Static Control Components, Inc v. Lexmark International, Inc. ( 2012 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 12a0289p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
Plaintiff-Appellant/Cross-Appellee, -
STATIC CONTROL COMPONENTS, INC.,
-
-
-
Nos. 09-6287/6288/6449
v.
,
>
-
Defendant-Appellee/Cross-Appellant. -
LEXMARK INTERNATIONAL, INC.,
N
Appeal from the United States District Court
for the Eastern District of Kentucky at Lexington.
Nos. 02-00571; 04-00084—Gregory F. Van Tatenhove, District Judge.
Argued: March 6, 2012
Decided and Filed: August 29, 2012
Before: KEITH, BOGGS, and MOORE, Circuit Judges.
_________________
COUNSEL
ARGUED: Seth D. Greenstein, CONSTANTINE & CANNON LLP, Washington, D.C.,
for Appellant/Cross-Appellee. Steven B. Loy, STOLL KEENON OGDEN PLLC,
Lexington, Kentucky, for Appellee/Cross-Appellant. ON BRIEF: Seth D. Greenstein,
CONSTANTINE & CANNON LLP, Washington, D.C., Joseph C. Smith, Jr., BARTLIT
BECK HERMAN PALENCHAR & SCOTT, LLP, Denver, Colorado, William L.
London III, STATIC CONTROL COMPONENTS, INC., Stanford, North Carolina, M.
Miller Baker, Stefan M. Meisner, McDERMOTT WILL & EMERY LLP, Washington,
D.C., W. Craig Robertson III, Mickey T. Webster, WYATT, TARRANT & COMBS,
LLP, Lexington, Kentucky, for Appellant/Cross-Appellee. Steven B. Loy, Anthony J.
Phelps, Christopher L. Thacker, STOLL KEENON OGDEN PLLC, Lexington,
Kentucky, William J. Hunter, Jr., STOLL KEENON OGDEN PLLC, Louisville,
Kentucky, Timothy C. Meece, Binal J. Patel, Matthew P. Becker, Jason S. Shull,
Michael L. Krashin, BANNER & WITCOFF, LTD., Chicago, Illinois, Joseph M.
Potenza, Christopher B. Roth, BANNER & WITCOFF, LTD., Washington, D.C., for
Appellee/Cross-Appellant.
1
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 2
_________________
OPINION
_________________
KAREN NELSON MOORE, Circuit Judge. Lexmark International, Inc.
(“Lexmark”) is a major producer of laser printers and toner cartridges for its laser
printers. Other companies, called remanufacturers, acquire used Lexmark toner
cartridges, refill them, and sell them to owners of Lexmark printers at a lower cost.
Lexmark developed microchips for both the toner cartridges and the printers so that
Lexmark printers will reject any toner cartridges not containing a matching microchip,
and over time Lexmark has patented certain aspects of the cartridges. Static Control
Components, Inc. (“Static Control”) has identified how to replicate the cartridge
microchips and sells the microchips to the remanufacturers along with other parts to
facilitate the repair and resale of Lexmark toner cartridges.
Lexmark sued Static Control in 2002 (the “02 Action”) for copyright violations
related to its source code in making the duplicate microchips and was given a
preliminary injunction by the district court. Static Control counterclaimed under federal
and state antitrust and false-advertising laws. While that suit was pending, Static
Control redesigned its microchips and sued Lexmark for declaratory judgment in 2004
(the “04 Action”) to establish that the redesigned microchips did not infringe any
copyright.1 Lexmark counterclaimed again for copyright violations and this time added
patent counterclaims against Static Control and eventually three of the remanufacturers.
The two suits were consolidated into the 04 Action.
On appeal of the preliminary injunction, the Sixth Circuit vacated and rejected
Lexmark’s copyright theories. Lexmark Int’l, Inc. v. Static Control Components, Inc.,
387 F.3d 522 (6th Cir. 2004) (“Lexmark I”). On remand, Lexmark successfully moved
to dismiss all of Static Control’s counterclaims. The case proceeded to trial, and the
only issues ultimately submitted to the jury were Lexmark’s claim of patent inducement
1
Citations to the record herein are to the 04 Action unless designated with “02R.”
