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 user 2007-06-22 at 12:10:00 pm Views: 57
  • #18071

    Closing Arguments expected in Lexmark case
    Toner cartridge remanufacture at issue
    arguments are expected to begin today in a trial between Lexmark
    International and Static Control Components.It’s a case that has wound
    through the federal court system for five years, and it centers on
    remanufactured toner cartridges for Lexmark’s laser printersAt the root
    of the case is the Lexmark Return Program, which offers upfront
    discounts to toner cartridge buyers if they agree to return the
    cartridge only to Lexmark and not third-party remanufacturers.If the
    case goes to the jury today, jurors will be asked to decide, among
    other things, whether Static Control induced third-party cartridge
    remanufacturers to infringe on Lexmark’s patents.But as the case winds
    down in U.S. District Court in Frankfort, it bears little resemblance
    to some of its original issues.

    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
    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 toner cartridges, install Static’s chip and then resell them.The
    chip was one of thousands of products produced by Static Control, which
    aids remanufacturers in repairing toner cartridges and then reselling
    them.The presence of those remanufacturers and refillers has grown over
    the last decade, siphoning off more profits from printer manufacturers
    by capitalizing on the printer industry business model. That model
    calls for printer companies to generate much of their profits from ink
    and toner, while the machines themselves are generally sold for little
    or no profit.The slim profit on hardware sales usually comes with laser
    printers, while inkjets are often sold at losses, observers say.

    case between Lexmark and Static Control involves only laser printer
    toner cartridges.In Lexmark’s case, it remanufactures and then resells
    the toner cartridges that are returned to it through the Return Program
    CEO Paul Curlander said last year he thinks Lexmark is the world’s
    largest remanufacturer of laser toner cartridges.Much of the early part
    of the case centered on the Digital Millennium Copyright Act, which
    Lexmark said protected its chips from infringement by Static Control.
    An appeals court eventually overruled an injunction issued by a federal
    district judge that barred the sale of the chips.In 2004, Static
    Control filed a request that the court rule that a new type of chip it
    developed would not infringe on any of Lexmark’s patents.Other issues
    in the case include allegations by Static Control that Lexmark created
    an anti-competitive atmosphere and violated antitrust laws.The company,
    in filings, has said it is seeking between $17.8 million and $19.5
    million in damages from Lexmark for potential anti-competitive
    actions.The antitrust claims were dismissed, though, and earlier this
    month Judge Gregory Van Tatenhove denied an effort by Static Control to
    have the claims reconsidered.

    Lexmark has said its Return Program is one of several options for toner cartridge customers.
    company offers the single-use Return Program cartridges at a discount,
    but it also offers cartridges that come with no license agreements that
    customers can have remanufactured if they wish.The customers of the
    laser toner cartridge program are generally large enterprises, which
    purchase the cartridges through contractual agreements.The case also
    included, at one time, three major cartridge remanufacturer operations,
    which also alleged that Lexmark violated antitrust laws with its Return
    Program rules. All three have settled with Lexmark, according to case
    filings.Courts have upheld Lexmark’s Return Program single-patent
    license agreement. In an April ruling, Van Tatenhove ruled that “absent
    the success of affirmative defenses … Lexmark’s Prebate license is a
    valid, single-use, patent license.”The ruling mirrored that in a case
    in which the Arizona Cartridge Remanufacturers Association had sued
    Lexmark, alleging it made “false and misleading” statements about
    pricing and environmental effects to sell the cartridges.An appeals
    court found in Lexmark’s favor.

    Lexmark, recyclers make case
    Jury will decide antitrust lawsuit
    Ky. — In a case with broad implications for the printer and
    ink-cartridge industry, Lexmark International Inc. is defending itself
    against claims that it’s improperly trying to thwart cartridge
    recyclers.It is a decade-long dispute between Lexmark and Static
    Control Inc. of Sanford, N.C., which claims the Lexington-based printer
    maker has engaged in false advertising and antitrust activity.After a
    five-week trial in federal court in Frankfort, a nine-person jury heard
    closing arguments yesterday. Static Control isn’t seeking monetary
    damages, but rather a court ruling that its business is legitimate.At
    issue are recyclers or “rechargers” who buy empty Lexmark laser
    cartridges from charities and brokers, refurbish the empties and sell
    them to business consumers at a substantial discount.

