Actionable Intelligence’s Charlie Brewer discussed how the rulings in the upcoming case are “sure to impact” Apex Technology.
The US Supreme Court
The case was decided in Lexmark’s favour last year, with the Court of Appeals ruling remanufacturer Impression Products had “infringed Lexmark’s patents” by selling remanufactured Lexmark cartridges that “originally were sold with ‘single use’ or ‘no resale’ restriction in the US and abroad”. Impression had been named in an IP case in October 2013 referring to the “unlawful importation […] the sale for importation and/or the sale […] after importation” of a number of infringing remanufactured and cloned aftermarket cartridges.
Impression responded by moving to dismiss and overturn Jazz Photo, which impacts on patent exhaustion, influenced by the Supreme Court’s ruling in Kirtsaeng, which prevented copyright owners from stopping imports and reselling content sold abroad. The 2016 ruling decided Impression “infringed the patent rights of Lexmark […] when it imported Lexmark’s toner products back into the [US] after they were first sold abroad”, and was “liable for selling refurbished Lexmark cartridges that were originally marketed for a single use under its return and recycle programme”.
Recently however, the US government backed an “overturn” of the decision, and “urged” the Supreme Court to review it, and the court confirmed last December that it has “agreed to decide” whether the OEM “can use patent law to stop companies from refilling and selling” its cartridges. Brewer, President of Actionable Intelligence, wrote on LinkedIn about the case, noting that the ruling either way “could fundamentally alter the patent-exhaustion doctrine in the United States”.
He believes “this will be the remanufacturing industry’s most important case in two decades, so third-party supplies vendors will be watching closely”, and that Apex “will be paying especially close attention because its business will be affected regardless of which way the high court rules”. Having acquired Lexmark, Apex is also a “key player in the remanufacturing industry”, and Brewer notes that it supplies chips to remanufacturers worldwide.
This might mean “therefore that Apex would like to see a ruling in favour” of Impression Products, but he added that “as one of the OEM’s co-owners, it seems only natural that Apex would like to see Lexmark prevail”, adding that “therein lies the rub”. Apex “might find themselves supporting Lexmark in its bid to retain certain patent protections”, Brewer notes, which “presents the firms with a dilemma”.
He adds that “not long ago, Apex and Ninestar would have fought Lexmark – or any other OEM – tooth and nail to have IP protections lifted so that cartridges could be remanufactured without the risk of a lawsuit”, with the Mallinckrodt and Jazz Photo rulings affecting patent exhaustion having already “adversely impacted the availability of empty cartridge cores” in the USA.
His perspective was that empties “are the essential raw material for remanufacturing […] nothing affects the remanufacturing industry—and thus demand for Apex’s components—as much”, so “to keep selling chips and components, Apex needs an ample supply of empty cores. Given Apex’s huge selection of chips and other components for remanufacturing cartridges, fewer barriers to remanufacturing would improve Apex’s business”.
However, he adds that as a “Lexmark stakeholder”, Apex will “presumably fight tenaciously to protect its OEM’s IP”, and that “any desire Apex may have to sustain its cartridge component sales will be countered by the need to preserve the protections Lexmark’s patents provide”. Lexmark’s wide range of patents and applications are “quite valuable”, and Brewer pointed out that “it would be in Lexmark’s best interest to ensure all its IP protections remain as strong as possible”.
His conclusion is Apex finds itself “in a quandary”, as if it “maintains the legal successes that Lexmark achieved”, the Supreme Court “will uphold the Mallinckrodt and Jazz Photo decisions, which will limit the availability of empty cores for remanufacturing”. If these are overturned, “it is all but certain that more remanufactured cartridges will be produced, including more remans for Lexmark machines”.
He finished by noting that “of course, one could say that my assessment is upside down and Apex faces a win-win” as the “ruling will either benefit the Chinese firm’s components business or its Lexmark organisation. It all depends if you see a glass as half-full or half-empty”.