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 user 2007-06-25 at 10:51:00 am Views: 35
  • #18197

    Lexmark loses verdict in patent case
    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.
    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
    5-year-old case centers on toner cartridges for Lexmark’s laser
    printers. At the root of it is the Lexmark Return 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.

    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
    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.

    jury also agreed with Static Control’s claims that Lexmark improperly
    placed patent licenses on some toner cartridges it sold to IBM.
    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.”

    Lexmark loses recycling ruling

    Federal jury rejects program
    a victory for bargain recyclers of laser toner cartridges that could
    transform the business model for printers, a jury in Frankfort ruled
    yesterday that Lexmark International “unreasonably restrained
    competition” and exploited customers into believing that they had to
    pay more by recycling empty cartridges only through the Lexington
    company.At stake is the lifeblood of Static Control of Sanford, N.C.,
    and about 3,500 U.S. firms that recycle and refill laser and inkjet
    cartridges, then sell them at prices up to 30 percent less than Lexmark
    The printer industry reaps profits from ink cartridges, not printers themselves.

    jury’s ruling rebuked Lexmark labeling practices used since 1997 to
    entice customers to return empty cartridges to them instead of cheaper,
    alternative suppliers.
    The verdict by the nine-member jury is
    nonbinding, although U.S. District Court Judge Gregory Van Tatenhove
    said he will give it serious consideration when he makes his final
    ruling in 30 days.Basically they were saying that Lexmark was cheating
    their customers,” said Rob Enderle, an industry analyst and chief of
    the Enderle Group. “They want to see consumers get choice.”
    At issue
    is Lexmark’s “Prebate” or “Return” program, in which corporate
    customers received large discounts on their ink cartridges in exchange
    for a pledge to return the empties to Lexmark. A higher-priced
    cartridge that can be freely recycled is also available.

    prebate cartridges included a chip that disabled the printer if a
    non-Lexmark recycled cartridge was inserted. But Static constructed a
    similar chip that allowed the recycling industry to continue refilling

    Static’s lawyers argued that the prebate program
    was not only wasteful, because many cartridges ended up in the garbage,
    but also amounted to a monopolistic practice by Lexmark. The jury
    agreed as part of its 19-page verdict, but Van Tatenhove has ruled
    Static could not collect damages from Lexmark.”We’re very pleased and
    gratified,” said Static Control Chief Executive Ed Swartz. “I think
    this is a very pro-consumer … decision.”

    Lexmark, which receives 51 percent of its profits by recycling its own empties, will likely appeal the verdict.“Lexmark’s
    Return program benefits customers, is good for the environment and is
    fair to the competition,” Lexmark chief counsel Vincent J. Cole said.
    “We will continue to pursue claims whenever and wherever necessary to
    protect Lexmark’s intellectual property
    .”Jim Forrest, an analyst
    with Lyra Research in Boston, says toner cartridges generated more than
    $30 billion in revenues worldwide, with remanufactured versions
    accounting for nearly a quarter of that. Forrest said a Lexmark victory
    might have sparked other printer giants to create similar
    programs.Instead, the ruling threatens to change forever the razor and
    razor blade business model of the industry, where printers are sold at
    a discount and profits are made on the supplies, Enderle said. “This
    will have an awful lot to do with changing the market,” he said.

    Jury rules Lexmark patents not violated

    federal jury determined yesterday that Lexmark’s patents weren’t
    violated by a North Carolina company that makes parts that lets the
    company’s printer-toner cartridges be reused.The jury found that the
    actions of Static Control Components of Sanford didn’t cause the makers
    of remanufactured cartridges to infringe on patents held by
    Lexmark.Lexmark had sued under federal copyright law after Static
    Control sold a microchip to the remanufacturers that allowed them to
    rebuild certain Lexmark cartridges, refill them with ink and sell them
    to customers for far less money.Although the verdict isn’t binding,
    Judge Gregory Van Tatenhove of U.S. District Court said he will give it
    serious consideration when he makes his final ruling within 30 days.
    Both sides could appeal.Van Tatenhove found earlier that Static Control
    did violate a Lexmark patent regarding another product, known as an
    encoder wheel. However, Static Control stopped producing the wheel in
    2004, so no damages were awarded to Lexmark.The legal fight between the
    two companies dates back to 2002.The most recent trial dealt with a
    Lexmark program that allowed corporate customers large discounts on
    their ink cartridges in exchange for a pledge to return the empties to
    Lexmark. The “prebate” cartridges, as they were called, included a chip
    that blocked their reuse by anybody but Lexmark, but Static constructed
    a similar chip that allowed the cartridges to be duplicated.

    Lexmark also sold a more expensive non-prebate version that customers were free to sell to remanufacturers.
    Control’s attorneys argued that the program not only was wasteful,
    because many ended up in the garbage, but also amounted to a
    monopolistic practice. The jury agreed, but Van Tatenhove had
    previously ruled that Static couldn’t collect monetary damages from
    Lexmark because the remanufacturers, not Static Control, were harmed.