Static Control Components v. Lexmark Intern.

• Decision Date: 24 April 2007
• Docket Number: No. 5:02-571.,No. 5:04-84.,5:02-571.,5:04-84.
• Parties: STATIC CONTROL COMPONENTS, INC., Plaintiff/Counterclaim Defendant, v. LEXMARK INTERNATIONAL, INC., Defendant/Counterclaim Plaintiff, v. NER Data Products, Inc., et al., Counterclaim Defendants.
• Court: U.S. District Court — Eastern District of Kentucky

487 F.Supp.2d 830

STATIC CONTROL COMPONENTS, INC., Plaintiff/Counterclaim Defendant, v. LEXMARK INTERNATIONAL, INC., Defendant/Counterclaim Plaintiff, v. NER Data Products, Inc., et al., Counterclaim Defendants.

No. 5:02-571.

No. 5:04-84.

United States District Court, E.D. Kentucky, Central Division at Lexington.

April 24, 2007.

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Mark T. Banner, Timothy C. Meece, Binal J. Patel, Matthew P. Becker, Jason S. Shull, Michael L. Krashin, all of Banner & Witcoff, Ltd., Chicago, IL, Steven B. Loy, Hanly A. Ingram of Stoll Keenon Ogden PLLC, Lexington, KY, Andy Copenhaver, Hada Haulsee of Womble Carlyle Sandridge, Winston Salem, NC, for Defendant/Counterclaim Plaintiff Lexmark International, Inc.

ORDER

VAN TATENHOVE, District Judge.

Lexmark International, Inc.'s ("Lexmark") Motion for Summary Judgment of Direct Infringement of Nine Patents Against the Remanufacturers is before the Court for consideration. [R. 519]. For the reasons set forth below, Lexmark's Motion will, be granted in part and denied in part as follows: Lexmark breaks its motion down into three constituent elements of the cause of action of patent infringement. First Lexmark argues that the nine patents on which it bases its claims of infringement are valid.¹ Given an absence in the record of evidence to the contrary, the Court agrees.

Second, Lexmark seeks judgment that its single-use restriction on its cartridges, labeled on its cartridges and cartridge packaging, is valid and/or enforceable. Concerning this issue of Lexmark's single-use restriction, referred to by Lexmark as its "Prebate Program" or "Lexmark Return Program," Static Control Components, Inc. ("SCC") filed a topically-related Motion for Partial Summary Judgment that There are No Prebate/Return "Contracts" Because Lexmark Cannot Show any Meeting of the Minds. [R. 511]. The Court will begin its analysis of Prebate, infra, from the cast of SCC's Motion and ultimately deny that Motion. For the reasons set forth below, Lexmark is entitled to judgment on the validity of its single-use restriction, Prebate terms.

Finally, Lexmark seeks judgment on direct infringement of the nine patents by the Counterclaim Defendant remanufacturers, Pendl Companies, Inc. ("Pendl") and Wazana Brothers International. Inc. d/b/a Micro Solutions Enterprises ("MSE"), under 35 U.S.C. § 271(a)² Lexmark alleges two independent bases for infringement. Lexmark's first theory of infringement on which it seeks judgment is that the remanufacturers infringe upon its nine patents by the remanufacture, use, offer to sell, and sale of single-use, only Prebate cartridges. Lexmark's second theory is that the remanufacturers infringe upon its nine patents by the importation, remanufacture, and sale within the United States of any toner cartridge, labeled Prebate or not, first sold by Lexmark outside the United States. While this second theory has been referred to as the Jazz Photo theory of patent infringement, referring to the Federal Circuit case pertaining thereto, the Court has also coined it the "overseas theory of patent infringement." Jazz Photo Corp. v. Int'l Trade Comm'n, 264 F.3d 1094, 1105 (Fed.Cir.2001). It is on this ultimate adjudication of infringement on either of Lexmark's two theories that Lexmark's motion will be denied.

In this Order, the Court additionally takes up other various pending motions that topically fit into the Court's analysis of direct patent infringement. These motions are as follows: SCC's Motion for Summary Judgment for Non-Patentability and Invalidity of Lexmark's Design Patents [R. 488]; Pendl and MSE's Motions for Summary Judgment of Permissible Repair [R. 523 (Pendl) ], [R. 565(MSE) ]; SCC's Motion for Summary Judgment to Preclude Lexmark International, Inc. from Enforcing its Patents Because of Lexmark's [Alleged] Patent Misuse [R. 520]; Pendl's Motion for Partial Summary Judgment of Non-Infringement of Replacement Photoconductive Drums [R. 521]; and MSE's Motion for Partial Summary Judgment of Non-Infringement of Replacement Photoconductive Drums and of Non-Infringement of Lexmark's 025 Patent [R. 562].

