What Today’s Supreme Court Printer Case Means For Business

What Today’s Supreme Court Printer Case Means For Business
By Jeff John Roberts
Mar 20 2017
http://fortune.com/2017/03/21/supreme-court-lexmark-printers/

On the face of it, the Supreme Court is about to hear what sounds like a simple dispute: When can a printer company forbid others from refilling its toner cartridges?

But this ordinary-sounding patent case carries profound implications for retailers and resellers across the U.S. economy, and has led dozens of scholars, public interest groups, and companies from IBM to Costco to weigh in. The case, known as Impression Products v. Lexmark International, will be argued before the Supreme Court at 11 am ET on Tuesday.

Here’s a plain English guide to what you need to know about the case.

Why is the Supreme Court hearing a case about toner cartridges? 

The printer giant Lexmark, which earns much of its revenue from cartridge sales, sued a small West Virginia company for selling refills of its cartridges without permission. That smaller company, Impression Products, disabled a chip in the cartridges so that Lexmark printers did not realize they were unauthorized refills. This lets consumers save money on toner, but it poses a threat to Lexmark’s business model. An appeals court took Lexmark’s side, and concluded that Impression’s activities amounted to an unauthorized use of the company’s patented technology. Now, Impression is appealing.

It’s just toner cartridges. What’s the big deal?

While the dispute will undoubtedly affect the printer market, a Supreme Court ruling for Lexmark would also give patent owners broad new powers to limit what people can do with their products after they are sold. Just as Lexmark says it has a right to limit the resale or modification of its cartridges, car or drug companies could theoretically impose their own unusual restrictions.

“A [patent owner could sell] pharmaceuticals ‘only to be swallowed whole,’ or a radio ‘only for use on Sundays,’ and sue someone who splits his pills or forgets the day of the week for patent infringement … Less fancifully, a patentee could sell a car with a ‘no resale’ restriction and shut down the market for used cars,” wrote a group of scholars in support of Impression Products.

This could seriously affect resale markets and consumer choices. On the other side, Lexmark and its supporters see Impression’s activities as a form of piracy, and they warn that this could dramatically upset companies’ business models.

What are the legal arguments? 

In its victory at the appeals court, Lexmark relied on a technical argument about the 1952 Patent Act that revolves around the word “authority.” Basically, Lexmark says the law means that it can enforce its patent rights even after a sale if the user engages in unauthorized activity.

Opponents, meanwhile, point to a long-time patent principle known as “exhaustion.” This idea, which dates back to the Civil War era, means that after a patent owner sells its product, its rights over that product are finished. The thinking here goes something like “patent owners get to collect monopoly prices when they first sell the product, so they shouldn’t get to double dip.”

Impression’s supporters also claim that new post-sale patent rights will create huge uncertainty about what people can do with their property. Patent owners could pop up all over the place and say a certain use of a product is unauthorized, and that the owner must pay damages. They argue that in situations like Lexmark and its refill policies, companies should try to exert control through ordinary contracts, not through powerful patent monopolies.

There is also a second question before the Supreme Court in this case, which is about when companies can import patented products to the U.S. that they bought legally overseas.

[snip]

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s