Last summer, I wrote an article for ENX about Lexmark’s efforts to extract royalty fees from an undisclosed number of third-party supplies vendors. Alleging the firms had marketed remanufactured toner cartridge that violated its patents, Lexmark demanded the accused pay royalties or risk being hauled into court. This activity has continued. During the ensuing months, Lexmark has cast its net wide and is now threatening to sue a number of remanufacturers along with their channel partners. Although Lexmark has been remarkably quiet about its activities, I expect that we’ll be hearing a lot more about the case as the litigants prepare for trial, which is likely to begin in May.
A Little History
To better understand where things currently stand, a quick recap of Lexmark’s case would be in order. It all started in August 2010, when Lexmark accused 25 firms of infringing various patents on monochrome cartridges used in an assortment of machines. The firm filed complaints with the International Trade Commission (ITC) and in the U.S. District Court for the Southern District of Ohio. The defendants included Ninestar and affiliated companies and distributors; Print-Rite and various distributors; the so-called Jahwa group of companies from South Korea, and some additional distributors. Lexmark also took the unusual step of including in its complaints references so-called “John Does” defendants that would remain unnamed until some future date.
Most of the named defendants settled with the OEM by early 2011 and they took steps to resolve the matters pending before the district court and with the ITC. The suit remained open, however, which was puzzling in light of the fact that a general exclusion order barring the importation of infringing products had been issued by the ITC and many defendants settled the matter in federal court. Last year, when Lexmark began seeking its royalty checks, it became clear why the OEM had not closed the case. Lexmark indicated it would name those companies that did not agree to pay the royalties fee and fulfill the OEM’s other settlement terms as “John Doe” defendants and sue them as part of the 2010 case.
Lexmark has been able to implicate a number of firms in the case thanks to information it garnered from the Canadian empties brokers Greentec International. The OEM petitioned the Ontario Superior Court of Justice to compel Greentec to provide Lexmark with a list of its customers in the United States. Lexmark had previously filed an intellectual property complaint with the Canadian authorities against the Ontario-based broker and the OEM continued to monitor Greentec’s exports to the U.S. Because the Canadian empties broker supplied its U.S. customers with empty cores that were first sold outside of the U.S., Lexmark’s patent rights had been violated under U.S. patent law. A patent holder in the U.S. retains certain rights if its products are first sold outside of the country. The Canadian court found in favor of Lexmark and Greentec was ordered to provide the names of its U.S. customers that purchased Lexmark empties to the OEM.
Lexmark’s ongoing investigation, which is now approaching its third year, has involved some of the most well-known U.S. third-party supplies vendors as well as dozens—perhaps hundreds—of smaller firms. At the start of 2013, some 36 companies had settled the matter in federal court but Lexmark has kept up the pressure in the New Year and is looking into the possibility of naming other firms to the long-running infringement case. The impact of Lexmark’s action has the potential of being felt across the remanufacturing industry in the U.S. as well as in the channels.
The Current Situation
Lexmark has been back to court numerous times in 2013. Instead of concluding its ongoing discovery phase in February, the court has given Lexmark until May 6 to finish naming its John Doe defendants. The firm has subpoenaed a wide range of companies to get information to help it identify more firms that may have remanufactured Lexmark cores sourced from Greentec. The OEM is also seeking several contempt rulings against firms it claims have violated earlier settlements.
Currently, Lexmark is pressing the federal court to compel Cartridge World North America to turn over certain sensitive materials regarding its franchisees. It appears that some Cartridge World stores were on the customer list that Greentec turned over to Lexmark. In addition to having the franchisor identify all its U.S. franchisees, Lexmark has requested the court to compel the franchisor to provide documentation pertaining to the franchisee’s purchase and sale of Lexmark cartridges. Lexmark is seeking supplier names, the types and quantities of cartridges purchased and sold, and any alleged patent exhaustion claims that Cartridge World may raise in defense. It is unclear how many of the 600+ Cartridge World franchise stores in North America Lexmark is actually gunning for, but as one of the region’s largest vendors of non-OEM supplies, the potential for hundreds of more John Does could be added from the Cartridge World ranks.
Lexmark is also attempting to get information from Cardinal Cartridge Inc. As a mid-sized player, the impact of a Cardinal subpoena may not appear to be very impactful in and of itself. The OEM, however, told the court that Cardinal is “affiliated with—if not one and the same as” several companies, including Cardinal LLC, Noops International, Imaging Resources, and Printer Essentials.com. While it has kept its focus on Cardinal, Lexmark says it served a subpoena on each of the other entities seeking to clarify their relationship as well as their acquisition and sale of Lexmark cartridges. Printer Essentials, of course, is one of the region’s leading distributors of non-OEM products and it supplies hundreds of dealers—if not more. Once again, Lexmark could net a significant number of additional defendants if Printer Essentials has been marketing infringing products.
The other big fish that Lexmark is now angling for is Micro Solutions Enterprises (MSE), one of the larger toner cartridge remanufacturers in the U.S. Lexmark is also seeking a contempt motion against a less well-known firm, IJSS, which settled with Lexmark after the original complaint was filed in 2010. The OEM asserts in court documents, however, that IJSS has continued to sell both clone and infringing remanufactured toner cartridges that are not “colorably different” from those IJSS was selling before it settled with Lexmark. The printer maker says that it is investigating IJSS’s suppliers to establish that the firm sold infringing Lexmark cartridges using cores imported from outside the United States. According to Lexmark, one of these suppliers is MSE.
In its court filing, Lexmark claims it has “evidence that MSE imports infringing Lexmark cartridges from outside of the United States.” It is asking for documents and a deposition from MSE regarding its purchase and sale of infringing Lexmark cartridges. According to Lexmark, the document requests that MSE is disputing include:
l Documentation relating to the types and quantities of empty cartridges MSE purchased from Greentec International from April 2011 to the present
l Documentation identifying MSE’s customers for Lexmark cartridges
l MSE’s communications and correspondence to or from IJSS related to Lexmark cartridges, patents, agreements between the two parties related to the sale of Lexmark cartridges, and/or the contempt motion against IJSS
l All agreements between MSE and IJSS
l All agreements between MSE and Greentec related to Lexmark cartridges
With so many key players involved and the number of potential defendants growing all the time, Lexmark’s case is taking on mythic proportions. The possibilities, of course, are endless. The court may not side with Lexmark and decide not to compel the various firms to provide the OEM with the information it seeks. Or the currently warring parties may reach a settlement—separately or in various groups—outside of the courthouse. On the other hand, all of the firms may gird themselves for combat and battle it out in court. If that turns out to be the case, I would expect that you’ll be hearing a lot more about the matter next month. That is, unless Lexmark is granted yet another extension. Stand by!
