How Lexmark is redefining ownership.

How a ’90s Tech Company Redefined What Ownership Means Today

How a ’90s Tech Company Redefined What Ownership Means Today

The citizen’s guide to the future.
Oct. 21 2016 7:07 AM
FROM SLATE, NEW AMERICA, AND ASU

How a Printer Company Redefined Ownership

Lexmark’s strategy has changed the rules about what you can do with something you “bought.”

Lexmark printer.
A new era of ownership began with an old-school printer company just trying to protect its profits on ink and toner.

Photo illustration by Slate. Images by Amazon and STILLFX/Thinkstock

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This article is part of the future of ownership installment of Futurography, a series in which Future Tense introduces readers to the technologies that will define tomorrow. Future Tense is a collaboration among Arizona State University, New America, and Slate. On Tuesday, Oct. 25, Future Tense will host an event in Washington, D.C., on how technology is changing the nature of ownership. For more information and to RSVP, visit the New America website.

Among the companies driving the future of ownership are modern sharing-economy services like Uber, cutting-edge media-delivery platforms like Spotify—and a printer company founded in March 1991.

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Lexmark International, the printer manufacturer, did not invent new techniques or norms of ownership, but its aggressive use of contracts and legal theories have shaped and defined the law of ownership of technological products today.

Lexmark was formed as a spinoff of IBM’s typewriter- and keyboard-manufacturing operation. Obviously not anticipating big gains in the typewriter industry, the newly independent company quickly turned to manufacturing laser printers, and soon after to inkjet. But Lexmark was not without competition: Hewlett-Packard was the dominant force in the laser-printer business, and other printing companies were well-established. Fierce competition quickly ensued, with Lexmark and its fellow manufacturers rapidly slashing prices.

What was an ambitious printer company to do? Lexmark’s answer was to focus less on printer profits and more on supplies—inkjet and toner cartridges. It was a clever strategy: The company sold its printers cheap to lock buyers into often-expensive Lexmark-compatible cartridges for the lifetime of the product. And Lexmark’s investor filings show the company’s rapid transition to a supplies-focused business model: Its 1996 annual report notes that management “expects that an increasing percentage of future Company earnings will come from its consumable supplies business.” The 2009 report put it more bluntly: “Supplies are the profit engine of the business model.”

But for Lexmark to profit off of ink and toner cartridges, the company had to be the primary vendor of those cartridges. That was a problem, because it faced competitor businesses that refilled and remanufactured those cartridges, undercutting Lexmark’s “profit engine.”

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Stopping this refilling and remanufacturing business thus became a priority for Lexmark, but there was a centuries-old roadblock: basic law of property ownership. It has long been recognized that the owner of an object (such as an ink cartridge) has the right to use the object however desired (such as refilling and selling the cartridge). To force printer owners to buy only Lexmark cartridges, Lexmark devised a plan to overcome this ancient law.

Borrowing from the software industry, Lexmark created licenses that prohibited buyers from reselling cartridges to anyone other than Lexmark—and it printed these licenses on the shrinkwrap packaging of its cartridges.

Lexmark also took a page from the media industry, which during the 1990s was developing digital rights management (or DRM) technologies for DVDs and other devices to prevent copyrighted movies and such from being played without authorization. Since blocking an unauthorized toner cartridge was similar to blocking an unauthorized DVD, Lexmark installed on its printer cartridges a a computer chip that served as DRM of a sort. The chip served two functions: It verified the authenticity of the cartridge, and it disabled the cartridge after it calculated that the initially installed toner had been used up, so that refilled cartridges would not work.

These two strategies, described in more detail in several court opinions, laid the groundwork for preventing printer owners from refilling their cartridges. But the remanufacturing businesses quickly developed workarounds and compatibility software. So Lexmark initiated a campaign of litigation to shut those companies down, a campaign that would rewrite the law of ownership for all consumers.

