Attorneys for a number of hardware manufacturers are ramping up for what appears to be a very busy year. Canon, Hewlett-Packard, and Lexmark all have lawsuits pending in various U.S. federal courts against firms both foreign and domestic. The defendants are alleged to have marketed consumables that violate the OEMs’ respective intellectual property. In addition, the U.S. International Trade Commission (ITC) recently announced that it will investigate Epson claims that a number of companies are now selling infringing ink tanks in the U.S. for Epson machines. The commission is also conducting a similar investigation into Canon claims that assorted companies are importing infringing toner cartridges into the U.S.
And these are just the matters that I know of pending in the U.S. courts. Canon, HP, and Samsung have all filed cases in courts across the European Union. Canon has also filed suit in Russia, and HP even has a couple of cases now working their way through a couple of courts in China including one pending before the recently established IP court in Shanghai.
I’ve been following the digital imaging industry for almost twenty years and I can’t remember a time when so many OEMs were engaged in so many legal battles in so many countries. Of course, hardware manufacturers are now particularly sensitive to losing supplies sales to infringing goods as people print less and cartridge consumption drops. But that’s not the only thing fueling all these cases. There is also an abundance of infringing products being manufactured and shipped around the world and the supply just keeps growing. Apparently, regardless of the risk of lawsuits, demand for infringing stuff remains strong and certain third-party supplies vendors around the world are willing to peddle consumables that violate OEM IP.
Epson at the ITC
Going from the most recently filed action and working backward, let’s begin with the ITC’s investigation of Epson’s allegations. In December, Seiko Epson along with Epson America and Epson Portland filed a complaint with the commission alleging 19 third-party supplies vendors violated five Seiko Epson ink tank patents. The ITC agreed to pursue the complaint and ordered on January 20 that an investigation be conducted to determine whether section 337 of the Tariff Act of 1930 had been violated. The ITC is the federal agency charged with investigative responsibilities on matters of trade so it has the authority to uphold section 337 of the Tariff Act, which says that the infringement of intellectual property rights and other forms of unfair competition in the import trade are unlawful.
Epson’s past successes with the ITC were well chronicled. About 15 years ago the firm began pursuing companies cloning its ink tanks but it was its 2006 suit that grabbed headlines. Alleging 24 third-party supplies vendors violated its ink tank intellectual property, Epson’s case had the largest number of defendants the industry had witnessed when it was filed in U.S. federal court. In addition to the suit, Epson filed a complaint with the ITC saying the practice of infringing its patents was widespread and many of the ink tanks being imported into the U.S. violated its patents. After conducting a so-called 337 investigation, the commission determined that many third-party Epson compatibles encroached on Epson’s IP and the firm had suffered losses as a result. The ITC granted a general exclusion order (GEO) in 2007 barring the importation of infringing Epson compatibles into the United States. As the 337 investigation was being conducted, most of the companies named in the federal case settled.
One might conclude that with the settlements and the GEO, the case was largely wrapped up and Epson was the victor. That was not the case, however. Several companies continued to fight the OEM in federal court and challenged the ITC’s determination. As the pitched legal battle was being fought, the ITC discovered that several firms had ignored its GEO and the commission meted out heavy fines in 2009. Ninestar and its wholly-owed U.S. distribution subsidiary Townsky were slapped with a fine in excess of $20 million, the largest ever levied by the commission, and several other firms received lesser fines. What followed were years of additional legal wrangling during which time Townsky went bankrupt and the Ninestar fine was reduced to $11.1 million. Although Ninestar ultimately lost its appeal to have the fine reversed, I’m not sure the matter was ever fully settled and the fine was actually paid.
Regardless of the status of the fine, Epson’s successful pursuit of the lawsuits and its efforts to have the authorities enforce the GEO resulted in the OEM regaining much of the U.S. market share for its ink tanks. That has been changing over the past few years as more vendors have added third-party supplies for Epson machines. No doubt, it is this proliferation of non-OEM ink tanks that has resulted in the OEM’s December filing at the ITC.
Unlike the 2006 complaint, which included manufacturers in China, Hong Kong, and Europe as well as a number of U.S.-based firms, the majority of Epson’s most recent ITC complaint involves businesses based in China or Hong Kong as well as a few U.S. resellers. The 2006 case involved various patented technologies, but in the most recent complaint, the five patents that Epson asserts are related to circuitry used for transferring power and data from the printer to the ink tanks. I suspect that certain respondents will challenge Epson’s patents so we may see a prolonged fight as we did with the 2006 matter. The latest Epson investigation before the ITC is filed under 337-TA-946, and has been assigned to Administrative Law Judge Dee Lord. If as expected, there are hearings, they will most likely occur in the first quarter of next year after commissioners witness a plethora of filings during the current year.
