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By: Aaron Lowe – Auto Care Association Senior Vice President.
Courage, commitment and determination are characteristics
that represent individuals willing to put it on the line for an issue or cause that they believe in.
Among the attributes that I have come to admire in people are courage, commitment and determination. To me, these three characteristics represent individuals who are willing to put it on the line for an issue or cause that they believe in. Individuals that have these attributes do not always benefit financially from their causes, but they often (not always) result in benefits for the greater good, whether that is in an industry, community or the nation.
A person who has exhibited these attributes to the benefit of not only his business but the auto care industry as well is Eric Smith, founder and CEO of Impression Products. Impression Products is located in West Virginia and sells printer cartridges, competing head-to-head with some of the largest copier companies. While the replacement printer cartridge industry might seem a world away from the issues facing the vehicle replacement parts market, they are in fact closer than they may seem.
In the 1990s, Lexmark attempted to eliminate the competition for replacement cartridges from companies like Impression that sold remanufactured used toner cartridges at about half the price of Lexmark. Among the tactics employed by Lexmark were placing computer chips on their cartridges and offering consumers a 20 percent discount for agreeing in advance not to reuse or resell the cartridges; using what is known as a shrink-wrap license where the terms appear on the cartridge box and the consumer accepts the terms by opening the box. Of course, consumers took the discount, but the cartridges ended up through wholesalers at a remanufacturer like Impression. Impression disabled the chip which allowed the remanufactured cartridges to work with the Lexmark copiers.
Lexmark did not go after their customers, but instead chose to sue the remanufacturers. While nearly all of the remanufacturers settled with the printer giant, Eric chose not to give in. In fact, he counter sued, stating that Lexmark could not restrict what consumers did with their cartridges based on the legal theory of “patent exhaustion.” Patent exhaustion states that while a patent holder has the right to exclude others from making, using, offering for sale or selling an invention throughout the U.S. or importing the invention into the U.S., once the product is sold, the new owner of the patented product can do whatever they like, including reselling the product.
Impression’s case was complicated by a U.S. Court of Appeals case that was handed down about 25 years ago which provided an exception to patent exhaustion principle, permitting patentees to set post-sale restrictions so long as these are otherwise legal and clearly communicated to the consumer. Further, the Court of Appeals ruled that patented items sold abroad would not exhaust a patentee’s U.S. patent rights at all. Based on this previous ruling, the Court of Appeals ruled against Impression Products, providing a major victory for Lexmark.
At this point, Impression could easily have taken its toys (or cartridges, to be more specific) and gone home. Luckily for us, Eric chose to take his case to the ultimate level, the Supreme Court. The stakes in this case were huge not just for Impression, but for the auto care industry as well. Had Lexmark prevailed, it is not too difficult to see how the case would have impacted the replacement parts market for vehicles and more specifically remanufacturers. Therefore, the Auto Care Association also weighed in, both in calling for the Supreme Court to take the case (never a sure thing) and when the Supreme Court agreed to hear the case, for the Supreme Court to consider the impact on our industry when making a decision.
The good news came in May 2017 when the Supreme Court ruled that Lexmark had exhausted its patent rights when it sold the cartridges. Specifically, the judges stated that, “The single-use/no-resale restriction in Lexmark’s contracts with customers may have been clear and enforceable under contract law, but they do not entitle Lexmark to retain patent rights in an item that it has elected to sell.”
In fact, the Supreme Court cited auto parts in making an analogy as to why it was important to overturn the appears court: “Take a shop that restores and sells used cars. The business works because the shop can rest assured that, so long as those bringing in the cars own them, the shop is free to repair and resell those vehicles. That smooth flow of commerce would sputter if companies that make the thousands of parts that go into a vehicle could keep their patent rights after the first sale. Those companies might, for instance, restrict resale rights and sue the shop owner for patent infringement.”
While Eric and Impression Products were able to stay in the market due to their efforts, it was a long and very difficult journey that likely will not result in making him rich or even really famous with the exception of with some patent lawyers. However, we should take pause and appreciate his commitment and sacrifice to the cause of competition and the long-term positive implications of this court ruling for our industry and of course for consumers.
AuthorAugust 3, 2023 at 7:27 PM
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