FALL 2010
Course No.: 9200-710 (& 810)-001
Course ID:  85723 & 85725
Time: M, W 4:45-6:15 p.m.
Room TBD
Professor Jay Dratler, Jr.
Across from Room 231D (IP Alcove)
Home: 330-835-4537
Copyright © 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2008, 2010  Jay Dratler, Jr.  
For permission, see CMI.

Notes and Questions on Lexmark,

the First "Aftermarket" Case under Section 1201

1.  In order to understand this case, it is essential to understand the facts.  Two computer programs were involved, both allegedly copyrighted.  One was long, and one was short.  What were the two programs, which was which, and what did each do?

You need not understand all of the technical details.  Indeed, most of the technical details laid out in expert testimony have been cut from this edited opinion.  You must know, however, what these two programs did and enough of their characteristics to assess their copyrightability.  It may help you to make a diagram of the two programs and their relationship to the printer and its toner cartridge.

2.  Understanding Lexmark's business motivation is also essential to understanding this case.  One purpose of one of the computer programs was to measure the level of toner in the toner cartridge.  In that respect the program was analogous to a car's gas gauge.  Is there anything unusual or extraordinary about such an engineering function?

But Lexmark's two programs also served another business function, didn't they?  What was it, and what business or economic advantages did it try to provide Lexmark?

3.  When a manufacturer is successful in making a product and selling it widely, other firms may wish to sell service or parts (or both) for that particular product.  The market for such service or parts is known as an "aftermarket," because it arises after the sale of the product by the original manufacturer.

Often an aftermarket can be as lucrative or more lucrative than the original market.  Think of the "Gillette" paradigm: sell razors cheaply but make lots of money selling replacement blades.

The computer-printer market works much the same way, doesn't it?  Printer makers often sell printers cheaply, hoping to cash in on subsequent sales of toner or ink cartridges over the entire life of each printer.  Is there anything intrinsically wrong, unlawful, or unethical about that business model?

4.  Trouble arises when independent firms enter the aftermarket in competition with the original manufacturer.  Independent firms may be able to offer service and parts that are cheaper or better (or both) than those of the original manufacturer.  Is there anything intrinsically wrong with their doing so?  Doesn't their competition benefit consumers of the equipment, both by providing alternatives and by "goading" the original manufacturer into better and cheaper performance?

Competition in the aftermarket, however, hurts original manufacturers in two ways.  First, it forces them to keep their own aftermarket prices down.  If they are less efficient than their aftermarket competition, they may have to withdraw entirely from the aftermarket that their own equipment created.  Second, even if original manufacturers are equally efficient as or more efficient than their aftermarket competitors, competition in the aftermarket may keep them from shifting costs from the original equipment to the aftermarket.  For example, hard competition in toner or ink cartridges may keep the original manufacturer from following the "Gillette" model by pricing printers low and cartridges high.  Competition therefore may indirectly impair the manufacturer's ability to compete in the original equipment market.  In extreme cases it may require an original manufacturer to adopt an entirely new business model, forsaking the "Gillette" model.

5.  Because aftermarket competition hurts original manufacturers' economic interests, they often try to stamp it out with various legal and business ploys.  Asserting intellectual property (IP) has become one of their chief strategies.  They design their equipment and its components so that replacement parts are IP-protected, or so that auxiliary products needed for service are IP-protected.  (Common examples are copyrighted diagnostic and maintenance software.)  When competitors seek to enter the aftermarket by supplying service or parts for their machines, original manufacturers sue them for IP infringement.  They thus use IP as a lever to exclude competition in the aftermarket.