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 3
against Static Control and Static Control’s defense of patent misuse. The district judge
instructed the jury that its findings on patent misuse would be advisory; the jury held that
Static Control did not induce patent infringement and advised that Lexmark misused its
patents. Lexmark renewed its earlier request for a judgment as a matter of law and also
filed a motion for a retrial, which the district court denied. Both parties timely appealed.
For the following reasons, we AFFIRM the district court’s dismissal of Static
Control’s federal antitrust claims, but REVERSE the dismissal of Static Control’s
claims under the Lanham Act and certain claims under state law. We AFFIRM the
remainder of the judgment on appeal.
I. BACKGROUND
A. Factual Background
Lexmark manufactures laser printers, which require toner cartridges to print. The
market for printers and toner cartridges generally has many players, e.g., Xerox, Epson,
Hewlett-Packard, and Canon, and Lexmark’s share of the overall printer market is less
than 15%. Second Appellee Br. at 4. Each company generally manufactures its printers
to work with only its own style of cartridges, and each company’s cartridges will work
with only its brand of printers. Therefore, each company typically dominates the
aftermarket for cartridges compatible with its brand of printers, although the primary
market for printers is well populated.
Remanufacturers are companies that participate in the toner-cartridge
aftermarkets by acquiring used toner cartridges of all kinds of printers, repairing and
refilling them, and selling them to owners of that kind of printer at a lower price.2 First
Appellant Br. at 11. Lexmark also acquires and repairs its used toner cartridges for
resale. In the 1990s, Lexmark started a “Prebate” program with certain large customers
whereby Lexmark would sell new toner cartridges at an upfront discount of around 20%
2
Wazana Brothers International, Inc. d/b/a Micro Solutions Enterprises (“Wazana”), Pendl
Companies, Inc. (“Pendl”), and NER Data Products, Inc. (“NER”) are three remanufacturers who have
purchased microchips from Static Control for Lexmark toner cartridges and were once third-party
defendants to the suit. They are not parties to the appeal.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 4
if the end user agreed to (1) a single-use license and (2) a restriction that the cartridge
be returned to Lexmark for remanufacturing or recycling and not to a third-party
remanufacturer. Second Appellee Br. at 6. These terms were printed on several notices
on the outside of the toner-cartridge box, which instructed the user that opening the box
would indicate acceptance of the terms. Regular cartridges not subject to the Prebate
terms are still sold, but at a higher price than the Prebate cartridges. According to Static
Control, the price of Lexmark toner cartridges increased following the implementation
of the program because of reduced competition from remanufacturers. First Appellant
Br. at 16.3
Lexmark toner cartridges each contain a microchip that communicates with the
printer once installed. Toner cartridges that are otherwise compatible with Lexmark
printers will not function without the microchip. Lexmark obtains these microchips from
a supplier that has allegedly agreed to sell microchips only to Lexmark. All Lexmark
toner cartridges are initially manufactured with the necessary microchip, but the
microchip for the Prebate cartridges is specifically designed to enforce the Prebate terms
by disabling the cartridge for future use after the cartridge runs out of toner. To use the
Prebate cartridge again, the microchip needs to be replaced. To use a non-Prebate
cartridge again, the microchip does not need to be replaced unless it was damaged.
Lexmark eventually obtained several patents relating to its toner cartridges. At
issue on appeal are nine utility patents that the remanufacturers allegedly infringe
(referred to as the “nine mechanical patents”) and two design patents relating to seven
different toner cartridges. Static Control developed a microchip that could replace the
microchip on the Prebate toner cartridges, permitting a third party to remanufacture and
sell the toner cartridge again. Static Control also sent its customers a letter, referred to
as an “Anti-Prebate kit,” consisting of information from Static Control’s general counsel
regarding why the Prebate program is not valid under principles of contract law. Second
Appellee Br. at 33. Remanufacturers buy these microchips from Static Control, along
3
In comparison, Static Control claims that the price of Hewlett Packard toner cartridges fell
during the same period because Hewlett Packard does not employ a similar “Prebate” program and
remanufacturers are able to occupy a larger share of the aftermarket for Hewlett Packard toner.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 5
with other parts. Static Control does not manufacture, remanufacture, or sell toner
cartridges of any kind, but it is the market leader on making and selling the components
necessary to remanufacture Lexmark cartridges. First Appellant Br. at 11. Lexmark, on
the other hand, sells toner cartridges but does not sell any of the component parts
necessary to repair or remanufacture its toner cartridges, whether Prebate cartridges or
not.
