"Through the acts, statements and omissions set forth below, defendants (Lexmark) have engaged in a scheme which had the intent and effect of misleading consumers into believing that their printing costs would decrease and that the environment would improve through the purchase of Lexmark Prebate program laser toner cartridges," reads the opening paragraph of a complaint filed today against Lexmark International by the Arizona Cartridge Remanufacturers Association. The association and its attorney, Ron Katz, a partner in the Coudert Brothers Law Firm granted Recharger Magazine an exclusive first look at the complaint.
The complaint addresses the many advantages of remanufacturing, including benefits to the environment and consumer choice. "Consumers demand choices," it states. "The remanufacturing industry was born from this concept, and has provided high-quality, low-cost printing products to consumers looking to lower their printing costs."
The lawsuit outlines the negative impact of Lexmark programs that interfere with remanufacturers’ ability to acquire empty cartridges. "Empty cartridges are the lifeblood of the remanufacturing industry…The Prebate program therefore has harmed consumers by increasing the price they must pay for Lexmark laser toner cartridges, has limited consumers’ choices for cartridges, has lessened the number of vendors from whom they can purchase cartridges, has lessened the supply of cartridges and has harmed the environment by lessening the number of recycled cartridges. In spite of these economic and environmental harms, Lexmark falsely advertises the Prebate program as saving consumers money and improving the environment."
The association’s complaint is based on three causes of action: deceptive advertising, unfair competition and conspiracy. The complaint also alleges that Lexmark’s actions are contrary to the public policy set forth in California Public Contract Code Section 12156, the law for which the remanufacturing industry successfully lobbied in California.
The specific facts that the complaint alleges run afoul of these laws include:
The Prebate upfront discount is a "complete sham" that is really a "surcharge" on the remanufacturable product.
Lexmark has done little to enforce returns of the discounted cartridges.
Lexmark does not properly police its Prebate license agreements with its customers.
Lexmark offers cartridges at even greater discounts, but only to select customers and claims that these cartridges are remanufactured when they are actually new.
The Prebate program misleads customers into believing that it is illegal to allow the third-party remanufacture of its cartridges.
Lexmark misleads consumers when it claims that the price difference is the cost of the used empty cartridge. The price difference is actually significantly higher than the cost of an empty and is really a disincentive for remanufacturing.
The complaint addresses other anti-competitive facets of the Prebate program, such as the incorporation of lock-out devices and the placement and identification of reorder numbers that are confusing to customers.
Customers for Life Versus Captive Customers
"Lexmark’s goal in adopting the Prebate program and related product changes is clear." the Complaint states. "By offering customers the identical product at two substantially different prices, i.e. a normal price tied to a sham shrink-wrap single use ‘license’ and a higher price with no re-use restrictions, Lexmark intends to prevent, and has succeeded in preventing, customers from purchasing recyclable cartridges, thereby reducing the number of used laser toner cartridges available to be remanufactured and resold to consumers." "Put differently, using Lexmark’s words in its brochure, ‘For 10 years, Lexmark’s accomplishments have been fueled by a highly motivated team adhering to a common vision: Customers for Life.’ A more accurate term to describe these locked-in and deceived customers would be ‘Captive customers.’"
The complaint requests that the court issue an injunction compelling Lexmark to stop specific activities, including Prebate. It also asks for restitution, fees and costs.
Katz lauds the industry’s efforts made to date through lobbying, but believes that the time to add litigation to the arrows in the industry’s quiver has come. "Before resorting to litigation, the cartridge remanufacturing industry did everything it could to get Lexmark to end its anticompetitive practices," he said. "Apparently the program is so profitable to Lexmark that it persists despite these excellent initiatives, in particular those by the Office of Industry Advocacy and regional associations. Those efforts have succeeded in a number of state legislatures, but I have always believed that a litigation effort can build upon these earlier successes and ultimately end this plague on competition."
To learn more about the details, come to the special meeting on the Lexmark litigation sponsored by ACRA at 5:00 p.m. on Wednesday, Sept. 12 in Room 105 at World Expo.
-- Tricia Judge