    Static Control is a parts supplier to about 3,500 laser cartridge remanufacturers.
    1997, Lexmark has tried with some success to outsmart that competition,
    with both labels warning customers to recycle only with Lexmark and
    more recently, a computer chip to render unauthorized recycled
    cartridges defunct.Like razor manufacturers who make money on blades,
    laser printer companies reap profits on laser ink cartridges. The
    lawsuit is being watched by Hewlett Packard, Kodak and many industry
    analysts.What emerged during testimony was a portrait of a cutthroat
    industry in search of empty laser cartridges, or “empties.” But Lexmark
    and Static Control also co-exist in an uneasy alliance.Static Control,
    for example, said it has purchased up to $1.5 million in toner annually
    from Lexmark for resale to cartridge refillers. And both companies
    acknowledge participating in talks in recent years about joining forces
    to recycle laser cartridges.During the trial at the J.C. Watts Federal
    Building, U.S. District Judge Gregory Van Tatenhove has ruled that
    Lexmark, Static Control and key aftermarket recyclers have erred in the
    lucrative race for empties.For example, Van Tatenhove found cartridge
    manufacturers such as Wazana Brothers, of California, infringed on 10
    Lexmark patents while retooling and refilling laser cartridges for
    resale with products purchased from Static Control. Van Tatenhove also
    ruled that Static Control directly infringed on Lexmark patents by
    manufacturing and supplying replacement parts and computer chips to
    rechargers similar to Lexmark parts.But the judge also has ruled
    against Lexmark. As rechargers made profits by recycling cartridges,
    Lexmark also jumped into the business and now reaps 51 percent of its
    profits from recycled empties.Introduced in 1997, the Lexmark
    “Prebate,” later called the “Return” program, sells consumers a
    lower-priced new laser cartridge if they agree to send it only to
    Lexmark for recycling. A higher-priced laser cartridge is available
    that a consumer can return to any firm to recycle.But in recent years,
    Lexmark also has slapped its “Return” labels on laser cartridges it has
    recycled and resold. Van Tatenhove ruled that practice is a misuse of
    the company’s patents.In Static Control’s view, at issue is whether
    Lexmark’s Return program eliminates and obscures competition to such a
    degree that consumers have little choice but to buy replacement laser
    cartridges only from Lexmark and not the vast aftermarket of
    rechargers.For example, Static Control lawyer Joseph C. Smith Jr. said
    Lexmark’s Return and non-Return laser cartridges have labels so similar
    that customers are confused about whether they can legally have their
    laser cartridges refilled by an aftermarket supplier.”The customer wins
    when we win. Choice is what keeps prices low,” Smith said. “What if
    Ford said they were for consumer choice because you can always go back
    to Ford or get your car serviced at a Ford dealer? What keeps Ford
    honest is competition from suppliers like (autoparts retailer) Napa.”In
    closing arguments yesterday, Lexmark lawyer Mark T. Banner said the
    issue for the jury to decide is whether Static Control encouraged its
    estimated 3,500 customers to infringe on Lexmark’s patents by training
    them to use its parts to recycle laser cartridges.

    Control was “selling everything you need to infringe. They buried their
    head in the sand,” Banner said. “Common sense tells you what the result

    Banner pointed out distinctions between labels on “Return”
    Lexmark cartridges and regular cartridges to show they are
    different.And he replayed trial testimony where laser cartridge
    recyclers spoke about how they freely refurbished Lexmark cartridges,
    whether they were “Prebate,” “Return,” or not. The result was a picture
    of a freewheeling industry in which Yoel Wazana of Wazana Brothers
    testified that his company used replacement parts to retool laser
    cartridges to fit many printer uses.Lexmark has a right to defend its
    market share because it can recycle its products better than
    aftermarket competitors, Banner concluded.”If there is anything wrong
    with lifetime loyalty, I don’t know about it,” Banner said. “That is a
    virtue, not a vice.”