B. Procedural Background
Lexmark sued Static Control in December 2002 for violations of federal
copyright laws and the Digital Millennium Copyright Act (“DMCA”), relating to two
computer programs on its printer chips. Lexmark sought to halt Static Control’s sale of
the allegedly infringing chips. Static Control responded, ultimately counterclaiming
under federal and state antitrust and false-advertising laws. Static Control claimed that
Lexmark’s Prebate program unlawfully excluded competition in the aftermarket for
Lexmark-compatible cartridges, reducing competition and increasing prices, and that
Lexmark falsely told remanufacturers that Static Control was infringing on Lexmark’s
patents. Lexmark then counterclaimed in reply, adding remanufacturers as defendants
and making additional claims under the DMCA and various state-law claims, but no
patent claims.
On January 8, 2003, Lexmark received a temporary restraining order in the
02 Action, and on January 24, 2003, the district court required Lexmark to post an
injunction bond of $75,000. On February 7, 2003, the district court increased the bond
to $250,000 and extended relief for 21 days. On February 27, 2003, district court
granted the preliminary injunction. Static Control appealed both the injunction and the
bond amount, and in October 2004 the Sixth Circuit reversed the preliminary injunction,
making no comment on the bond amount. Lexmark I, 387 F.3d at 551. Static Control
sought rehearing on the issue of the bond amount, which we denied in a one-sentence
order. Lexmark Int’l, Inc. v. Static Control Components, Inc., No. 03-5400 (6th Cir.
Dec. 29, 2004) (unpublished order). In light of the ruling, the parties stipulated to
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 6
summary judgment against Lexmark on its DMCA claims. R. 216 (D. Ct. Order
2/23/06).
Before the Sixth Circuit ruled, however, Static Control initiated the 04 Action
seeking declaratory judgment under federal copyright laws and the DMCA that its newly
modified chips did not infringe Lexmark’s copyrights. Lexmark counterclaimed raising
patent infringement, DMCA violations, and tort claims, and added three remanufacturers
as third-party defendants—Wazana, NER, and Pendl. Following the Sixth Circuit’s
remand, Lexmark moved to dismiss Static Control’s counterclaims. The district court
granted the motion in September 2006. During the course of the proceedings, which
concluded in a jury trial, nine of Lexmark’s mechanical patents were held valid, see
R. 1008 (D. Ct. Order 4/24/07), and summary judgment was granted to Lexmark on its
claims of direct patent infringement against Wazana, NER, and Pendl, see
R. 1203 (D. Ct. Order 5/25/07); R. 1245 (D. Ct. Order 5/31/07). All three defendant
remanufacturers ultimately settled with Lexmark at various points before the verdict.
The district court also granted summary judgment to Lexmark on the validity of its
single-use license for Prebate cartridges, which the district court concluded prevented
Lexmark’s patents from exhausting following the initial sale of the Prebate toner
cartridges to end users. R. 1008 (D. Ct. Order 4/24/07).
