Lexmark May Soon Be Running on Empty

A Kentucky jury ruled that Lexmark International unreasonably restrained competition with its return program by preventing customers from using the vendor of their choice when it comes to recycling their laser printer toner cartridges.

For business customers who have relatively high volumes of text printing, this decision could give them lower-cost options when it comes to printer ink.

Rob Enderle, a printer analyst and chief of the research firm Enderle Group, based in San Jose, Calif., said that if the ruling is upheld, Lexmark would have to do more than just loosen the reigns on its refill business.

“If the verdict is upheld, Lexmark will basically have no hold on the refill business,” Enderle said. “It would have implications for anyone who refills laser cartridges and would provide case law suggesting similar methods of litigation by a printer maker will not work.”

In 2002, Lexmark sued SCC (Static Control Components) for copyright infringement and circumvention under the Digital Millennium Copyright Act when SCC developed a process allowing refilled and remanufactured cartridges to work with Lexmark printers. SCC counter-sued, claiming that Lexmarks return program was anti-competitive.

The jurys decision is currently on hold while U.S. District Court Judge Gregory Van Tatenhove, the judge in the case, decides whether the jury verdict is supported by evidence.

The key issue in this litigation is Lexmarks return or “prebate” program, which gives customers discounts for agreeing to return the empty cartridge for recycling. The cartridges include a chip that has to be authenticated by the printer before it will accept any cartridge.

SCC makes a chip that is similar to Lexmarks, but which allows customers to refill and reuse prebate toner cartridges without having to return them to Lexmark.

While the jury agreed that SCC engaged in direct patent infringement, it also found that Lexmarks return program unfairly locked customers in by preventing them from recycling their laser printer toner cartridges with other vendors.

The case puts a key part of Lexmarks revenue model at risk, noted Enderle, who explained that Lexmark is adapting the razor blade business model to its purposes.

“The razor blade model subsidizes the cost of the printer which means that the cartridges pay for the printer,” Enderle said.

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