The Arizona Cartridge Remanufacturers Association (ACRA), a trade association, had challenged the offer in 2001, alleging that the company engaged in false and misleading advertising in its promotion of the rebate programme for laser cartridges sold at lower prices than identical Lexmark cartridges.
ACRA argued that the only difference between the differently priced cartridges was that consumers supposedly agreed – by the act of opening up the rebated cartridge box – not to recycle that cartridge to re-manufacturers such as ACRA members that sell discounted re-manufactured cartridges in competition with Lexmark. The conditions were written on the packaging, an approach sometimes called a box-top licence.
The complaint claimed as false and misleading Lexmark's statement that its Cartridge Return Program, previously called Prebate, lowered the cost of printing and helped the environment.
The real purpose of the campaign, said ACRA’s complaint, was to deprive re-manufacturers of the used cartridges that they need to provide low-cost competition to Lexmark and to provide recycling that benefits the environment.
The suit also alleged that the cartridges contained certain technological devices, such as a lock-out chip, in breach of competition laws.
Not so, said District Judge Saundra B Armstrong of the US District Court for the Northern District of California. In 2003, she found that Lexmark was entitled to enforce the post-sale restriction on the use of the products, and that the restriction created a valid contract between Lexmark and its cartridge purchasers.
Nor had ACRA established that the company’s use of the lock-out chip amounted to unfair competition, said the Judge, dismissing the action.
ACRA appealed, but last week the Ninth Circuit Court of Appeals upheld Judge Armstrong's earlier ruling, finding that “ACRA has not offered evidence that Lexmark’s advertisements constitute deceptive or unfair business practices”.
In particular, said the court, “We agree with the District Court that Lexmark has presented sufficient unrebutted evidence to show that it has a facially valid contract with the consumers who buy and open its cartridges."
Lexmark’s vice president and general counsel, Vincent Cole, welcomed the ruling.
"The court has ruled in support of customer choice,” he said. “This is a victory for customers and their right to choose to receive a discount in exchange for a simple agreement to return the empty cartridge to Lexmark for remanufacturing or recycling.”
According to the Electronic Frontier Foundation (EFF), “The consequences for consumers, innovators, and competition are potentially dire.”
EFF Senior Staff Attorney Fred von Lohmann explains: "According to Lexmark, the 'single use only' label on the boxes of their 'Prebate' printer cartridges creates an enforceable contract between Lexmark and consumers. By opening the box, you're agreed to the contract."
The Appeals Court noted that the language on the outside of the cartridge package specifies the terms under which a consumer may use the purchased item. "The consumer can read the terms and conditions on the box before deciding whether to accept them or whether to opt for the non-Prebate cartridges that are sold without any restrictions," it wrote.
A box-top licence is a variant on the shrink-wrap licence that used to appear between a box of software and its cellophane wrapper (largely superseded by the click-wrap licence common today, which appears on screen when installing software).
Von Lohmann fears that Lexmark is bringing box-top licences to the world of patented goods. "If you step outside the bounds of the 'contract' (by giving your spent cartridge to a remanufacturer), you're suddenly a patent infringer," he says. "More importantly, Lexmark can sue cartridge remanufacturers for 'inducing' patent infringement by making and selling refills."
Von Lohmann asks: "Will patent owners exploit this decision as an opportunity to impose over-reaching restrictions on formerly permitted post-sale uses, repairs, modifications, and resale? Will consumers soon confront 'single use only, not for resale' notices on more and more products? Will innovators stumble over labels announcing 'modifications prohibited'?"
