Injunction against Static Controls lifted in Lexmark copyright/DMCA case

The Sixth Circuit lifted the injunction against Static Controls, but the ultimate merits of the case remain to be decided. Although each of the three judges wrote individual opinions, the court as a whole noted that its opinion concerns only the preliminary injunction that had been issued against Static Controls, and leaves a decision on a permanent injunction in the hands of the district court, to which the case is now remanded.


ZDNet news reported:

-->The court said that "lock-out" codes in software that's designed to control or limit interoperability is not covered by the original-expression intentions of copyright law. Furthermore, said the court, SCC's reverse engineering was not a circumvention of Lexmark's Toner Loader Program but a replacement of it, so even if the code had been covered by copyright, SCC's implementation would have been allowed under the fair-use doctrine. <--

ZDNet also noted:

-->When printer ink costs more than perfume, something smells wrong. So when Gartner recently did a few simple sums and worked out that, at £1,200 a litre, printer ink costs more than Chanel No.5, it's hardly surprising that a few eyebrows were raised. <--

[http://comment.zdnet.co.uk/other/0,39020682,39171564,00.htm]


The decision of the three judge panel of the Court of Appeals for the Sixth Circuit was split.

Judge Jeffrey Sutton wrote that "because Lexmark failed to establish a likelihood of success on any of its claims, whether under the general copyright statute or under the DMCA, we vacate the district court's preliminary injunction and remand the case for further proceedings."

Judge Gilbert Merritt wrote a separate concurrence ("We should make clear that in the future companies like Lexmark cannot use the DMCA in conjunction with copyright law to create monopolies of manufactured goods for themselves."), and the panel's third member, U.S. District Judge John Feikens, issued his own opinion, which dissented in part from the ruling.

The economic significance is great. In the past, there were great patent wars, involving among others Hewlett-Packard, concerning the repair/reconstruction issue over the act of re-filling cartridges. Sales of cartridges and other printer supplies are a major part of Lexmark's business, especially because the prices of printers and other computer hardware have fallen in recent years. The average business spends 1 percent to 3 percent of its annual revenue on ink and paper, Lexmark has said. The goal is to capture as much of that market as possible.

Another case wherein an injunction in an IP case was lifted, was that against Barnes & Noble (BN) in the amazon.com case over the double-click patent. That case settled and the question of the validity of the amazon patent was not decided. In the Lexmark case, it is more likely that the merits of the DMCA claim will be addressed by the district court (in the present remand) and possibly by the Sixth Circuit, on any later appeal. PCWorld reported Merrill Lynch analyst Steven Milunovich says in a research note that he is "somewhat surprised" at the appeals court ruling but does not expect it to significantly affect Lexmark's business.

In the near term, the analysis by Milunovich may be correct, but if the rejection of the concept of using the DMCA to foreclose interoperability remains, Lexmark (and others) may have a problem. The margins on replacement printer cartridges will shrink and this will resemble the generic drug business.