By the close of trial, the only remaining issues were Lexmark’s patent-
infringement-inducement claims against Static Control and Static Control’s equitable
defense of patent misuse. Because the district court had already ruled on summary
judgment that three of the remanufacturers directly infringed, the jury was asked to
decide whether the unnamed remanufacturers directly infringed as a class and whether
Static Control induced any direct infringement. Because the district court determined
that patent misuse was an equitable defense, the final jury instructions indicated that the
jury’s findings with respect to misuse would be merely advisory. R. 1365
(Jury Instructions). The jury returned a verdict that Lexmark had failed to show that the
remanufacturers as a class directly infringed Lexmark’s patents and failed to show that
Static Control induced the direct infringement of the three named remanufacturers,
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 7
Wazana, NER, and Pendl. R. 1366 (Special Verdict Form at 1-3). The jury then advised
that it found Static Control had proven by a preponderance of the evidence certain facts
that supported Static Control’s defense that Lexmark misused its patents. Id. at 11-19;
see also R. 1365 (Jury Instructions at 35-41) (defining misuse).
Lexmark moved for judgment as a matter of law both before and after the verdict
and also filed a motion for a new trial on its patent inducement claim, arguing that the
evidence was sufficient to establish direct infringement by Static Control’s customers
as a class and that, with respect to inducement, the district court erroneously excluded
evidence at trial. The district court denied the motions. R. 1430 (D. Ct. Op. 10/03/08);
R. 1521 (D. Ct. Op. & Order 10/28/10). The district court subsequently reversed its
prior ruling that Lexmark’s patents were not exhausted in its Prebate cartridges in light
of recent Supreme Court precedent. R. 1443 (D. Ct. Op. & Order 3/31/09). Both parties
filed timely appeals.
II. JURISDICTION
The parties did not state in their initial briefs the basis for this court’s appellate
jurisdiction. We therefore asked the parties to submit letter briefs addressing whether
we have jurisdiction over this appeal or whether the Federal Circuit has exclusive
jurisdiction to review the case under 28 U.S.C. § 1295. After all, the entirety of
Lexmark’s appeal requires us to resolve substantive issues of patent law. Static Control
responds that this court has jurisdiction; Lexmark maintains that the Federal Circuit has
exclusive jurisdiction. On review, we determine that 28 U.S.C. § 1295 does not require
that the Federal Circuit hear this case on appeal. We have jurisdiction under 28 U.S.C.
§ 1291.
The Federal Circuit has exclusive jurisdiction over appeals from final decisions
of a district court “if the jurisdiction of that court was based, in whole or in part, on
section 1338 of this title.” 28 U.S.C. § 1295(a)(1) (2000). Section 1338 gives federal
district courts original jurisdiction exclusive of the state courts over “any civil action
arising under any Act of Congress relating to patents.” 28 U.S.C. § 1338(a) (1999).
Because Congress used the phrase “arising under,” the Supreme Court has held that
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 8
patent issues raised in relation to a defense or as counterclaims are insufficient to confer
Federal Circuit jurisdiction. Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc.,
535 U.S. 826, 831 (2002). Congress amended 28 U.S.C. §§ 1295 and 1338 in the Leahy-
Smith America Invents Act to provide additionally for exclusive Federal Circuit
jurisdiction over “any civil action in which a party has asserted a compulsory
counterclaim arising under[] any Act of Congress relating to patents,” but the
amendment is applicable only “to any civil action commenced on or after the date of the
enactment of this Act.” Pub. L. 112-29, § 19(b), (e), 125 Stat. 333. The law was enacted
on September 16, 2011. The civil actions here were commenced well before that date;
therefore, the new provision does not apply.
At first glance, this case appears clear cut: In both the 02 and the 04 Actions, the
issues implicating patent law arose as counterclaims. However, the Supreme Court has
suggested—but declined to decide—that the evolving circumstances of a case may create
a situation wherein exclusive Federal Circuit appellate jurisdiction would follow.
Holmes, 535 U.S. at 829 n.1 (“[T]his case does not call upon us to decide whether the
Federal Circuit’s jurisdiction is fixed with reference to the complaint as initially filed or
whether an actual or constructive amendment to the complaint raising a patent-law claim
can provide the foundation for the Federal Circuit’s jurisdiction.”); Christianson v. Colt
Indus. Operating Corp., 486 U.S. 800, 814-15 (1988) (“We need not decide under what
circumstances, if any, a court of appeals could furnish itself a jurisdictional basis
unsupported by the pleadings by deeming the complaint amended in light of the parties’
‘express or implied consent’ to litigate a claim.”).
