Lexmark Int'l v. Static Control Components
Lexmark International, Inc. v. Static Control Components, Inc., is an American legal case involving the computer printer company Lexmark, which had designed an authentication system using a microcontroller so that only authorized toner cartridges could be used. In separate rulings in 2004 and 2012, the United States Court of Appeals for the Sixth Circuit ruled that:
The latter ruling is currently under appeal to the Supreme Court of the United States.
- 1 Background
- 2 2004 circuit court ruling
- 3 2012 circuit court ruling
- 4 See also
- 5 References
- 6 External links
Lexmark is a large manufacturer of laser and inkjet printers, and Static Control Components (SCC) is a company that makes "a wide range of technology products, including microchips that it sells to third-party companies for use in remanufactured toner cartridges." 
In an effort to control and reduce the refilling and redistribution of toner cartridges, Lexmark began distributing two distinct varieties of its toner cartridges. Under its Prebate Program (now known as the Lexmark Return Program), through a shrinkwrap license, Lexmark sold certain printer cartridges at a discount (as much as $50 less) to customers who agreed to “use the cartridge only once and return it only to Lexmark for remanufacturing or recycling.” Lexmark's "Non-Prebate" cartridges could be refilled by the user without restrictions and were sold without any discount.
Lexmark touted the Prebate Program as a benefit to the environment and to their customers, since it would allow customers to get cheaper cartridges, and the benefit to Lexmark was that it could keep empty cartridges out of the hands of competing rechargers. Many users purchased such cartridges under the stated conditions.
To enforce this agreement, Lexmark cartridges included a computer chip that included a 55-byte computer program (the "Toner Loading Program") which communicated with a "Printer Engine Program" built into the printer. The program calculated the amount of toner used during printing: when the calculations indicated that the original supply of Lexmark toner should be exhausted, the printer would stop functioning, even if the cartridge had been refilled. In addition, if the chip did not perform an encrypted authentication sequence, or if the Toner Loading Program on the chip did not have a checksum matching exactly a value stored elsewhere on the chip, the printer would not use the cartridge.
In 2002, SCC developed its own computer chip that would duplicate the 'handshake' used by the Lexmark chip, and that also included a verbatim copy of the Toner Loading Program, which SCC claimed was necessary to allow the printer to function. A Prebate cartridge could successfully be refilled if Lexmark's chip on the cartridge was replaced with the SCC chip. SCC began selling its "Smartek" chips to toner cartridge rechargers.
2004 circuit court ruling
|Lexmark Int'l v. Static Control Components|
|Court||United States Court of Appeals for the Sixth Circuit|
|Full case name||Lexmark International, Inc. v. Static Control Components, Inc.|
|Date decided||October 26, 2004|
|Citation(s)||387 F.3d 522|
|Judge(s) sitting||Gilbert Stroud Merritt, Jr., Jeffrey S. Sutton, and John Feikens (sitting by designation)|
|Prior action(s)||253 F. Supp. 2d 943 (E.D.Ky. 2003) (granting summary judgment for plaintiff)|
|Subsequent action(s)||rehearing denied, Dec. 29, 2004; and rehearing en banc denied, Feb. 15, 2005; case remanded to district court for further proceedings consistent with the opinion.|
|District court erroneously granted summary judgment for plaintiff on claim under Digital Millennium Copyright Act based on defendant's manufacture of computer chips that enabled third party manufacturers to produce toner cartridges that were compatible with laser printers manufactured by plaintiff|
At the district court
On December 30, 2002, Lexmark sued SCC in the United States District Court for the Eastern District of Kentucky. The suit claimed that SCC had:
On the copyright claim, the court found that:
- the use of the Toner Loading Program was indeed a likely copyright violation, because the Toner Loading Program was not a "lock-out code" that SCC was entitled to copy under the DMCA, and because the Toner Loading Program could be rewritten in different ways (and therefore had enough creativity to qualify for copyright protection).
