DMCA grounds shaken in Lexmark cartridge case
A ruling this week from the U.S. Copyright Office could strengthen manufacturer Static Control Components Inc.'s (SCC's) defense against a copyright infringement lawsuit by Lexmark International Inc. that is expected to have a broad impact on the market for low-cost, third-party printer cartridges.
SCC, in Sanford, North Carolina, makes computer chips that allow manufacturers to create clones of toner cartridges used in Lexmark printers. Lexmark sued SCC last year, charging that SCC's chips include copyright Lexmark computer code and violate the Digital Millennium Copyright Act's (DMCA) ban on circumventing digital technology that protects copyright material.
Without taking a position on whether SCC's chips illegally incorporate Lexmark code, the Copyright Office ruled that the DMCA does not block software developers from using reverse engineering to circumvent digital protection of copyright material if they do so to achieve interoperability with an independently created computer program.
The SCC had asked the Copyright Office to recommend several DMCA exemptions that would protect its efforts to defeat Lexmark's protection technology. Those requested exemptions are unnecessary because existing DMCA statutes already allow the kind of reverse engineering that SCC could have used to thwart Lexmark's protections, the agency said in a lengthy memo of recommendations about exemptions to the DMCA.
SCC executives hailed the Copyright Office statement as a watershed moment for their case.
"We think the Copyright Office put to rest all of the objections Lexmark has raised," said SCC Chief Executive Officer Ed Swartz.
Lexmark responded that it is pleased the Copyright Office refused SCC's exemption request.
"It is inconceivable to us how anyone can consider this ruling a victory for Static Control," said Vincent Cole, Lexmark's general counsel, in a prepared statement. Lexmark refused further comment on the agency's memo of recommendations.
SCC pulled its Smartek chips for Lexmark clone cartridges from the market earlier this year in accordance with a preliminary injunction in Lexmark's favor issued in February. U.S. District Court Judge Karl Forester ruled that SCC directly copied Lexmark's copyrighted Toner Loading Program -- a charge SCC admits is accurate -- and that its efforts to bypass Lexmark's authentication controls violate the DMCA.
The latter half of that ruling could be affected by the Copyright Office's recommendation. SCC already had an appeal of the injunction in progress, which the company expects to be heard later this year.
The fight between Lexmark and SCC may have implications throughout the lucrative market for printer cartridges, some industry analysts have said. Lexmark and other printer manufactures such as Hewlett-Packard Co. earn substantial margins selling cartridges for their printers. Third party manufacturers have carved out a chunk of that market by offering refurbished cartridges for a fraction of the cost of those from the printers' original makers.
Lexmark last year began using in some of its cartridges a chip that communicates with its printers and verifies that the cartridge is from Lexmark. Without that verification, the cartridge won't work. SCC's Smartek chips mimic those produced by Lexmark and allow third-party cartridges to pose as official ones, allowing compatibility.
SCC is confident that the Copyright Office memo green-lights its Smartek chips, Swartz said. Regarding the court's finding that SCC's chips illegally use Lexmark code, Swartz sad the Copyright Office ruling may excuse the code use, but if it doesn't, SCC will develop code meeting the requirements of the reverse-engineering exemption.
A Wednesday research report from Merrill Lynch & Co. Inc. suggested that Lexmark could thwart SCC by advancing its software to a point where reverse engineering would be technically infeasible, but Swartz brushed off such concerns. SCC already offered to show Lexmark software it has developed that would replace the infringing code in its Smartek chips and accomplish the same purpose, he said. Lexmark refused to authorize that approach, citing DMCA protections against any authentication bypass maneuver, according to Swartz.
"I think that what the Copyright Office saw here was that what was taking place was a test case," Swartz said. "If they came down on the side of Lexmark, what they would be doing would be to provide a path for companies to develop a legal electronic monopoly that would make the oil trust and the steel trust that Teddy Roosevelt broke up at the turn of the century look small."