The case revolves around what Lexmark used to call its "Prebate" program for laser printer toner cartridges. Prebate cartridges come with a shrinkwrap license agreement saying "opening this package confirms your acceptance of" a restriction that the cartridge can be used only once and then should be returned to Lexmark. Lexmark said it wanted the empty cartridges for remanufacturing or recycling purposes, but no one can doubt the company's primary motive was to keep the cartridges out of the hands of re-manufacturers.

ACRA argued the Prebate program was deceptive because it misled consumers into thinking they did not have the right to dispose of the cartridges as they chose. ACRA assumed the court would conclude Lexmark customers have that right due to what is called the "doctrine of exhaustion." Roughly the patent law equivalent of the first sale doctrine in copyright law, the doctrine of exhaustion says the patent holder's rights cease - are "exhausted" -- once the product is actually sold. Buyers have an implied license to use the patented product as they see fit, including reselling it or fixing it. As the judge put it in her ruling, the doctrine of exhaustion "includes the authority to repair a patented device (e.g. refill an empty printer cartridge.)"

But ACRA assumed wrong in thinking the court would uphold the doctrine of exhaustion in this case. That doctrine only applies in unconditional sales, the judge said. Conditional sales in which one negotiates a better price in return for agreeing to certain restrictions are not uncommon in business-to-business transactions. Most laser printer customers are businesses, the court noted, and Lexmark's license was visible on the outside of the product "so the Lexmark purchaser is on notice that Lexmark has imposed a single-use condition on the cartridge."

The court also bought Lexmark's description of its Prebate price as a $30 discount or upfront rebate off the "regular" price of its theoretically available non-Prebate cartridge. ACRA had argued that the Prebate price was the actual regular price, and $30 more for a cartridge without the usage restriction was actually a surcharge. But the judge concluded that the Prebate offer constituted a special price that reflects an exchange for the single-use condition.

"Based on these circumstances, the court concludes that Lexmark has not exhausted its rights," the ruling read. "The Prebate is a conditional sale and the single-use condition is enforceable ... Because of its patents, Lexmark has the right to impose conditions on the sale of its patented product. It may restrict a purchaser's ability to repair it, which is what in essence the single-use condition does."

In other words, a federal judge is saying that a patent holder can impose usage restrictions on its customers just by having some legalese on the package. And the usage restrictions are enforceable even when they are clearly intended to limit competition. Indeed, giving Lexmark the right to prevent its cartridges from being acquired by the remanufacturers makes it all the more likely Lexmark printer customers will have no other options when they need a toner cartridge.

Of course, Lexmark customers did have another option - they could have purchased a different brand of printer to begin with. As we've seen, Lexmark isn't the only printer company trying to lock customers into using their consumables, but none of the others have gone so far as to employ UCITA-style legal tricks to do it. Either we make it clear we will have nothing to do with companies that deprive us of our rights this way, or we can bet that very soon all companies will do the same.

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