HP vs. Ninestar and Apex
In October, HP filed suit in the U.S. District Court for the Northern District of California against Epson’s old foe, Ninestar along with its longtime chip supplier, Apex Microelectronics. HP alleges Apex and Ninestar marketed products in the U.S. that infringe U.S. patents 6,089,687 (‘687), 6,264,301 (‘301), and 6,454,381 (‘381). The accused products include Apex chips for HP 564, 920, 932/933, 950/951, or 970 series ink tanks, as well as for “similar cartridges” and Ninestar replacement cartridges for the same SKUs. In its complaint, HP notes that at least some of the Ninestar ink cartridges use chips manufactured and sold by Apex. The ‘687 and ‘301 patents were allegedly violated by Ninestar 564, 920, 932/933, 950/951, or 970 series compatible cartridges and Apex chips for those SKUs. HP claims Apex’s chips and Ninestar’s compatibles for the HP 564 and 920 series as well as “similar cartridges” infringe the ‘381 patent.
This is not the first time that HP has sued Ninestar as well as others for violating some of the patents asserted in this new lawsuit. In 2006, HP filed patent-infringement complaints in district court and before the ITC alleging that Ninestar and various distributors infringed seven patents, including the ‘687 and ‘301 patents. The lawsuit was eventually settled in March 2007, and Ninestar agreed to acknowledge the validity of the patents-in-suit and pull infringing compatible inkjet cartridges from the market. After conducting a 337 investigation into the matter at HP’s request, the ITC issued a GEO against products violating the ‘687 and ‘301 patents. It seems to me that if Ninestar is indeed selling cartridges that infringe the ‘687 and ‘301 patents, not only is it in violation of its 2007 agreement with HP, both Ninestar and Apex could be seen as flouting the ITC’s GEOs as well.
HP is seeking a judgment that the defendants have infringed the patents in suit, a preliminary and permanent injunction barring the defendants from further infringement, damages, as judgment that treble damages are warranted, and attorneys fees and costs. Of course, if the ITC gets wind of the case, it could levy its own fines against Ninestar and Apex, which would be independent of any damages or fees awarded by the federal court. I suspect that as a repeat offender, Ninestar’s fine could be considerable.
It appears that HP and the defendants are working towards an amicable solution, however. In several different motions filed with the court, the plaintiffs and defendants have requested that certain deadlines be pushed back. The court has ordered that more time be allowed explaining that “because the parties have been involved in discussions to explore possible amicable resolution of this matter, the parties agree that there should be a further extension of time for filing an answer or other pleading in response to the complaint.” It is impossible to say how close the two sides are, but if no agreement is reached, the case should move quickly to the discovery phase in March.
Canon’s Dongle Gear Case
Ninestar is also part of a 337 investigation that Canon requested last year. In May, Canon U.S.A. and Canon Virginia asked the ITC to investigate 33 companies including eight Ninestar affiliates to determine if they had infringed one or more of a dozen U.S. patents. The patents Canon claims the respondent infringed relate to a coupling mechanism found on Canon and HP all-in-one toner cartridges that connects a laser printer to the cartridge to synch and rotate the imaging drum. The investigation followed Canon’s filing of 11 lawsuits against 18 aftermarket supplies manufacturers and resellers on January 29 in the U.S. District Court for the Southern District of New York claiming that they had infringed some of the same patents as those in the ITC matter.
Last year’s filings came almost two years to the day after Canon filed similar complaints with the commission and in the same federal district court where the 2014 case was filed. On January 23, 2012, the OEM sued a long list of third-party supplies vendors for infringing two patents that Canon holds on the design of a twisted-prism gear, which is used in most of its older cartridges. Although that twisted gear was quite different in design than the so-called dongle gear at the center of the most recent case, both are coupling mechanisms that perform basically the same function: synchronize and rotate the image drum. All of the defendants in the case either settled with Canon or defaulted. After conducting its 337 investigation, the ITC determined that Canon’s U.S. supplies business was being damaged and granted the OEM a GEO in June 2013 to restrict the importation of infringing cartridge into the U.S.
Unlike its 2012 case, Canon is claiming a smaller number of accused cartridges this time around and the patents were issued more recently. Canon has obviously devoted significant research and development to its newer “dongle gear” design and presumably plans to use this gear design in new yet-to-be-launched products. So if the firm were to be granted a GEO, it is likely that such an order would impact not only infringing versions of the toner cartridges currently on the market, but also infringing versions of cartridges that the OEM has yet to launch.
The ITC was wrapping up its investigation into the Canon matter as I was writing this article. Part of the investigation includes testimony to be presented to the administrative law judge, which was slated to happen in February. Typically, in these matters, respondents offer an affirmative defense—such as they did not infringe, the patents are invalid, the patents are unenforceable, and so forth. It appears, however, that Ninestar, as well as some other parties, will defend themselves by going after the validity of Canon patents. In certain documents filed with the ITC, Ninestar claimed that the Canon patents in question are examples of obviousness-type double patenting and that prior art exists that establishes the invalidity of the asserted claims of the asserted patents as it had in the Epson litigation noted earlier. Ultimately, of course, Ninestar settled with Epson, by questioning their validity and attempting to chip away at the number of patents and claims the OEM had asserted.
