The United States Court of Appeals for the Sixth Circuit held that the Digital Millennium Copyright Act (DMCA) cannot be used to prevent competition in the printer ink cartridge market.

In a decision of October 26, 2004 in the case of Lexmark International Inc. v. Static Control Components, the United States Court of Appeals held that printer maker Lexmark cannot use the DMCA in order to prevent its competitors from producing ink cartridges to be used in Lexmark printers. This decision vacated the injunction which the District Court in the State of Kentucky granted Lexmark against SCC, a company that produced chips enabling the manufacture of such cartridges.

More expensive than Chanel No. 5

 A liter of ink for a Lexmark printer is more expensive than a liter of the luxury perfume Chanel No. 5, and more than a liter of good whisky – Such are the results of a research conducted by Gartner Group. The manufacturers of printers who sell their printers at low prices, make most of their profits from the sale of printer cartridges. It is due to this case that, companies like Lexmark are interested in selling as many original cartridges manufactured by them at full price. Therefore, they have an interest in decreasing the competition in this market.

In order to ensure that the purchaser of Lexmark printers will purchase only licensed cartridges, that is to say, Lexmark cartridges, a chip is installed in the Lexmark printer cartridges through which the printer identifies the cartridge used. Upon the insertion of the cartridge, an "electronic handshake" is performed between information in the chip including a program called the Toner Loading Program and the software installed in the printer – the Printer Engine Program. The program and the chip calculate a code. If the calculated code is not identical – the printer concludes that this is not a "licensed" cartridge. If this is the case, the printer sends an error report and ceases to operate.

SCC (Static Control Components Inc.), a small North Carolina company produced the Smartek chip. The chip includes the said Toner Loading Program, and thus, when it is installed in cartridges produced by Lexmark's competitors, it enables the said authentication process successfully. SCC sells its chips to these competitors.

Who copied my software?

Lexmark filed a complaint against SCC based on three theories of liability: (1) That it violated the Federal Copyright statute in that it copied the Toner Loading Program into the chip, (2) that SCC violated the DMCA by selling the chip that circumvents access controls on the Toner Loading Program and (3) that SCC violated the DMCA by selling the chip that circumvents access controls on the Printer Engine Program.

The District Court, in a decision of March 2003, concluded that Lexmark established a likelihood of success on its copyright infringement claim for SCC’s copying of its Toner Loading Program on all three counts. Therefore the Court granted Lexmark an injunction against the production of the chips by SCC. The US Court of Appeals reversed this decision and vacated the district Court's preliminary injunction.

Copyright Act not Competition Prevention Act

As to the copyright infringement, the Court of Appeals held that the Toner Loading Program is a "lock out code", which is a program which allows access to the hardware in which it is found only to licensed programs. Therefore, at least with regard to the injunction, the Toner Loading Program is not entitled to copyright protection. Whereas computer programs may be copyrightable, being a type of "original expression", this defense does not apply when the idea embodied in the program may be expressed in only one way. In such case the idea and the expression effectively merge and the program constitutes a lock out code for competitors and thus is not entitled to copyright protection. In this manner others are not denied the opportunity to use the idea.

The Court added that the "originality" component has not been sufficiently proven with regard to the Toner Loading Program, and remanded to the District court the question of whether the Federal Copyright Statute had been violated. The Court concluded further that even if the production of the Smartek chip constitutes copyright infringement, SCC enjoyed the fair use defense. This is the case since when SCC copied the Toner Loading Program it did so not in order to use it for the original purpose for which it had been written (i.e. the calculation of the amount of ink) but rather in order to successfully pass the authentication process which causes the printer to function. Thus, SCC may sell the chips to competitors and they, in turn, would be able to sell their printer cartridges, for use with Lexmark Printers.

With regard to the violation of the DMCA, the Court accepted the defense argument presented by SCC in the District Court whereunder the program it wrote is a technological means the sole purpose of which is to enable the interoperability of an independent program with other programs.

Judge Merrit concurred with the majority opinion and noted that the Court "should make clear that in the future companies like Lexmark cannot use the DMCA in conjunction with copyright law to create monopolies of manufactured goods for themselves just by tweaking the facts of this case"

Judge Feikens added that the DMCA must be used for the purposes for which it was legislated. That is, for the prevention of piracy and for the prevention of the manufacture of programs which facilitate legitimate use and access and which enable commercially significant non-infringing use.

In addition the Court emphasized that the chip did not circumvent the Toner Loading Program but rather replaced it altogether.

Lexmark's Loss is the Consumers' Gain

Consumers' organizations are praising this decision as a significant victory for the consumer and state that "the court ruled in favor of competition". The Court ruled that the DMCA may not be used for the prevention or competition by a blanket prohibition of reverse engineering and such technique must be permitted when its sole purpose is to enable the interoperability of different programs. The Court recognized that reverse engineering is often the key for new developments.

The Court's decision permits the production of printer cartridges which compete with printer cartridges produced by Lexmark. This will increase the competition in this market and is expected to result in a price reduction and in the improvement of the technology. In addition, the Court expressed its objection to frivolous claims under the DMCA, intended to prevent competition rather than to protect copyright.

* Odia Kagan coordinates the IT and Internet law practice in Shavit Bar-On Nov Yagur Law Offices and has been admitted to practice law in Israel, New York, England & Wales and New South Wales, Australia. Okagan@sbilaw.com

* This article was first published (in Hebrew) in the NFC website.