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In lawsuits beginning in 2002, Lexmark targeted the company Static Control Components, which manufactured computer chips to be installed on refilled toner cartridges. The chips could mimic the authenticity verification and toner-level reporting, thus circumventing Lexmark’s anti-refilling technology.

Lexmark’s key legal theory against Static Control was based on a 1998 law known as the Digital Millennium Copyright Act (or DMCA). That law makes it illegal to circumvent a “technological protection measure” that prevents access to copyrighted content—an encryption scheme that protects the movie on a DVD, for example. According to Lexmark, the authenticity-verification program counted as a technological protection measure, and so Static Control’s chips were illegal circumventions.

Ultimately in 2004, an appeals court rejected this argument as too much of a stretch. But before that could happen, Lexmark’s creative DMCA theory would be replicated and improved across industries. One journalist observed that the court’s ruling “prompted printer companies to try and develop more intricate forms of copy protection for cartridges.” And now there are tractor companies and medical device manufacturers claiming that the DMCA can stop consumers from repairing or modifying their purchases, using more complex software and legal arguments in an attempt to get around the 2004 ruling.

The Static Control litigation, and Lexmark’s technological strategy, thus popularized legal strategies for controlling what consumers could do with their purchases—a substantial chink in the traditional notion of property ownership. That strategy continues to be used today.

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But while others would later have greater success with more refined technological controls, Lexmark had failed and turned back to the drawing board, this time looking to patent law. Lexmark owned patents directed to its own printers, and the company alleged patent infringement against printer buyers who violated the shrinkwrap license by refilling their cartridges, along with refilling companies that aided those buyers.

This is a strange theory if you think about it: It would be quite the bait-and-switch trick for a company to sell you a product and then turn around and sue you for patent infringement for using the same product.

Patent law has long disallowed this sort of runaround under what is called “patent exhaustion.” Per that rule, once a patent owner sells an item embodying the patented invention, the patent rights in that particular item are “exhausted,” and so the patent owner cannot sue for infringement over that item. The rule fundamentally protects the ownership rights of purchasers, and unsurprisingly the Supreme Court has regularly justified the exhaustion doctrine as protecting a purchaser of a product for “the purpose of using it in the ordinary pursuits of life.”

But Lexmark saw a loophole in patent exhaustion. The license on the shrinkwrap, the company said, rendered sales of toner cartridges “conditional,” such that exhaustion no longer applied. That meant that consumers (and, by extension, the refillers who helped them) could be charged with patent infringement simply for violating the terms of the license. Lexmark sued dozens of refilling companies on this theory, and in February, a federal appeals court approved it.

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If this patent theory stands, the implications for ownership are widespread. All sorts of products—cars, computers, Internet of Things cat feeders—can be patented. Under Lexmark’s theory, if a product manufacturer wants to restrict how its products are used (drive your car only on Wednesdays; fill your cat feeder only with authorized brands), the manufacturer can just obtain a patent on the product and tape a shrinkwrap license onto it. Those two steps would be enough to change the ordinary landscape of ownership, and to enable an era of patent-law–backed DRM on everything.

Shrinkwrap licenses, digital rights management, the Digital Millennium Copyright Act, and intellectual property theories are today rewriting ownership for the 21st century. And it never ceases to surprise me that the leader of the charge into this new era of ownership has been a very 20th-century printer company, just trying to protect its profits on ink and toner.

There are at least some signs that the winds are changing. The Supreme Court has expressed interest in Lexmark’s patent theory and potentially could reject the February decision of the appeals court. And Lexmark itself may be evolving as well.

In 2012, the company shed its inkjet-printer business, in a move toward a business model more centered on enterprise solutions built for large businesses’ specific needs. And earlier this year, a group of companies including Apex Technology agreed to buy Lexmark. Perhaps now Lexmark will start being more receptive to cartridge refillers, considering that Apex is one of the largest refiller parts companies in the world.

Charles Duan is the director of the Patent Reform Project at Public Knowledge, a nonprofit dedicated to an open Internet.