Whatever those evolving circumstances may be, however, they are not present
in this case. Lexmark can point to no actual or constructive amendment of either
complaint. Constructive amendments typically occur when a specific claim is not raised,
but the parties by their actions act as if they consent to making the claim a part of the
proceedings. See Torry v. Northrop Grumman Corp., 399 F.3d 876, 878 (7th Cir. 2005)
(Posner, J.); Sunbeam Prods., Inc. v. Wing Shing Prods. (BVI) Ltd., 153 F. App’x 703,
706-07 (Fed. Cir. 2005) (unpublished opinion), cert. denied, 546 U.S. 1095 (2006)
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 9
(holding Federal Circuit had jurisdiction because pretrial order that added patent issue
debated by the parties constructively amended the complaint even though not raised as
a claim). Here, the patent claims were raised ab initio by the interested party as
counterclaims, and no amendment would be necessary to make them formally part of the
suit. Furthermore, Lexmark sought actually to amend the complaint in the 02 Action to
add its patent claims with the express purpose of assuring Federal Circuit jurisdiction.
R. 456 (Lexmark’s Mot. to Amend). Static Control objected, and Lexmark’s motion was
denied. R. 649 (D. Ct. Order 1/9/07). Constructive amendment typically requires
express or implied consent of the parties, both of which are lacking.
Lexmark’s best argument is that its patent counterclaims in the 04 Action added
new parties, and that the district court’s jurisdiction over Lexmark’s third-party
complaint potentially “arose under” the patent laws. Unfortunately for Lexmark, this too
seems insufficient to make the case one “arising under” patent laws. Lexmark offers no
law or case addressing whether a third-party complaint can render any part of the
controversy “arising under” patent law. However, the Supreme Court in Holmes
compared the “arising under” inquiry for 28 U.S.C. § 1338 to the “arising under” inquiry
for original jurisdiction under 28 U.S.C. § 1331. And we know that third-party
defendants may not remove a controversy to federal court solely because the original
defendant filed related federal claims against them. First Nat’l Bank of Pulaski v. Curry,
301 F.3d 456, 461-67 (6th Cir. 2002). Lexmark has presented no compelling reason to
treat this case any differently. The district court’s jurisdiction arose under 28 U.S.C.
§§ 1331 and 1367, and not under § 1338. Therefore, we have appellate jurisdiction
under 28 U.S.C. § 1291.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 10
III. INJUNCTION-BOND AMOUNT
Static Control appeals the amount of the injunction bond entered by the district
court when the district court issued the preliminary injunction in 2002.4 The final bond
amount entered by the district court was $250,000; Static Control sought estimated
damages of over $17 million. When the preliminary injunction was entered in 2003,
Static Control appealed both the injunction and the bond amount to the Sixth Circuit.
We vacated the injunction, but we made no mention of the bond. Lexmark I, 387 F.3d
522. Static Control sought rehearing from the Sixth Circuit specifically on the issue of
the proper injunction-bond amount, which we summarily denied.
In November 2009, only a few days after filing its notice of appeal, Static
Control filed a Motion for Wrongful Injunction Damages in the district court, seeking
actual damages of $7-10 million, well in excess of the $250,000 injunction-bond amount.
R. 1473 (Static Control’s Mot. to Vacate). Lexmark opposed, arguing that the bond
amount should serve as the cap on damages. R. 1495 (Lexmark’s Opp. to Mot. to
Vacate). As late as January 29, 2010, Static Control was imploring the district court to
“recalculate the bond to reflect the projected damages and set an evidentiary hearing to
allow Static Control to prove its actual damages.” R. 1503 (Static Control’s Reply Mot.
to Vacate at 14). After oral argument in this appeal and prompting from Lexmark, the
district court recently denied this motion and ordered the clerk to release the security
bond to Static Control. R. 1530 (D. Ct. Order 4/24/12). Static Control has sent us a
letter brief asking us to ignore this order because the district court lacked jurisdiction to
decide this amount following the filing of Static Control’s notice of appeal, an argument
which Static Control presented in its most recent papers before the district court but not
in its initial motion seeking the very relief it now claims the district court lacks the
jurisdiction to award.