Obviously, a new wave of litigation from Canon, the world’s top manufacturer of toner cartridges and laser printer engines, is huge news for the supplies industry. HP is the leading printer vendor worldwide, followed by its manufacturing partner Canon, and together the firms have an enormous installed base and market share. Virtually any firm playing in the aftermarket toner space offers HP/Canon cartridges, so if Canon prevails and is awarded a GEO, an enormous number of companies may be impacted. A number have already settled. I would expect that the ITC will issue its initial determination in the matter in the spring and if warranted the commission will implement the GEO in early summer. Until the ITC matter is resolved, the case pending for the federal court has been staid but look for it to roar back to life this summer if the defendants in the matter don’t seek settlements with Canon.
Impression Products’ Appeal
Of all the cases currently pending in the U.S., Impression Products’ appeal of a ruling issued in a Lexmark suit perhaps holds the greatest importance for the remanufacturers in the region. The origins of the case date back almost five years and it took on almost epic proportions in 2012 when attorneys for Lexmark sent out letters to an unspecified number of U.S.-based remanufacturers and third-party supplies vendors. Rumored to have gone to more than 100 companies, the letter said that the OEM had learned the recipient marketed toner cartridges made from empty cores sourced outside the United States. Under U.S. patent law, remanufacturers can only refurbish cores first sold in the U.S. or they infringe the patent holder’s protections, as I’ll explain in a moment. The firms were given the choice of accepting a one-time offer from Lexmark and pay the certain royalties or risk being added as defendants to the 2010 case filed in U.S. district court.
Lexmark’s threat to add remanufacturers to its patent-infringement complaint in district court centered on the doctrine of patent exhaustion, or the extent to which a patent holder retains rights on a patented product after it is sold. In Jazz Photo Corp. v. International Trade Commission, the U.S. Court of Appeals for the Federal Circuit held that a product may retain certain U.S. patent protections if the first sale of that product occurs outside of the United States. (Jazz Photo had been importing cameras sold outside the United States and refurbishing them for sale in the United States.) Over the years, firms in the third-party supplies industry had hoped various Supreme Court rulings might undo the territoriality requirements outlined in Jazz Photo. But, despite the high court’s actions, rulings from the Federal Circuit have consistently upheld Jazz Photo and, thus, it remains the law of the land.
In July 2013, Impression Products, a remanufacturer based in Charleston, WV, made yet another attempt to have Jazz Photo overturned. The showdown came in a courtroom in the U.S. District Court for the Southern District of Ohio. Impression Products declined to settle with Lexmark and sought instead to have the OEM’s suit dismissed. The firm argued Jazz Photo was rendered moot in the wake of the Supreme Court’s Kirtsaeng decision. Earlier in 2013, the Supreme Court decided copyrights are exhausted on any authorized sale regardless of where the the sale is made in its Kirtsaeng v. John Wiley and Sons ruling. Impression Products argued that copyrights are siblings of patents rights and patent-holders rights are similarly exhausted regardless of where the sales occurs.
The Ohio court did not buy the argument and in March 2014 held that copyrights and patents are distinctly different types of intellectual property protections and as other courts have maintained, Jazz Photo is the law of the land. Impression Products appealed the Ohio court’s decision to the U.S. Court of Appeals for the Federal Circuit last summer. In its docket statement, attorneys for the firm spell out why the Federal Circuit should change its earlier rulings and update U.S. patent law to align with the high court’s Kirtsaeng decision. Impression Products reiterates its argument to the appellate court that the U.S. Supreme Court’s decision in Kirtsaeng v. John Wiley and Sons reverses Jazz Photo.
I reviewed the docket for the U.S. Court of Appeals for the Federal Circuit and the case is scheduled for March 5. There is no telling, however, when the decision may come.
Another Big Year!
As you can see, there is a lot going on the legal front and that’s just in the U.S. As I mentioned at the beginning of this rather lengthy article, there are similar cases now pending around the world.
Even with all the pending cases in U.S. courts and investigations before the ITC, I wouldn’t be surprised to see more suits filed here as the year progresses. Samsung has become very active in Europe, where it has more market share, but to date has done nothing on this side of the pond. I expect that as those European cases are developed and evidence is discovered they will result in additional cases including, perhaps, Samsung’s first supplies-related suit in the U.S. I’ve also wondered when Brother will get active in U.S. courts. The company has managed to grab some significant market share in the lower tiers of the U.S. laser market. Its growing installed base has become an attractive target for third-party supplies.
In terms of the players with pending cases, I expect to see HP file additional suits in the U.S. Over the past couple of years, the company has begun litigating those that infringe its intellectual property related to LaserJet cartridges. Currently, there are no such suits pending in the U.S. that I’m aware of but I suspect that’s subject to change.
Of course, we’ll be following all these lawsuits and much more on our website, www.Action-Intell.com. I suggest you tune in for the latest breaking news.
