Lexmark prevails on printer cartridge resale terms
The 9th Circuit has that held Lexmark's printer cartridges sales terms do not violate California's laws against unfair business practices. The case is Arizona Cartridge Remanufacturers Assocation, Inc., v. Lexmark International, Inc.,Download file
The facts of the case reflect the growing trend towards shrink-wrap licensing of goods of all kinds. Lexmark's printer cartridges were sold with a license agreement on the outside packaging that contained shrink-wrap style terms:
"Please read before opening. Opening of this package or using the patented cartridge inside confirms your acceptance of the following license agreement. . . . If you don't accept these terms, return the unopened package to your point of purchase."
The salient part of the agreement states that:
"The patented cartridge is sold at a special price subject to a restriction that it may be used only once. Following this initial use, you agree to return the empty cartridge only to Lexmark for remanufaturing and recycling."
The quid-pro-quo for this was Lexmark's promise that the consumer received a discounted price for the cartridge sold under these terms. The Court rejected the argument that these terms were deceptive or false because it found that Lexmark's restriction created a valid agreement.
"We hold that the contract on its face appears to be enforceable based on the district court's findings that consumers (1) have notice of the condition, (2) have a chance to reject the contract on that basis and (3) receive consideration in the form of a reduced price in exchange for the limits placed on reuse of the cartridge."
In a footnote the Court said that its holding does not preclude challenges to the contract that a customer might raise.
The Electronic Frontier Foundation had advocated in its amicus brief that the 9th Circuit should explicitly reject the Federal Circuit's reasoning in Mallinckrodt v. Medipart, which held that a restriction on the sale of a patented good can be permissible as long as it does not go beyond the scope of the patent grant and does not have unjustified anticompetitive effect.
The Court declined to address the patent exhaustion issue, however, on the grounds that ACRA had conceded that such constraints are permissible. Instead, the ACRA had argued that a valid contract with consumers was necessary for such restrictions to be enforceable, which the Court found to exist as discussed above.
In light of this outcome, it will not be a surprise to see other sellers of patented goods impose shrink-wrap-style terms, such as to prohibit modifications, limit to home use or prevent aftermarket sale. It's unclear under these circumstances how the doctrine of patent exhaustion on first sale of the patented good would retain continued relevance except in the most egregious circumstances.
See the excellent summary and links on Dennis Crouch's Patently-O: Patent Law Blog.
Cathy Kirkman is a partner at Wilson Sonsini Goodrich & Rosati in Palo Alto, California. Her practice focuses on intellectual