Since antitrust law is the branch of law that encourages competition, such attempts at to exclude competition in the aftermarket often motivate antitrust claims.  See, e.g., Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 456-459, 477-478, 486, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992) (reversing summary judgment for Kodak and holding that aftermarket competitor might show that Kodak, notwithstanding patent protection for some parts, had antitrust liability for attempting to control aftermarket for servicing its photocopying equipment by changing its policy and denying parts to independent servicers); Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147, 1187, 1198, 32 U.S.P.Q.2d (BNA) 1385 (1st Cir. 1994) (affirming summary judgment dismissing monopolization claim based on manufacturer's enforcement of copyright in diagnostic software to exclude rivals from service aftermarket for its computers, and developing rule that possession of valid intellectual property raises presumption of legitimate business justification for exclusionary conduct); Image Technical Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1219, 1220, 44 U.S.P.Q.2d (BNA) 1065 (9th Cir. 1997), cert. denied 523 U.S. 1094 (1998) (on remand from Supreme Court's decision, supra, affirming jury's verdict holding Kodak liable for monopolization and attempting to monopolize service aftermarket; jury would have found presumption of business justification rebutted where only sixty-five of "thousands" of parts withheld from independent servicers were patented); In re Independent Service Organizations Antitrust Litigation, 203 F.3d 1322, 1327-1328, 1329, 53 U.S.P.Q.2d (BNA) 1852 (Fed. Cir. 2000) (dismissing antitrust claims by summary judgment and holding that presumption of manufacturer's legitimate business reasons for withholding patented parts and copyrighted software and manuals from rival servicers of its own equipment was unlikely to be rebutted). Cf., PSI Repair Services, Inc. v. Honeywell, Inc., 104 F.3d 811, 813, 819-821, 822 (6th Cir.), cert. denied 520 U.S. 1265 (1997) (granting summary judgment dismissing antitrust claims based upon manufacturer controlling third parties' sale of unpatented aftermarket parts to independent servicers because, inter alia, manufacturer had maintained consistent exclusionary policy and therefore had not locked purchasers of its equipment into purchases that were uneconomic by depriving them of information needed to assess long-term costs of both ownership and maintenance).

6.  As the parenthetical case outlines suggest, antitrust litigation is complex, expensive and time consuming.  Making a case for monopolization or attempting to monopolize an aftermarket requires, inter alia, proof that the aftermarket for service and/or parts of a particular manufacturer's equipment constitutes an economic market, cognizable for antitrust purposes, that is separate from the larger aftermarket for service and parts for equipment of the same type made by other manufacturers.  See Jay Dratler, Jr., Licensing of Intellectual Property § 5.02[2][b]i][B] (Law Journal Press, 1994) (discussing market definition in antitrust cases), available on LEXIS: Secondary Legal : View More Sources : Law Journal Press.  Making that proof is not an easy task.

Moreover, an aftermarket competitor bringing antitrust claims bears an additional burden when IP is used as the exclusionary lever.  Some courts have applied a presumption that market exclusion based upon valid IP protection is legitimate.  See Data General Corp. and In re Independent Service Organizations Antitrust Litigation, note 5 supra.  So the competitor may have to prove that exclusionary use of the IP constitutes an abuse of intellectual property rights.  The jurisprudence of such abuse is only in its infancy, and courts often decide cases based solely on burdens of proof.  

Because the road to a successful antitrust claim is long, expensive, and rocky, aftermarket competitors often content themselves with defending the IP infringement suits on their merits.  If the IP at issue involves copyrights, they may rely on an increasingly robust doctrine of copyright misuse, which renders otherwise valid copyrights unenforceable but provides no counterclaim.  See Dratler, supra, § 5.04[3], [5].  If the IP at issue involves patents, however, a misuse defense is less viable because Congress severely cut back the defense of patent misuse in 1988.  See 35 U.S.C. § 271(d)(4), (5) (provisions added by 1988 amendments); Dratler, supra, § 5.04[4].  Should there be an analogous misuse doctrine for Section 1201 claims?

7.  Viewed against this background, Lexmark is just one more battle in the "Aftermarket Wars," isn't it?  Judge Merritt thought so and devoted much of his concurring opinion to that analysis.

Judge Merritt's concurrence, however, presents an interesting "chicken and the egg" problem.  Unlike copyright claims, anti-trafficking claims under Section 1201 are new, incompletely defined, and poorly understood.  So which should come first: defining Section 1201 claims more precisely, as the lead opinion suggests, or defining their abuse?  Should courts first define what specific acts constitute a trafficking offense, or what acts constitute misuse of the right to prohibit trafficking in countermeasures to "locks" on copyrighted works?  Or should courts, as Judge Merritt seems to suggest, define Section 1201 claims in part by reference to their potential for abuse?

Will considering the potential for abuse of Section 1201 claims in the process of defining them avoid the dilemma of patent and copyright law—making courts choose between apparently absolute rights, one the one hand, and antitrust counterclaims and misuse defenses on the other?  Or will considering abuse and definition together simply confuse matters and stray too far from the explicit statutory text?   Congress seems not to even have dreamed of type of use of Section 1201 made by Lexmark; at least, no example in the legislative history addresses anything other than consumers' direct access to copyrighted works for viewing, listening, or "playing."   Should that matter?