I. BACKGROUND

Briefly, the status of the parties is as follows: Lexmark is a large producer of printers and toner cartridges for its printers. SCC is "a leading supplier to toner cartridge remanufacturers."³ [R. 172 at 16, Case No. 5:02-571]. The remanufacturers, which include the other counterclaim-defendants in this case, take used toner cartridges, repair them, refill the toner, et cetera and resell the cartridges to end-user consumers. SCC sells to the remanufacturers parts and supplies for reworking the used toner cartridges, such as replacement parts, toner, and microchips. [R. 1].

Lexmark and SCC first began litigation in this Court in 2002 when Lexmark filed suit against SCC, alleging, inter alia, that SCC's sale of "SMARTEK" microchips infringed on Lexmark's copyrighted "Toner Loading Programs." [R. 1, Case No. 5:02-571]. In 2004, SCC filed a declaratory judgment action, alleging, inter alia, that its new "re-engineered" microchips did not infringe on any of Lexmark's copyrights. [R. 1, Case No. 5:04-84]. The cases were ultimately consolidated with Case No. 5:04-84 as the lead case, and all citations in this Order refer to that lead case unless otherwise noted. [R. 140]. Lexmark filed a Counterclaim/Third Party Complaint to the 2004 litigation initiated by SCC, in which it alleged patent claims against SCC and the Counterclaim Defendant remanufacturers to this case. [R. 67]. These patent claims in Lexmark's Counterclaim are the basis for its current motion for summary judgment.

The primary, though not only, theory on which Lexmark alleges direct patent infringement against the remanufacturers and active inducement of patent infringement against SCC is predicated on Lexmark's use of single-use restrictions on the majority of its cartridges at issue. These "restricted" cartridges have been commonly referred to as "Prebate cartridges" for the reasons that follow: Lexmark runs what it called at one time its "Prebate Program" and what now is referred to as the "Lexmark Return Program." [R. 594 at 3, n. 4]. In that program, Lexmark's customers buy printer cartridges at an up-front discount in exchange for the customer agreeing to use the cartridge only once and then return the empty cartridge only to Lexmark. According to Lexmark, Lexmark offers "`[r]egular' toner cartridge[s] for those customers who do not choose the Prebate/Cartridge Return Program toner cartridge[s] with [their] terms." [R. 2 at 8]. Therefore, "Prebate" is temporally the reverse of a rebate.

Over the years, the precise language of Lexmark's Prebate terms printed across the top of Prebate cartridge boxes has varied. [See, e.g., R. 573 at 3]. However, currently the terms read:

RETURN EMPTY CARTRIDGE TO LEXMARK FOR REMANUFACTURING AND RECYCLING

Please read before opening. Opening this package or using the patented cartridge inside confirms your acceptance of the following license agreement. This patented Return Program cartridge is sold at a special price subject to a restriction that it may be used only once. Following this initial use, you agree to return the empty cartridge only to Lexmark for remanufacturing and recycling. If you don't accept these terms, return the unopened package to your point of purchase. A regular price cartridge without these terms is available.⁴

[R. 594, 3-4 (Lexmark has provided the Court with a demonstrative cartridge and cartridge box with the above Prebate language, as Lexmark represented that it would at Record 519 at 9, n. 13) ]. Including English, these terms are printed in six different languages. Id.

II. STANDARD OF REVIEW

While the legal standards for evaluating the parties' discrete contentions are set forth below as they arise, generally Fed. R.Civ.P. 56(c) provides that judgment for the moving party is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." See also Browning v. Dep't of Army, 436 F.3d 692, 695 (6th Cir.2006). While all inferences are drawn in favor of the non-moving party, that party still must present some affirmative evidence supporting its position to defeat an otherwise appropriate motion for summary judgment. See id.; see also Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (non-movant must "do more than simply show there is some metaphysical doubt as to the material facts") (citations omitted); Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Stated alternatively, "[t]he mere existence of a scintilla of evidence in support of the plaintiffs position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson v Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The foregoing standards for summary judgment review apply to patent cases as well. See, e.g., Avia Group Int'l, Inc. v. L.A. Gear Cal., Inc., 853 F.2d 1557, 1560-61 (Fed.Cir.1988).

III. PATENT VALIDITY

A. Validity of Lexmark's Nine Patents at Issue

Lexmark in its current Motion first seeks a judgment that nine of its sixteen patents in suit are valid as a matter of law. All of these nine patents appear to be utility patents, as opposed to design or chemical patents. [See, e.g., R. 488, Attach. 1 and Attach. 2 at p. 3]. The validity of Lexmark's design patents are the subject of SCC's Motion for Summary Judgment at Record No. 488, and not considered or referenced in Lexmark's Motion; however, the Court will take up this issue in the following section of this Order. Regarding the nine patents at issue in...