Shrinkwrap/boxtop license in NYT

[Ann Okerson <ann.okerson@yale.edu>]

Of possible interest in today's NYTimes:
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October 3, 2005

By Tearing Open That Cardboard Box, Are You Also Signing on the Dotted 
Line?

By J. D. BIERSDORFER

Pay attention next time you rip open a cardboard box - you may be entering
into a contract without realizing it.

A recent decision in the Ninth Circuit Court of Appeals reinforced the
right of companies, in this case Lexmark International, the printer maker,
to legally limit what customers can do with a patented product, given that
the company spells out conditions and restrictions on a package label
known as a box-top license.

Clickable license agreements are common practice in software, where the
buyer agrees not to tamper with the code or copy the program. But slapping
postsale regulations on patented goods could deny buyers the ability to
make modifications or seek repairs on other products as well. Box-top
licenses could also theoretically hinder third parties from offering
replacement parts or supplies for fear of a patent-infringement lawsuit
(meaning, for example, that a lighter might have to be refueled only with
the manufacturer's brand of butane).

In the lawsuit, the Arizona Cartridge Remanufacturers Association, a trade
group of companies that sell refilled printer cartridges, claimed that
Lexmark was engaging in unfair and deceptive business practices by
promising price discounts on its laser cartridges if the customer promised
to return the empty cartridge to Lexmark.

Lexmark's packaging for laser cartridges sold under this system (called
the Lexmark Cartridge Rebate, or the Prebate program) includes a label on
the outside of the box stating: "Opening this package or using the
patented cartridge inside confirms your acceptance of the following
license agreement." Cartridges that are not part of the Prebate program
and not subject to the restriction are available to customers as well, but
without the discount. At the time of the case, Lexmark estimated that
cartridge returns had increased 300 percent since the Prebate program
began.

Lawyers for the remanufacturers' association argued that Lexmark
deceptively suggested that the notice on the outside of the package
created an enforceable agreement with consumers to return the used
cartridges, and that the promise of a price discount was false because
Lexmark could not control prices charged by retailers. Lexmark also uses
an electronic chip on the cartridges to communicate with the printer,
which refuses to operate with cartridges that lack the chip; the
association cited that as an unfair business practice.

The court ruled in Lexmark's favor on Aug. 30, citing the previous case of
Mallinckrodt Inc. v. Medipart Inc., a 1992 Circuit Court decision in a
medical equipment case that allowed patent owners to limit the use of
their products after sale. The court also concluded that Lexmark's pricing
claims were accurate and that ACRA failed to establish that Lexmark's
cartridge chip amounted to unfair competition.

Some frugal printer owners wondered if the decision would make it illegal
to refill their inkjet cartridges at home, a concern that a Lexmark
spokesman dismissed.

"Lexmark's cartridge return program deals exclusively with laser printer
toner cartridges. It does not involve any inkjet products," said Tim
Fitzpatrick, the vice president of corporate communications for Lexmark,
who said that the program almost entirely involved business customers.  
"The court's decision was very specifically about this program," he said.

Fred von Lohmann, a senior attorney with the Electronic Frontier
Foundation and author of a 2004 amicus brief supporting ACRA, said he was
more concerned about future implications of the decision.

"This certainly sent a very strong message to patent holders generally,
and Lexmark in particular, that you can use these labels in order to
restrict what your customers can do with the product after they buy it,"  
he said.

Mr. von Lohmann gave several hypothetical examples of how box-top licenses
could be used, including automobile manufacturers who might put a label on
a new car stating that by opening the door for the first time, the new
owner agreed to use only the manufacturer's replacement parts and to avoid
modifying the car. "Owners of patents would love to be able to control
what you can do with a product after you buy it," he said. "That's new.  
The rule for most of a century has been, 'You buy it, you own it.' "

[SNIP]

COPYRIGHT 2005 NEW YORK TIMES

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