4
Static Control concedes that “a party cannot recover more than the value of the bond for
injunction-related damages.” First Appellant Br. at 25 & n.10 (citing Mich. AFSCME Council 25, Local
1640 v. Matrix Human Servs., 589 F.3d 851, 860 (6th Cir. 2009)).
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 11
Lexmark contends that this panel should not consider this argument because the
Sixth Circuit necessarily rejected Static Control’s claim in declining to vacate the bond
amount on the initial appeal. Static Control argues that this issue may be considered
because it was never “squarely decided” on the first appeal. First Appellant Br. at 24 n.9
(internal quotation marks omitted). “Issues decided at an early stage of the litigation,
either explicitly or by necessary inference from the disposition, constitute the law of the
case.” Hanover Ins. Co. v. Am. Eng’g Co., 105 F.3d 306, 312 (6th Cir. 1997) (internal
quotation marks omitted); see also Bowles v. Russell, 432 F.3d 668, 676-77 (6th Cir.
2005), aff’d, 551 U.S. 205 (2007). Static Control appears to have the better of the
argument, because we do not see how the prior panel’s lack of commentary on the bond
amount (and subsequent decision not to rehear the appeal on the bond amount) contains
a necessary inference that we found the bond amount to be proper. Ultimately, however,
whether our refusal to reconsider Static Control’s appeal of the bond amount constitutes
the law of the case does not matter because the bond amount was not improper.
A bond amount shall be set “in an amount that the court considers proper to pay
the costs and damages sustained by any party found to have been wrongfully enjoined
or restrained.” Fed. R. Civ. P. 65(c). District courts have broad discretion in setting the
bond amount. Div. No. 1, Detroit, Bhd. of Locomotive Eng’rs v. Consol. Rail Corp.,
844 F.2d 1218, 1226 (6th Cir. 1988). “[T]he court may order a bond that does not
completely secure the enjoined party or the court may decline to order a bond, if
necessary for the purpose of effecting justice between the parties.” Id. at 1227 n.15
(internal quotation marks omitted).
At the preliminary injunction hearing, Static Control’s CEO testified that the
company would lose $17,463,580 if forced to halt sales for two years. The CEO testified
to the overall method his company used to calculate that number, but never presented
any underlying calculations. Cross-examination revealed a number of assumptions
underlying Static Control’s estimate, including the assumption that it would take six
years for Static Control to regain its previous market position if enjoined. The fact that
the ultimate bond amount selected by the district court was only two percent of Static
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 12
Control’s claimed damages therefore carries little weight. The district court was not
required to credit Static Control’s testimony solely because Lexmark did not present
evidence to the contrary. The district court received evidence from Static Control,
weighed the evidence against the strength of Lexmark’s claims, which were deemed
strong at the time, and accordingly raised the initial bond from $75,000 to $250,000. We
decline to hold that the district court abused its discretion in setting the bond amount
under these circumstances.
IV. STATIC CONTROL’S FEDERAL ANTITRUST COUNTERCLAIMS
Static Control counterclaimed in the 02 Action under §§ 4 and 16 of the Clayton
Act, 15 U.S.C. §§ 15, 26, for violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C.
§§ 1, 2, seeking damages and injunctive relief. 02R. 172 (2d Am. Answer &
Counterclaim). The district court granted Lexmark’s motion to dismiss on the basis that
Static Control did not have standing to bring the federal antitrust claims for damages or
injunctive relief. R. 392 (D. Ct. Order 9/28/06).
A. Standard of Review
We review de novo a district court’s decision to dismiss a counterclaim for
failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). United Ass’n of
Journeymen & Apprentices of the Plumbing and Pipefitting Indus., Local No. 577 v.
