The industry’s biggest story of the past few weeks is what I have dubbed “Lexmark’s shakedown letter” (see “Lexmark Warns U.S. Remanufacturers to Settle Now or Be Named in Infringement Suit”). It has huge implications for remanufacturers, OEMs, and empties brokers.
Toward the end of May, Lexmark sent out letters to remanufacturers offering them a stark ultimatum: They can settle with the OEM and pay up now for infringing its intellectual property because they remanufactured empty cartridges that were originally sold outside the United States. Or they can risk being named as “John Doe” defendants in an intellectual property lawsuit. One firm has already settled (see “First of the John Does Settles in Lexmark’s Latest Suit against Remanufacturers”). I suspect that many others will follow. Word on the street is that Lexmark sent out this letter to quite a few companies—potentially hundreds, not dozens.
The legal basis for Lexmark’s threat is not new and relates to the patent-exhaustion or first-sale principle. Under U.S. law, an OEM’s patent rights on a cartridge are only exhausted if it is sold in the United States. That means that if a third-party supplies firm sells remanufactured cartridges in the United States using empty cartridges that were first sold outside the United States, the firm risks being named in a patent-infringement lawsuit. Again, none of this is new and was upheld recently in a Federal Circuit decision upholding the fine that the International Trade Commission levied against Ninestar (see “Appeals Court Says Ninestar Must Pay the $11.1 Million ITC Fine”).
Printer OEMs have sued over the provenance of empty cartridges in the past. What’s new here is how Lexmark has gone about this lawsuit that now threatens many remanufacturers and how the firm’s strategy has the potential to affect the remanufacturing industry as a whole in the United States.
In its recent International Trade Commission (ITC) complaint (see 337-TA-740), Lexmark was awarded a general exclusion order that protects the market for much of the firm’s monochrome toner cartridges. In the district court litigation that the firm simultaneously filed, the original defendants signed consent judgments and permanent injunctions. But Lexmark also named some “John Does” as defendants in the district court suit. Not long after the OEM has prevailed in the ITC matter and favorably resolved the district court complaint against most of the original defendants, it managed to obtain an interesting, and potentially dangerous, order from the court. The order compels Greentec International, a Canadian empties broker that Lexmark has sued in the past, to turn over its list of customers who have purchased empty Lexmark cartridges. Greentec also had to divulge the percentage of these cartridges that were obtained from outside the United States. Now, Lexmark is threatening to add many firms that appear on this customer list as John Does to the district court suit if they don’t agree to Lexmark’s settlement terms.
As the industry has seen in the past, printer OEMs learn from one another and adopt successful legal strategies that have worked for rivals. After all, Epson ignited the trend toward using the ITC to prove a widespread pattern of infringement and obtain general exclusion orders back in 2007, and since then Canon, HP, and Lexmark have adopted similar strategies.
If Lexmark prevails in this suit, will we see more printer OEMs taking empties brokers to court to obtain customer lists? Will we see more printer OEMs filing patent-infringement suits in the United States over where remanufacturers source their empties? It is certainly possible.
Empties are an increasingly scarce and expensive resource. Increased pressure on remanufacturers to carefully document the provenance of their empties and only source empty cores from the most scrupulous and meticulous of suppliers will make empties scarcer and more expensive still. Along with cartridge-collection programs, Lexmark’s latest legal efforts are yet another way OEMs can dry up the pool of empty cartridges upon which the remanufacturing industry is dependent.
As always, I am interested in hearing our readers’ views. Is Lexmark’s latest tactic against remanufacturers as big a deal as I think it is? Does it have remanufacturers nervous about their empties streams? Are other printer OEMs likely to take this page out of the Lexmark playbook? Share your thoughts by commenting below. You can also email me privately at email@example.com.