8.  In cases like this one, are copyright and Section 1201 claims belts and suspenders?  Wouldn't either type of claim support an injunction against the defendant continuing to distribute its SMARTEK chips?

If copyright and Section 1201 claims are alternative means to the same business end for Lexmark, the complexity of the analysis that they invoke is entirely different, isn't it?  Consider first the primary reason why Judge Sutton's lead option ultimately rejects Lexmark's anti-trafficking claims under Section 1201(a)(2).   What is it?  Isn't that rationale relatively easy to understand?  Does it depend upon obscure technical details, or on things that users and marketers of products ought to know?

9.   In writing the lead opinion, Judge Sutton focuses on the word and concept of "access" in the text of Section 1201(a)(2) and (3).  Is he right to say that a technological measure does not "effectively control access" to a work if one can read, copy, and transmit the work without circumventing the measure?  Does his "front-door" and "back door" analogy make sense?  Would encryption or password protection for a movie-on-DVD constitute an effective access-control measure if anyone could read an unencrypted version of the movie directly off the DVD without using the password?

Judge Feikens focuses on the "scienter" requirement that he finds in Section 1201(a)(2)(A), an equivalent of which appears in the second anti-trafficking rule of Section 1201(b)(1)(A).  But does that scienter requirement even come into play if there is no technological measure that effectively controls access?  Isn't an effective access-control measure a threshold requirement for applying Section 1201(a)?  Can you circumvent, or provide means to circumvent, protection that doesn't exist?

There are at least seven elements to any anti-trafficking claim, with an extra one (lack of the copyright owner's authorization) under subsection (a).  See Jay Dratler, Jr., Cyberlaw: Intellectual Property Digital Millennium, § 2.05[1] (Law Journal Press, 1994), available on LEXIS: Secondary Legal : View More Sources : Law Journal Press.  In which order should courts and litigants consider these elements: (1) the statutory order, (2) logical order, or (3) the order that decides the case on the narrowest ground?

10.  Now consider the copyright claim.  Do the three federal judges on this panel agree whether the Toner Loading Program is copyrightable?  Do they agree on the rationale?  Do they even agree on the principles of applicable law?

The Toner Loading Program was at most (depending on version) 55 bytes long.  As Judge Sutton points out, "the phrase ‘Lexmark International, Inc. vs. Static Control Components, Inc.' in ASCII format [*530] would occupy more memory than either version of the Toner Loading Program."  Yet after a full preliminary injunction hearing with battling experts and full briefing and argument on appeal (and participation of numerous amici), three federal judges cannot agree on whether this simple program is copyrightable, even for purposes of a preliminary injunction.

Doesn't this fact alone speak volumes about the economic utility of traditional copyright law for resolving software-related aftermarket disputes like this?  Lawyers, judges, law students and law professors may love to argue about airy abstractions, such as whether a line of computer code is the scenes a faire equivalent of a "Heil Hitler!" salute or a beer-hall scene in a movie about Nazis.  But the parties to this litigation spent years and (collectively) over $100,000 bringing this case to appeal, and the numerous amici no doubt spent thousands of hours preparing their briefs.  And for what?  A non-decision whether a 55-byte program is copyrightable.

Furthermore, consider the process of decisionmaking.  In deciding (1) whether the program code was constrained or amenable to alternatives, (2) whether aspects of the code (or all of it) were scenes a faire, and (3) whether the Toner Loading Program functioned as a lock-out code, Judges Sutton and Feikens debated obscure technical details of the programs and their underlying algorithms.  Most of this discussion is omitted from the edited version of their opinions, but it resembled nothing so much as number-averse jurists trying to make sense of a graduate seminar in computer engineering.

Section 1201 is a complex, badly drafted statute, but it does have two redeeming features.  First, it is new and so far unencumbered by abstract judge-made doctrines that invite medieval scholastic debate.  Second, it relies in part on new concepts never before a part of copyright law, such as control over access to copyrighted material.  As courts interpret Section 1201, they have the opportunity, at least within the narrow confines of that statute, to strike a blow for simplicity and predictability of the law.  Which approach, of which of the three jugdgs—Sutton, Merritt, or Feikens—best addresses that worthy goal and how?
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