Lexmark Wins Printer Cartridge Suit

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The laser-cartridge return program from printer manufacturer Lexmark International received a green light this week when a federal judge in California upheld the program as fair and legal.

The rebate program by the Lexington, Kentucky, company offers an up-front discount to consumers who agree to return used cartridges only to Lexmark for refilling or recycling. The Arizona Cartridge Remanufacturers Association had charged in a lawsuit filed in September 2001 that the program formerly known as Prebate was illegal under California law because it constituted unfair and deceptive business practices as well as deceptive advertising.

Ruling on Returns

Judge Saundra Brown Armstrong of the U.S. District Court for the Northern District of California on September 30 issued a ruling dismissing ACRA's lawsuit. "Because of its patents, Lexmark has the right to impose conditions on the sale of its patented product. It may restrict a purchaser's ability to repair it, which is what in essence the single-use condition does," the judge wrote in her ruling.

The ruling concluded that, "In light of the Court's ruling that the Prebate condition falls squarely within Lexmark's patent right, Lexmark has adequately shown that there is little if any evidence to support ACRA's contention that the Prebate program is misleading, deceptive or unfair under Sections 17200 and 17500."

Representatives from Lexmark and ACRA could not immediately be reached for comment.

Locking Out Competition?

Printer makers make recurring profits by selling replacement cartridges, but other companies have entered the lucrative market by buying empty cartridges from users, then selling the refurbished and repackaged cartridges. ACRA claimed that Lexmark's rebate program, as well as the use by Lexmark of a "lock-out" chip in its latest Prebate products, was unfair. According to ACRA, the chip is intended purely to lock out Prebate cartridges that have been remanufactured by third parties for use in Lexmark printers.

The judge ruled that ACRA had not sufficiently proven its case regarding the lock-out chip. "ACRA brought forth exactly one Lexmark purchaser who complained of being frustrated and dissatisfied. Frustration and dissatisfaction, however, do not equate to deception," the ruling said.

What's Next

Lexmark welcomed the ruling in a statement released Thursday, adding that it continues to offer more choices in toner cartridge purchases than any other laser printer manufacturer.

For its part ACRA tried to paint the ruling as a positive outcome for the group, in that a summary judgment given before a trial speeds up the legal process. "The appeal should only take nine to 12 months," ACRA said in a statement posted on its Web site. "The economics of an appeal are much better than going through an expensive trial that will be appealed in any event."

According to ACRA's lead counsel in the case, Ron Katz, the group has 30 days to file an appeal, a move he has recommended to his client, Katz said in a statement.

A separate lawsuit brought by Lexmark against Static Control Components of Sanford, North Carolina, is still pending. In that suit, Lexmark has charged that a microchip, the Smartek, made and used by SCC in remanufactured laser printer toner cartridges to defeat Lexmark's technological controls, is a violation of the Copyright Act and the Digital Millennium Copyright Act.

Static Control is one of the sponsors of the ACRA lawsuit, Lexmark said in its statement.

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