September 2, 2005 | By Fred von Lohmann

The Shrinkwrapification of Patented Goods

Lexmark, one of the largest makers of laser printers, is a believer in the "give away the razors, but charge them for the blades" tactic, counting on the fact that consumers routinely underestimate "life cyle costs" for products like printers. In other words, if you low-ball your customers on the price for the printer, you can gouge them later for ink.

Until now, those kinds of business practices have been held in check by secondary markets that restrain a manufacturer's ability to overcharge for "consumables." That's where cartridge remanufacturers come in -- they refill Lexmark cartridges and sell them for less than new cartridges sold by Lexmark.

Now Lexmark (which already unsuccessfully tried to use the DMCA to wipe out the refills market) has turned to patent law to prop up its effort to keep its customers in bondage. According to Lexmark, the "single use only" label on the boxes of their "Prebate" printer cartridges creates an enforceable contract between Lexmark and consumers. By opening the box, you're agreed to the contract.

Sound familiar? It's a variant on the "shrinkwrap license" that used to appear plastered on software. Lexmark is bringing this practice to the world of patented goods. If you step outside the bounds of the "contract" (by giving your spent cartridge to a remanufacturer), you're suddenly a patent infringer. More importantly, Lexmark can sue cartridge remanufacturers for "inducing" patent infringement by making and selling refills.

ACRA, an association of cartridge remanufacturers, sued Lexmark to block this anti-consumer use of patent law. EFF filed an amicus brief on their behalf before the Ninth Circuit. Unfortunately, the Ninth Circuit this week ruled in favor of Lexmark, agreeing that the "single use only" restriction contained in the "box-wrap license" on the package could create an enforceable contract between Lexmark and its customers, and that a violation of the contract could be a patent infringement.

The consequences for consumers, innovators, and competition are potentially dire. Will patent owners exploit this decision as an opportunity to impose over-reaching restrictions on formerly permitted post-sale uses, repairs, modifications, and resale? Will consumers soon confront "single use only, not for resale" notices on more and more products? Will innovators stumble over labels announcing "modifications prohibited"?

Only time will tell.

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