- the Copyright Office's decision to grant copyright registration to the two programs showed that the programs were probably copyrightable.
- because of the complexity of the authentication system, SCC could not have known that it could bypass the authentication without using Lexmark's copyrighted program; but it held that this did not matter because "Innocent infringement, however, is still infringement."
- fair use did not apply.
On the DMCA claims, the court found that the SCC microchip circumvented Lexmark's authentication sequence, and that the reverse engineering exception to the DMCA did not apply, because it only covers the independent creation of new programs that must interoperate with existing ones, and SCC did not create any new program.
The appellate ruling
SCC appealed the district court's ruling to the Sixth Circuit Court of Appeals. As is usual for federal appeals in the United States, three judges—Gilbert S. Merritt, Jeffrey S. Sutton, and John Feikens (a district court judge temporarily assisting the appeals court)—considered the case. On October 26, 2004, the judges issued their ruling, in which all three judges wrote separate opinions.
In the majority opinion, Judge Sutton (with Judge Merritt agreeing) reversed the lower court's ruling and vacated the temporary injunction, holding that Lexmark was unlikely to succeed in its case. The case was remanded to the district court for further proceedings consistent with the opinion.
On the copyright claim, the court noted that unlike patents, copyright protection cannot be applied to ideas, but only to particular, creative expressions of ideas. Distinguishing between an unprotectable idea and a protectable creative expression is difficult in the context of computer programs; even though it may be possible to express the same idea in many different programs, "practical realities"—hardware and software constraints, design standards, industry practices, etc.—may make different expressions impractical. "Lock-out" codes—codes that must be performed in a certain way in order to bypass a security system—are generally considered functional rather than creative, and thus unprotectable.
With these principles in mind, it was held that the district court had erred in three ways:
- It had held that the Toner Loading Program was copyrightable simply because it "could be written in a number of different ways", without considering the practical realities.
- Because of this mistaken standard, it had refused to consider whether or not the alternative Toner Loading Programs proposed by Lexmark were practical.
- It had concluded that the Toner Loading Program was not a "lock-out code", because it had not sufficiently considered how difficult it would be for SCC—without Lexmark's knowledge of the code's structure and purpose—to alter the code and still pass the printer's authentication mechanisms.
On the DMCA claims, the majority first considered Lexmark's claim that the SCC chip circumvented the access controls on the Printer Engine Program. It held that Lexmark's authentication sequence did not "control access" to the program; rather, the purchase of the printer itself allowed access to the program:
Anyone who buys a Lexmark printer may read the literal code of the Printer Engine Program directly from the printer memory, with or without the benefit of the authentication sequence[...]No security device, in other words, protects access to the Printer Engine Program[...]
Likewise, the majority opinion held that anyone purchasing a printer and toner cartridge could read the Toner Loading Program from the printer; so SCC did not circumvent an access control on the Toner Loading Program either.
The court also rejected the district court's conclusion that the interoperability defense did not apply. Since SCC had offered testimony that its chips did indeed contain independently-created programs in addition to Lexmark's Toner Loading Program, the Toner Loading Program could be seen as necessary to allow interoperation between SCC's own programs and the Lexmark printer.
In a concurring opinion, Judge Merritt agreed with Judge Sutton on the outcome of this particular case, but also indicated that he would go farther:
I write separately to emphasize that our holding should not be limited to the narrow facts surrounding either the Toner Loading Program or the Printer Engine Program. We should make clear that in the future companies like Lexmark cannot use the DMCA in conjunction with copyright law to create monopolies of manufacturer goods for themselves[...]
He opined that even if the programs involved were more complex (and thus more deserving of copyright protection), the key question would be the purpose of the circumvention technology. Under his proposed framework, if a third party manufacturer's use of a circumvention technology was intended only to allow its products to interoperate with another manufacturer's—and not to gain any independent benefit from the functionality of the code being copied—then that circumvention would be permissible.
Judge Feikens also wrote an opinion, agreeing with many of the majority opinion's results (though sometimes for different reasons), but disagreeing with its conclusion on the Toner Loading Program.
