Lexmark Is Able to Prevent Patent Exhaustion Through Use of End User License to Prevent End User’s From Re-filling Single Use Cartridges

Lexmark International, Inc. (hereinafter Lexmark) is a manufacturer of printers and printer cartridges.  In order to prevent unauthorized re-filling of the printer cartridges, Lexmark has been attempting to enforce its rights using a combination of actions, including one well publicized action based upon its existing patent rights.  Specifically, as part of its end user license for the same cartridges, Lexmark included a provision which is substantially as follows:

 

License Agreement: Patented cartridge inside sold subject to a Single Use Only restriction.  It is a violation of this agreement and/or it is unlawful to resell, reuse, refill or remanufacture.

 

The Arizona Cartridge Remanufacturers Association (hereinafter referred to as the ACRA) is an association which represents the cartridge remanufacturing industry.  The ACRA sued Lexmark for unfair trade practices in relation to its attempt to control the post-sale use of the cartridges and, in particular, for the single use restriction contained in the licensing agreement.  According to the ACRA, since the patents were exhausted when first sold to the user, the single use restriction contained in the license was deceptive to consumers.  Lexmark filed a counterclaim of patent infringement.

On motion for summary judgment, the District Court for the District of Northern California reviewed the law of patent exhaustion and found that, for exhaustion to attach, the patented article must have been sold without restrictions on the use.  Further, if the sale was conditional, patent exhaustion does not apply.  In analyzing the sale of the printer cartridge having the single use restriction, the District Court noted that the single use restriction was obviously placed and readily seen by the end user.  The District Court further held that the restriction was included in a valid shrink wrap license and that the user is able reject the restriction by obtaining a more costly version of the cartridge from Lexmark, which was evidence that the end user received consideration for the restriction on the cartridge’s use.  As such, the District Court held that the restriction was valid and enforceable such that the sale was conditional.  Since the sale of the cartridge was conditional, the patent was not exhausted.  Therefore, the District Court granted summary judgment dismissing ACRA’s claims of unfair trade practices, and found that Lexmark’s use of the single use restriction was proper and “falls squarely within Lexmark’s patent right.”  ACRA v. Lexmark Int’l Inc., Civ. No. 01-4626 (N.D. Cal. Sept. 29, 2003).

While the case is currently on appeal pending a decision by the Ninth Circuit, the District Court’s decision is instructive in showing that, by placing a condition on the sale of the patented consumable, it is possible to preserve the patent rights for that patented consumable.  Specifically, the use of end user license agreements would appear to directly prevent the end user from performing one or more tasks not required for the intended end use of the consumable (i.e., using the printer cartridge in the printer) while validly preventing the unauthorized use of the consumable (i.e., re-filling the printer cartridge).

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