How Lexmark is redefining property.



This article is part of the Future of the property rate from Futurology, a series in which Future Tense introduces readers to the technologies that will define tomorrow. Future Tense is a collaboration between University of Arizona, New America, and slate. On Tuesday, October 25th, Future Tense is hosting an event in Washington, DC about how technology is changing the way we own. For more information and the RSVP, visit New America website.

Companies driving the future of ownership include modern sharing economy services like Uber, cutting edge media platforms like Spotify – and a printer company founded in March 1991.

Printer manufacturer Lexmark International did not invent new techniques or proprietary standards, but its aggressive handling of contracts and legal theories has shaped and defined ownership of technological products today.

Lexmark was founded as a spin-off of the typewriter and keyboard production from IBM. Obviously with little expected growth in the typewriter industry, the newly independent company quickly turned to the manufacture of laser printers and shortly afterwards to inkjet printers. But Lexmark was not without competition: Hewlett-Packard was the dominant force in the laser printing business, and other printing companies were well established. Fierce competition soon ensued, with Lexmark and its fellow manufacturers cutting prices rapidly.

What should an ambitious printer company do? Lexmark’s answer was to focus less on printer profits and more on consumables – inkjet and toner cartridges. It was a clever strategy: the company was selling its printers cheaply to attract buyers often expensive Lexmark-compatible cartridges for the life of the product. And Lexmark’s investor filing shows the company’s rapid transition to a consumption-driven business model: 1996 annual report notes that management “expects an increasing percentage of future corporate profits to come from the consumables business.” The 2009 report to put it more clearly: “Deliveries are the profit engine of the business model.”

But for Lexmark to benefit from ink and toner cartridges, it had to be the primary supplier of these cartridges. This was a problem as it faced competing companies who refilled and remanufactured these cartridges, which undercut Lexmark’s “winning machine”.

Closing this replenishment and remanufacturing business therefore became a priority for Lexmark, but there was a centuries-old hurdle: the fundamental right to property. It has long been recognized that the owner of an item (such as an ink cartridge) has the right to use the item at will (such as refilling and selling the cartridge). To force printer owners to only buy Lexmark cartridges, Lexmark has come up with a plan to break this old law.

Borrow from the Software industryLexmark created licenses prohibiting buyers from reselling cartridges to anyone other than Lexmark, and printed those licenses on the shrink wrapping of its cartridges.

Lexmark also took a page out of the media industry, which in the 1990s developed digital rights management (or DRM) technologies for DVDs and other devices to prevent copyrighted movies and the like from being played without permission. Because blocking an unauthorized toner cartridge was similar to blocking an unauthorized DVD, Lexmark installed a computer chip on its printer cartridges to act as a type of DRM. The chip fulfills two functions: it checked the authenticity of the cartridge and deactivated the cartridge after calculating that the originally installed toner had been used up, so that refilled cartridges no longer worked.

These two strategies, described in more detail in several court Opinions, laid the groundwork for preventing printer owners from refilling their cartridges. But remanufacturers quickly came up with workarounds and compatibility software. So Lexmark launched a litigation campaign to shut down these companies, a campaign that would rewrite ownership for all consumers.

Lexmark targeted the company in lawsuits that began in 2002 Static control components, who made computer chips that install on refilled toner cartridges. The chips could mimic the authentication and toner level message, bypassing Lexmark’s anti-refill technology.

Lexmark’s main legal theory against static control was based on a 1998 Act known as the Digital Millennium Copyright Act (or DMCA). This law makes it illegal to bypass a “technical protection measure” that prevents access to copyrighted content – an encryption method that protects the film on a DVD, for example. Lexmark said the authentication program was a technical safeguard, so Static Control’s chips were illegal bypasses.

In 2004, finally, an appeals court rejected this argument than stretched too far. But before that could happen, Lexmark’s creative DMCA theory would be replicated and improved across industries. A journalist found that the judgment of the court “led printing companies to develop more complex forms of copy protection for cartridges”. And now there are tractor companies and Medical device manufacturer claims the DMCA can prevent consumers from repairing or changing their purchases by using more complex software and legal arguments to circumvent the 2004 ruling.

The Static Control litigation and Lexmark technology strategy have popularized legal strategies to control what consumers can do with their purchases – a major break in traditional notions of ownership. This strategy is still used today.

But while others later had greater success with refined technological controls, Lexmark had failed and turned back to the drawing board, this time with patent law in mind. Lexmark owned patents pertaining to its own printers, and the company alleged patent infringement against printer buyers who refilled their cartridges in breach of the shrink film license and refill companies who assisted those buyers.

This is an odd theory when you think about it: it would be quite a ploy for a company to sell you a product and then turn around and sue you for patent infringement for using the same product.

For a long time, patent law banned this type of circumvention as part of the so-called “patent exhaustion”. According to this rule, as soon as a patentee sells an item that embodies the patented invention, the patent rights in that particular item are “exhausted” and the patent owner cannot therefore sue for infringement of that item. The rule basically protects the property rights of buyers, and unsurprisingly, the Supreme Court has regularly justified the doctrine of exhaustion with the fact that it protects the buyer of a product “to use it in ordinary life”.

But Lexmark saw a loophole in patent exhaustion. According to the company, the license for the shrink film made the sale of toner cartridges “conditional” so that exhaustion no longer applies. That meant consumers (and by extension the refillers who helped them) could be charged with patent infringement simply for breach of license terms. Lexmark sued dozens of refill companies over this theory, and in February a Federal appeals court approved it.

If this patent theory holds, the implications for ownership are widespread. All kinds of products – cars, computers, Cat food for the Internet of Things– can be patented. According to Lexmark’s theory, if a product manufacturer wants to restrict the use of its products (driving your car on Wednesdays only; filling your litter box with only authorized brands), the manufacturer can simply acquire a patent on the product and apply a shrink film license to it. Those two steps would be enough to change the common ownership landscape and enable an era of patent-backed DRM for everything.

Shrink wrapping, digital rights management, the Digital Millennium Copyright Act, and intellectual property theories are shaping ownership for the 21st century today.st Century. And it always surprises me that in this new era of ownership the leader is a very 20 year oldthatCentury printing company just trying to protect its profits with ink and toner.

There are at least some signs that the winds are changing. The Supreme Court did Expressed interest in Lexmark’s patent theory and could potentially reject the February appeals court ruling. Lexmark itself can evolve too.

In 2012 the company did divest the inkjet printer business, towards a business model that is more focused on enterprise solutions designed for the specific needs of large companies. And earlier this year has a group of companies, including Apex Technology agreed to buy Lexmark. Perhaps Lexmark will now be more receptive to refills, considering that Apex is one of the largest manufacturers of refill parts in the world.


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