CLOSING ARGUMENTS IN LEXMARK Vs S.S.C.

[Anonymous]

Closing Arguments expected in Lexmark case
Toner cartridge remanufacture at issue
Closing
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.

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 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.

The
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.
The
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
FRANKFORT,
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.
Since
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.

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

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.” 

[Author]

June 22, 2007 at 12:10 PM