Concerning the copyrightability of the Toner Loading Program, he found that the record supported Lexmark's claim that the program could have been implemented in any number of ways, and therefore Lexmark's implementation was creative and copyrightable. Agreeing that the record was inadequate for the district court to conclude that the Toner Loading Program was a "lock-out code", he noted that Lexmark's expert had testified that the entire Toner Loading Program process could be turned off by flipping a single bit in the chip's code, and that it should have been possible for SCC to discover this; so copying the program may not have been practically necessary to.
On the DMCA counts, Feikens agreed that Lexmark had not established a violation with regards to the Toner Loading Program, but for a very different reason than that found by the majority opinion. He noted that SCC had testified that it had not even been aware that the Toner Loading Program existed; it had copied the data on the Lexmark printer chip (including the Toner Loading Program) purely in an attempt to bypass the protection on the Printer Engine Program. Since the DMCA requires that an infringer knowingly circumvent access controls on the protected program, SCC could not have knowingly circumvented protections on a program it did not know existed. With regards to the Printer Engine Program, he agreed with the majority opinion, but also noted in his belief that the consumer had acquired the rights to access this program by purchasing the printer, and therefore the DMCA would not apply to attempts to access it.
Request for a rehearing
Lexmark filed a request for the full Sixth Circuit to hear the case en banc. The Sixth Circuit rejected this request in February 2005.
Rule 13 of the United States Supreme Court Rules of Procedure requires the losing party in a case before a court of appeals to file a petition for a writ of certiorari within 90 days from the date the court of appeals enters its judgment, or from the date of the denial of a petition for rehearing in the court of appeals. The Sixth Circuit's judgment became final for all purposes when the 90-day period expired without Lexmark filing a cert petition.
Impact of ruling
The Sixth Circuit's decision is noteworthy for at least two reasons:
- All three judges took pains to emphasize in their opinions that the DMCA must be interpreted consistently with the broader public purposes of the copyright statute, rather than as a grant of new powers to makers of technology products to impose additional restrictions not contemplated by copyright.
- It represents a rare defeat for large printer manufacturers like Lexmark, Hewlett-Packard and Epson in their ongoing battle with third-party ink sellers.
Lexmark 2004 is also consistent with subsequent jurisprudence in the United States Court of Appeals for the Federal Circuit in The Chamberlain Group, Inc. v. Skylink Technologies, Inc., and therefore emphasizes that the DMCA was intended to create a new type of liability — not a property right — over durable goods incorporating copyrighted material.
2012 circuit court ruling
|Static Control Components v. Lexmark Intern., Inc.|
|Court||United States Court of Appeals for the Sixth Circuit|
|Full case name||Static Control Components, Inc. v. Lexmark International, Inc.|
|Date decided||August 29, 2012|
|Citation(s)||697 F.3d 387|
|Judge(s) sitting||Damon Keith, Danny Julian Boggs, and Karen Nelson Moore|
|Decision by||Karen Nelson Moore|
|Prior action(s)||2006 U.S. Dist. LEXIS 73845 (E.D. Ky. Sept. 28, 2006)|
|Appealed to||United States Supreme Court|
|Subsequent action(s)||Rehearing denied en banc, 2012 U.S. App. LEXIS 23975 (6th Cir. Oct. 26, 2012)|
|Static Control Components lacked standing to pursue a federal antitrust claim under the Clayton Act or the Sherman Act, but could pursue a false association claim under the Lanham Act, as different tests for standing applied.|
At the district court
Before the 6th Circuit's ruling, Static Control initiated a separate action in 2004 seeking declaratory judgment under federal copyright laws and the DMCA that its newly modified chips did not infringe Lexmark's copyrights, and Lexmark counterclaimed raising patent infringement, DMCA violations, and tort claims, and added three remanufacturers as third-party defendants.
