9th Circuit Court decides that a contract on the outside of a package is enforceable upon opening the package or using the product inside. Cases of Interest >  IP >  Patent

Arizona Cartridge Remanufacturers Association Inc v Lexmark International Inc

Arizona Cartridge Remanufacturers Association, Inc. v. Lexmark International, Inc., 421 F.3d 981 (9th Cir. 2005)

Facts: Lexmark makes and sells laser printers and printer cartridges, and Arizona Cartridge Remanufacturers (ACRA) refills empty Lexmark printer cartridges and sells them. In 1997, Lexmark began to remanufacture its own cartridges and began their "Prebate" program, which allows consumers to save money on cartridges in return for returning used cartridges to Lexmark. Lexmark printed a license agreement on the outside of its Prebate cartridge packagest. The agreement states that consumers who open the package or use the cartridge agree to use the cartridge only once and return it only to Lexmark for recycling, and a consumer who does not agree to the terms should return the cartridge and purchase a non-Prebate cartridge at a higher price. The cartridges also have a chip in them that will cause an error in the printer if refilled by any part other than Lexmark.

Procedural Posture: ACRA sued Lexmark for violating California's unfair competition laws, arguing in relevant part that Lexmark deceptively suggests that the terms printed on the outside of the package creates an enforceable agreement to return used cartridges. The District Court granted summary judgment, holding that Lexmark could legally enforce the post-sale restriction as a patent holder limiting the use of its product after sale, and that the restriction on the package creates a valid agreement with consumers. The Ninth Circuit is reviewing the grant of summary judgment de novo.

Holding: District court grant of summary judgment affirmed. Lexmark has a facially valid contract with consumers who buy and open its cartridges. Consumers considering purchasing Prebate cartridges may read the terms and conditions on the box before deciding whether to accept them or to choose non-Prebate cartridges. Thus, consumers had notice of the use restrictions and had the chance to accept or reject the terms, and by opening the package, the consumer has accepted the agreement.

Important Dicta: "The contract permits Lexmark to restrict the use of its patented item and gives Lexmark a legal basis for asserting its ability to enforce its restriction."

Unanswered Questions: The court does not speak as to whether a consumer could challenge the contract. ACRA is merely a competitor with Lexmark and is not a party to the license agreement.

Critical Analysis: The court made a correct decision here. The terms of the contract are clear, and the contract is not unconscionable since Lexmark offers the choice of a non-Prebate cartridge. A consumer might try to argue that he has more rights upon purchasing the cartridge, but he would be unlikely to succeed.

Lexis: 421 F.3d 981
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