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Lexmark License of Toner Cartridge an Antitrust Violation
To the List,
Attached is a letter from Ralph Nader and I calling for an FTC
investigation of the Lexmark "Single Use" toner cartridge. Lexmark is
marketing a toner cartridge for its new line of Optra S laser printers
with a shrinkwrap license that claims to require the purchaser to give
the empty cartridge back to Lexmark or throw it away, in exchange for a
$30 "Prebate." This ties the two products and has prevented the
development of market for remanufactured Optra S toner cartridges which
are often priced at approximately 50% of the cost of a brand new
cartridge. Currently remanufacturers have around $1 billion (and
growing) of this $5 billion market.
GOVERNMENT PURCHASING PROJECT
PO Box 19367 • Washington, DC 20036
(202) 387-8030 • (fax) 234-5176 • http://www.gpp.org
__________________________________________________________
April 22, 1998
Chairman Robert Pitofsky
Federal Trade Commission
6th & Pennsylvania Avenue
Washington, DC 20580
Dear Chairman Pitofsky:
We are writing to encourage the Federal Trade Commission (FTC) to
investigate the marketing practices of Lexmark International, Inc.
("Lexmark"), a major manufacturer of laser printers and toner
cartridges. The cause of our concern is Lexmark's line of Optra S laser
printers and the accompanying toner cartridge, one version of which is
sold at a discounted price, but subject to a purported single use
license restriction. We suspect that Lexmark's marketing of these
products may violate antitrust laws and truth in advertising
requirements, in addition to promoting a business model that will have
negative environmental impacts.
The discounted version of Lexmark's Optra S toner cartridge, called the
Prebate model, is priced $30 less than the standard version that sells
for $229. The difference is that the Prebate version includes what
purports to be a license attached to the outside of the product
container. The claim that this is a valid license is just one of many
questionable aspects of this marketing ploy that the FTC should
investigate. Even in software markets, such "shrinkwrap" licenses -- a
take-it-or-leave-it license that confront the consumer after the product
has been bought and paid for -- are of questionable legal validity.
For an ordinary consumer good, such as a toner cartridge, the claim that
the license is valid grows even more tenuous. Nonetheless, Lexmark
claims that to disobey this dubious license is "unlawful," an allegation
that gets its intimidating power not from any legal analysis, but from
the financial brawn of the company standing behind it. In short, to
disobey invites expensive litigation.
Through the alleged license, Lexmark attempts to restrict what the
purchaser can do with the toner cartridge when it is empty. The license
includes the following language: "Patented cartridge inside sold
subject to Single Use Only restriction. It is a violation of this
agreement and/or it is unlawful to resell, reuse, refill or
remanufacture." Lexmark hopes it will be able to effectively restrict
or eliminate remanufacturers by providing a cash incentive for the
single use version which requires that a purchaser either give the empty
toner cartridge back to Lexmark or simply throw it away. This will
prevent remanufacturers from getting access to the empty Lexmark Optra S
cartridges, and prevent the development of a competitive remanufactured
market for these cartridges. If Lexmark also restricts the availability
of the non-Prebate version of the cartridge or eliminates it altogether,
the remanufactured market will never develop. The end result will be
that competition is eliminated and purchasers of the Optra S printers
will have a single source of toner cartridges: Lexmark. This is an
illegitimate goal -- monopolization of the Optra S toner market -- that
Lexmark is pursuing through a tying arrangement. The single use license
terms are a transparent attempt to reduce competition from toner
cartridge remanufacturers and they raise serious questions regarding
whether Lexmark is violating antitrust prohibitions.
Lexmark claims on its web site (www.lexmark.com) and in its
advertisements that the Prebate program offers a cost saving option to
consumers. While this may be the case when the Prebate cartridge is
compared to other Lexmark products, due to the reported 17,600 page
yield, but it is a questionable claim when compared to remanufactured
cartridges. Toner cartridge remanufacturers have provided a cost saving
option for consumers by recycling spent toner cartridges, refilling them
and selling the remanufactured cartridge for a discount, often
approximately one-half the cost of the original toner cartridge.
Lexmark offers the Optra S cartridges with a $30 Prebate, for a total
cost of $199 (assuming a $229 list price). A remanufactured version, on
the other hand, would have a similar page yield at approximately 50% of
the cost: $115. If Lexmark is permitted to continue with this
marketing scheme, consumers will never be able to choose between the
Prebate and less expensive remanufactured option.
In addition to the possible antitrust violations and the anti-consumer
aspects of the Prebate toner cartridge scheme, it will have an equally
negative environmental impact despite Lexmark's claims to the contrary.
Lexmark is attempting to market the Prebate product as beneficial to the
environment -- a claim so questionable as to raise concerns about
violations of truth in advertising requirements. The single use
cartridge seeks to force consumers to use it once and either throw it
away or return it to Lexmark where it will allegedly be recycled into
other products. But as reported in the Wall Street Journal on Friday
April 10, 1998 ("Printer Wars: Toner Discount Incites Rivals," at B1),
two-thirds of the Prebate cartridges are not returned to Lexmark -- they
are thrown out. The cartridges that are returned are not routinely
remanufactured, but processed into other products. Yet Lexmark is
marketing the Prebate cartridges as a product that, according to its
press release, "will help protect the environment."
Lexmark's supposedly green product stands in stark contrast to the
remanufacturing sector which diverts tens of thousands of tons of toner
cartridges every year that would otherwise further clutter our already
stressed landfills. In addition to the direct reduction of solid waste
and the related municipal costs of disposal, remanufacturing saves
energy and avoids the polluting green house gasses that would be
produced in manufacturing brand new cartridges. Compared to
remanufacturing, a sector of the business supply business that Lexmark
is clearly trying to marginalize if not eventually eliminate, the
Prebate program appears to be far from environmentally sound.
This matter requires great scrutiny by the Federal Trade Commission.
It is important for its direct impacts, but of far greater concern are
the potential ramifications this case may have as a precedent for the
entire remanufactured toner cartridge industry. What will stop other
laser printer manufacturers from attempting to monopolize sales of toner
cartridges that work with their products? This could lead to the
complete elimination of the remanufacturing sector. In addition, there
is the potential that the poor policies encouraged by Lexmark's example
will be repeated in other industries. Will paper manufacturers using
virgin pulp claim a patent in their paper and attempt to impose a single
use requirement in order to stave off competition from recycled paper
makers? Will tire manufacturers do the same to retread tire companies?
These are issues of great importance and we hope you will investigate
them expeditiously.
Sincerely,
_________________ _________________
/s/ Todd J. Paglia /s/Ralph Nader
--
Todd
___________________________________________________________
Todd J. Paglia, Esq. PO Box 19367
Todd@gpp.org Washington,
DC 20036
Project Coordinator, Government Purchasing Project: http://www.gpp.org
Staff Attorney, Consumer Project on Technology: http://www.cptech.org