On remand, Lexmark successfully moved to dismiss all of Static Control's counterclaims. During the course of the proceedings, the court ruled that:
- nine of Lexmark's mechanical patents were valid, but two of its design patents were invalid,
- summary judgment would be granted to Lexmark on its claims of direct patent infringement against three co-defendants, and
- Lexmark's single-use license for Prebate cartridges was valid, which prevented Lexmark's patents from exhausting following the initial sale of the Prebate toner cartridges to end users. However, this was subsequently modified by the judge later, after the United States Supreme Court's decision in Quanta Computer, Inc. v. LG Electronics, Inc.
Therefore, the trial's issues consisted only of Lexmark's claim of patent inducement against Static Control and Static Control's defense of patent misuse. The district judge Gregory Frederick Van Tatenhove instructed the jury that its findings on patent misuse would be advisory; the jury held that Static Control did not induce patent infringement and advised that Lexmark misused its patents. Lexmark renewed its earlier request for a judgment as a matter of law and also filed a motion for a retrial on its patent inducement claim, both of which the district court denied. Both parties timely appealed.
In a unanimous ruling, the district court's findings were affirmed, except for its dismissal of Static Control's counterclaims under the Lanham Act and North Carolina state law. These were reversed and remanded for further consideration.
In particular, it was held:
- the 6th Circuit had jurisdiction to hear the appeal under 28 U.S.C. § 1291 (as opposed to being referred to the United States Court of Appeals for the Federal Circuit under 28 U.S.C. § 1295),
- the district court did not abuse its discretion in increasing the amount of the injunction bond entered during the preliminary injunction hearing,
- SCC's federal antitrust counterclaims under §§ 4 and 16 of the Clayton Act for violations of §§ 1 and 2 of the Sherman Act failed for lack of standing, under the standard set in Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters ("AGC"),
- SCC's counterclaim for false advertising under the Lanham Act is valid, as the 6th Circuit applies a "reasonable interest" standard to determine standing (in common with the 2nd Circuit, as opposed to the categorical test used in the 7th, 9th and 10th Circuits, or the AGC approach used in the 3rd, 5th, 8th and 11th Circuits),
- SCC's counterclaim for unfair competition and false advertising under North Carolina's Unfair Deceptive Trade Practices Act is valid under state law, as determined by the North Carolina Court of Appeals
Impact of the ruling
The ruling also let stand the district court's ruling of the impact of Quanta Computer, Inc. v. LG Electronics, Inc. on the exhaustion doctrine in the area of patent law. By finding that the sale of patented goods, even when subject to valid license restrictions, exhausts patent rights, it essentially gives Quanta a broad interpretation, which threatens to render unenforceable through patent law differential licensing schemes that attempt to distinguish separate fields of use for a patented item.
Appeal to the Supreme Court
The Circuit Court's ruling with respect to standing under the Lanham Act was appealed by Lexmark to the Supreme Court of the United States, on which certiorari was granted on June 3, 2013. The case is scheduled to be heard on December 3, 2013, and the question presented to the Court is:
Whether the appropriate analytic framework for determining a party's standing to maintain an action for false advertising under the Lanham Act is:
Lexmark argued in favour of the AGC test, while SCC argued that the appropriate test should actually be that of the "zone of interests" protected by the statute that has been applied in cases involving the Administrative Procedure Act, the Endangered Species Act, and Title VII of the Civil Rights Act. At the hearing, it appeared that Lexmark's submission received more intensive examination than SCC's.
- Chamberlain v. Skylink, a similar case
- Circuit Court ruling, Page 2.
- Dictrict Court ruling, Page 3.
- Sixth Circuit opinion, page 3.
- Sixth Circuit opinion, page 4.
- 17 U.S.C. § 106
- 17 U.S.C. § 1201
- "Note: Control of the Aftermarket Through Copyright in Lexmark International, Inc. v. Static Control Components, Inc.". Harvard Journal of Law & Technology (Harvard Law School) 17 (1): 307–320. Fall 2003. Retrieved December 3, 2013.
