartridges were procured in the United States or out of the country. Also, please identify the quantity and model number of the cartridges so that the Gross Sales for any such Accused Product can be determined in accordance with Lexmark’s settlement offer.”

Lexmark’s actions are unsupported by law or public policy. The Int’l ITC is working once again to counter this major threat from Lexmark with a game plan. Lexmark’s action must be properly responded to, and in unity. If you have received this letter or otherwise want to become part of the fight, please contact the Int’l ITC at katie@i-itc.org or visit our website at www.i-itc.org.

This article originally appeared in the July 2012 issue of Recharger.