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'?"