- Natalie Bajalcaliev (Fall 2003). "Lexmark International, Inc. v. Static Control Components: Enjoining Proper Usage of the Digital Millennium Copyright Act’s Anti-Circumvention Provisions". North Carolina Journal of Law & Technology (University of North Carolina School of Law) 5 (1): 101–122. Retrieved December 3, 2013.
- District Court ruling, page 23.
- District Court ruling, page 7.
- District Court ruling, page 24.
- District Court ruling, page 9.
- District Court ruling, page 11.
- District Court ruling, page 25.
- District Court ruling, page 28.
- District Court ruling, page 18.
- District Court ruling, page 42.
- District Court ruling, page 47.
- Sixth Circuit opinion, page 6.
- Sixth Circuit opinion, page 7.
- Sixth Circuit opinion, page 9.
- Sixth Circuit opinion, page 10.
- Sixth Circuit opinion, page 11.
- Sixth Circuit opinion, page 16.
- Sixth Circuit opinion, page 18.
- Sixth Circuit opinion, page 19.
- Sixth Circuit opinion, page 21.
- Sixth Circuit opinion, page 23.
- Sixth Circuit opinion, page 24.
- Sixth Circuit opinion, page 30.
- Sixth Circuit opinion, page 31.
- Caryn C. Borg-Breen (2006). "Garage Door Openers, Printer Toner Cartridges, and the New Age of the Digital Millennium Copyright Act". Northwestern University Law Review (Northwestern University School of Law) 100 (2): 912–915. Retrieved 23 September 2013.
- R. 1008 (D. Ct. Order 4/24/07)
- R. 1245 (D. Ct. Order 5/31/07)
- 2009 WL 891811, at *1
- Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters ("AGC"), 459 U.S. 519 (1983)
- N.C. Gen.Stat. §§ 75-1, et seq., analyzed in Matthew W. Sawchak; Kip D. Nelson (2012). "Defining unfairness in "Unfair trade practices"". North Carolina Law Review (University of North Carolina School of Law) 90 (6): 2033–2082. Retrieved 23 September 2013.
- Hyde v. Abbott Labs., Inc., 123 N.C. App. 572 (N.C. App. 20 August 1996). , 473 S.E.2d 680, 681-82, rev. denied, 344 N.C. 734, 478 S.E.2d 5 (1996)
- Amanda J. Carmany-Rampey (2009). "Quanta’s Changed Landscape of Patent Exhaustion: Static Control Components, Inc. v. Lexmark International, Inc.". Center for Advanced Study & Research on Intellectual Property Newsletter (University of Washington School of Law) 16 (2). Retrieved 23 September 2013.
- "Lexmark International, Inc. v. Static Control Components, Inc., Docket 12-873".
- described in Bennett v. Spear, 520 U.S. 154 (1997), 162-163
- Ronald Mann (November 29, 2013). "Argument preview: Justices to descend into morass of standing doctrine". SCOTUSblog.
- Eric Goldman (December 2, 2013). "Previewing Lexmark vs Static Control, A Rare Supreme Court Case On False Advertising". Forbes.
- Ronald Mann (December 5, 2013). "Argument analysis: Argument in standing case presages rare win for Sixth Circuit". SCOTUSblog.
- Lexmark's DMCA aspirations all but dead
- Electronic Frontier Foundation. "Lexmark v. Static Control Case Archive". Retrieved 2006-08-08.
- Karl S. Forester (2003-02-27). "Lexmark International, Inc. v. Static Control Components, Inc.: Findings of Fact and Conclusions of Law". United States District Court for the Eastern District of Kentucky. Retrieved 2006-08-08.
- Judge Jeffrey S. Sutton (2004-10-26). "Lexmark Int'l v. Static Control Components" (pdf). Sixth Circuit Court of Appeals. Retrieved 2006-08-08.
- Text of Lexmark International, Inc. v. Static Control Components, Inc., No. 03-5400 (October 26, 2004) is available from: Findlaw openjurist.org resource.org