[Ecommerce] Box-top license

[Manon Ress]

By Tearing Open That Cardboard Box, Are You Also Signing on the
Dotted Line?

By J. D. BIERSDORFER
Published: October 3, 2005

http://www.nytimes.com/2005/10/03/business/03inkjet.html?
ex=1285992000&en=52eef2f74aed472b&ei=5090

Pay attention next time you rip open a cardboard box - you may be
entering into a contract without realizing it.

A recent decision in the Ninth Circuit Court of Appeals reinforced
the right of companies, in this case Lexmark International, the
printer maker, to legally limit what customers can do with a patented
product, given that the company spells out conditions and
restrictions on a package label known as a box-top license.

Clickable license agreements are common practice in software, where
the buyer agrees not to tamper with the code or copy the program. But
slapping postsale regulations on patented goods could deny buyers the
ability to make modifications or seek repairs on other products as
well. Box-top licenses could also theoretically hinder third parties
from offering replacement parts or supplies for fear of a patent-
infringement lawsuit (meaning, for example, that a lighter might have
to be refueled only with the manufacturer's brand of butane).

In the lawsuit, the Arizona Cartridge Remanufacturers Association, a
trade group of companies that sell refilled printer cartridges,
claimed that Lexmark was engaging in unfair and deceptive business
practices by promising price discounts on its laser cartridges if the
customer promised to return the empty cartridge to Lexmark.

Lexmark's packaging for laser cartridges sold under this system
(called the Lexmark Cartridge Rebate, or the Prebate program)
includes a label on the outside of the box stating: "Opening this
package or using the patented cartridge inside confirms your
acceptance of the following license agreement." Cartridges that are
not part of the Prebate program and not subject to the restriction
are available to customers as well, but without the discount. At the
time of the case, Lexmark estimated that cartridge returns had
increased 300 percent since the Prebate program began.

Lawyers for the remanufacturers' association argued that Lexmark
deceptively suggested that the notice on the outside of the package
created an enforceable agreement with consumers to return the used
cartridges, and that the promise of a price discount was false
because Lexmark could not control prices charged by retailers.
Lexmark also uses an electronic chip on the cartridges to communicate
with the printer, which refuses to operate with cartridges that lack
the chip; the association cited that as an unfair business practice.

The court ruled in Lexmark's favor on Aug. 30, citing the previous
case of Mallinckrodt Inc. v. Medipart Inc., a 1992 Circuit Court
decision in a medical equipment case that allowed patent owners to
limit the use of their products after sale. The court also concluded
that Lexmark's pricing claims were accurate and that ACRA failed to
establish that Lexmark's cartridge chip amounted to unfair competition.

Some frugal printer owners wondered if the decision would make it
illegal to refill their inkjet cartridges at home, a concern that a
Lexmark spokesman dismissed.

"Lexmark's cartridge return program deals exclusively with laser
printer toner cartridges. It does not involve any inkjet products,"
said Tim Fitzpatrick, the vice president of corporate communications
for Lexmark, who said that the program almost entirely involved
business customers. "The court's decision was very specifically about
this program," he said.

Fred von Lohmann, a senior attorney with the Electronic Frontier
Foundation and author of a 2004 amicus brief supporting ACRA, said he
was more concerned about future implications of the decision.

"This certainly sent a very strong message to patent holders
generally, and Lexmark in particular, that you can use these labels
in order to restrict what your customers can do with the product
after they buy it," he said.

Mr. von Lohmann gave several hypothetical examples of how box-top
licenses could be used, including automobile manufacturers who might
put a label on a new car stating that by opening the door for the
first time, the new owner agreed to use only the manufacturer's
replacement parts and to avoid modifying the car. "Owners of patents
would love to be able to control what you can do with a product after
you buy it," he said. "That's new. The rule for most of a century has
been, 'You buy it, you own it.' "

Lexmark was recently involved in another lawsuit against a North
Carolina-based company, Static Control Components. In the case,
Lexmark sued under provisions in the Digital Millennium Copyright Act
to keep Static Control from reverse-engineering Lexmark's cartridge
chips so that remanufactured cartridges from other vendors would work
in Lexmark printers. Static Control ultimately won the copyright
fight after the United States Supreme Court declined Lexmark's
petition in June.

Ronald S. Katz, a lawyer for Manatt, Phelps & Phillips, which
represented ACRA in the suit, said that while the continuation of
Lexmark's return program would not put companies that reclaim and
refill laser printer cartridges out of business, "it basically makes
it harder for them to compete." The trade association, he added, is
not pursuing the case further.

Although legal analysts who followed both lawsuits expressed concerns
that Lexmark was trying to create a cartridge monopoly for its
printers, the ruling in the Static Control case does allow that
company to keep making chips that communicate with Lexmark's printers.

"This is about customer choice," said Mr. Fitzpatrick of Lexmark.
"The court has ruled in favor of customer choice." A footnote in the
court's written opinion stated that the decision would not preclude a
consumer from raising challenges to the box-top contract.

In his supporting brief, Mr. von Lohmann argued that the decision in
the medical equipment case, which was cited in the Lexmark case, was
wrongly decided. "The courts started saying, 'Well, you bought it,
you own it - unless they put a condition on it that you agreed to
when you bought it,' " said Mr. von Lohmann.

He cited the 1873 case of Adams v. Burke, in which a coffin-lid
manufacturer attempted to restrict where its patented product could
be used. "The courts correctly said that's ridiculous," Mr. von
Lohmann said. "When you buy a coffin, you can plant the guy wherever
you want. It's none of the patent owners' business once you bought
that coffin and where you put it in the ground."

But would the coffin case have come out differently if the
manufacturer had put a label on the outside? "That's the concern," he
said.




************************************************
Manon Anne Ress
manon.ress@cptech.org,
www.cptech.org

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