Following a court order issued Sept. 30, the Arizona Cartridge Remanufacturers Association (ACRA) case will skip the trial phase in federal district court and will likely move directly to appellate court, saving the expense of a trial.
The court order, issued by Judge Saundra Armstrong of the U.S. District Court's Northern District of California, entered a judgment "in favor of the defendants (Lexmark) on all of the plaintiff's claims for relief," and cancelled the trial that was scheduled for Oct. 6. The order granted Lexmark's motion for summary judgment and denied ACRA's request for partial summary judgment, paving the way for a faster appeal. For the case to move through the U.S. Court of Appeals for the 9th Circuit, it will likely take nine to 12 months, an ACRA spokesperson said.
"I will strongly recommend that ACRA appeal," said Ron Katz of Manatt, Phelps and Phillips, the law firm representing ACRA in the case. ACRA has 30 days to make that decision.
Katz said that while there are many areas on which to base the appeal, there are two main issues for future arguments: that the non-Prebate cartridges' price reflects a "surcharge" rather than the Prebate cartridge being sold at a "special" price, and that the Prebate contract should not be applied to end users.
The first issue is based on the court's decision that Lexmark's patent rights are not exhausted, thus allowing the enforcement of the Prebate contract for end users. Katz said that ACRA argues the patent rights are exhausted, and thus Lexmark has no right to dictate the cartridges' fate after use, because the cartridges are sold at a "normal" price, not a "special" price. The court determined that the Prebate price is a special price and that non-Prebate is the normal price. According to Katz, ACRA argues that the Prebate price is the one that is competitive with other printer manufacturers, such as HP, and that the non-Prebate price is actually a "surcharge."
"The other issue for appeal is privity of contract," Katz said. "Despite this acknowledged lack of a relationship (the legal term is 'privity') between Lexmark and the end user, the court says that the Prebate obligations flow from Lexmark to the end user." Katz argues that the statue cited "applies only 'between merchants,' not between a merchant and an end user. By ignoring this plain distinction, the court is ignoring hundreds of years of law relating to the fundamental concept of privity, which is simply that one has to be a party to a contract to be bound by it."
Going straight to the appeal process saves ACRA time and money, Katz said. Because an appeal was almost certain regardless of the final decision in the trial, the case would probably have ended up in appellate court anyway. Not going to trial in district court and moving directly to the appeal is the fastest and most cost-effective method for resolving the case. "Once an appellate court makes a decision, the lower court cannot overturn it," Katz said.
Among the good news is that it appears that the case will be considered by the appellate court based on all existing information. Had the case gone to trial first and then been appealed, the appellate judges would have had to look specifically at the findings of fact made by the district court judge in the trial, rather than considering all of the evidence with fresh eyes and making a new determination in the case.
Another positive thing to come from this case is that Lexmark admitted in open court (and thus on public record) several pieces of information that had not previously been readily available. This includes the information that Lexmark receives back only 50 percent of its Prebate cartridges and that, according to the court order, Lexmark admitted that it remanufactures cartridges itself and that it sold "more than a half-million remanufactured cartridges at a lower price than new cartridges in 2002 alone."
ACRA filed the suit against Lexmark in September 2001, alleging that Lexmark engages in "deceptive, false, and misleading advertising" and "unfair competition" in the promotion of its Prebate program, which the suit alleged is a "sham" program.
For more information, visit www.supportacra.org or see articles by Katz on the case at www.rechargermag.com.
