The U.S. Court of Appeals for the Ninth Circuit upheld a district court’s grant of summary judgment in a shrink-wrap license case, finding the plaintiff had not produced sufficient evidence to raise a triable issue of fact. Arizona Cartridge Remanufacturers Ass’n. v. Lexmark Int’l. Inc., Case No. 03-16987, 2005 U.S. App. LEXIS 18753 (9th Cir. Aug. 30, 2005) (Fisher, J.).
The Arizona Cartridge Remanufacturers Association (ACRA) represents wholesalers that sell remanufactured printer toner cartridges. ACRA members compete against Lexmark in the market for remanufactured toner cartridges for Lexmark printers. Lexmark offers to sell toner cartridges under a "prebate" program whereby Lexmark discounts the cartridge price and asks the purchaser to return the empty cartridge to Lexmark (and no one else) for remanufacturing. The terms of the prebate "shrink-wrap license" are printed on the cartridge box. ACRA claimed Lexmark’s promotion of its prebate program violates California state false advertising and unfair competition laws. ACRA argued Lexmark misleads consumers when it claims the license is an enforceable agreement and when it promises consumers they will pay less for the cartridge when Lexmark cannot control retail prices charged by resellers. Lexmark was granted summary judgment, and ACRA appealed.
The Ninth Circuit first addressed the issue of whether Lexmark could enforce post-sale conditions on use of the cartridges. The Court agreed with the district court that ACRA had failed to show Lexmark had no legal basis for the restriction. The lower court applied the Federal Circuit’s holding in Mallinkrodt v. Medipart that a post-sale restriction on a patented good may be permissible if it is within the scope of the patent grant and does not stray into behavior having an unreasonable anticompetitive effect. ACRA did not challenge either the Mallinkrodt holding or that the use of a patented good can be constrained but contended the prebate terms did not create a valid contract with the consumer. However, the Court found Lexmark presented sufficient unrebutted evidence showing the prebate license was facially valid under California law. In light of unrebutted evidence that competition compelled resellers to pass discounts from Lexmark to consumers, the Court also agreed Lexmark’s representations were not false. Because the Court found ACRA had not produced sufficient evidence to present a triable issue of fact on either issue, the Court affirmed.
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