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 user 2007-06-22 at 12:08:00 pm Views: 72
  • #17954

    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.”