Ross Bros. Constr. Co., 191 F.3d 714, 716 (6th Cir. 1999). In reviewing a motion to
dismiss, we accept all non-conclusory allegations of fact as true and decide whether the
claimant has stated a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678-79
(2009). The pleading must state “enough facts to state a claim to relief that is plausible
on its face”; failure to plead sufficient facts will lead to dismissal of the claim. Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007).
B. Antitrust Standing for Counterclaims with Money Damages
Pursuant to the Clayton Act, 15 U.S.C. § 15(a), private parties may bring private
actions for violations of the Sherman Act. Section 1 of the Sherman Act prohibits
conspiracies to restrain trade. 15 U.S.C. § 1. “A Section 1 conspiracy requires more
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 13
than a manufacturer’s unilateral refusal to deal. ‘There must be evidence that tends to
exclude the possibility that the [conspirators] were acting independently.’” Watson
Carpet & Floor Covering, Inc. v. Mohawk Indus., Inc., 648 F.3d 452, 457 (6th Cir. 2011)
(internal citation omitted) (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S.
752, 764 (1984)). Section 2 of the Sherman Act prohibits the illegal monopolization of
a market. 15 U.S.C. § 2. To bring a claim under § 2, a claimant must show
“‘(1) possession of monopoly power in the relevant market; and (2) the willful
acquisition or maintenance of that power as distinguished from growth or development
as a consequence of a superior product, business acumen or historic accident.’” Tarrant
Serv. Agency, Inc. v. Am. Standard, Inc., 12 F.3d 609, 613 (6th Cir. 1993) (quoting
United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)), cert. denied, 512 U.S.
1221 (1994).
To bring a private claim for damages under either section of the Sherman Act,
the claimant must first demonstrate that it has standing. Although required in all cases,
standing in an antitrust case is more onerous than the conventional Article III inquiry.
“[A]ntitrust standing is a threshold, pleading-stage inquiry and when a complaint by its
terms fails to establish this requirement we must dismiss it as a matter of law . . . .”
NicSand, Inc. v. 3M Co., 507 F.3d 442, 450 (6th Cir. 2007) (en banc). The district court
decides whether a claimant has adequately pleaded antitrust standing by balancing five
factors:
(1) the causal connection between the antitrust violation and harm to the
plaintiff and whether that harm was intended to be caused; (2) the nature
of the plaintiff’s alleged injury including the status of the plaintiff as
consumer or competitor in the relevant market; (3) the directness or
indirectness of the injury, and the related inquiry of whether the damages
are speculative; (4) the potential for duplicative recovery or complex
apportionment of damages; and (5) the existence of more direct victims
of the alleged antitrust violation.
Southaven Land Co., Inc. v. Malone & Hyde, Inc., 715 F.2d 1079, 1085 (6th Cir. 1983)
(citing Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 14
(“AGC”), 459 U.S. 519, 537-45 (1983)). No one factor controls. Peck v. Gen. Motors
Corp., 894 F.2d 844, 846 (6th Cir. 1990).
Static Control alleges that Lexmark conspired with unidentified microchip
suppliers and resellers of Lexmark-manufactured printers to restrain trade and otherwise
monopolize “the relevant markets,” thereby reducing output, increasing prices, and
maintaining Lexmark’s monopoly. Static Control defines the “relevant markets” as
including three distinct but related aftermarkets for Lexmark-specific products: (1) the
market for Lexmark replacement toner cartridges, (2) the market for component parts for
Lexmark cartridges, and (3) the market for microchips for Lexmark cartridges.5 02R.
172 (2d Am. Answer & Countercl. at ¶¶ 17-18). The allegations repeatedly refer to the
“relevant markets” as a group when the specific facts relate only to the market for
replacement cartridges. For example, Static Control alleges that Lexmark has “an
85% share in each of the relevant markets,” id. at ¶ 18, but on closer examination the
counterclaim alleges that Lexmark competes only in the market for toner cartridges, id.
at ¶¶ 12, 24. Static Control alleges that Lexmark’s anticompetitive chips “exclude
competition, restrict output, and increase end-user prices in the relevant markets,” id. at
¶ 47, but the counterclaim never identifies any change in competition, output, or prices
in the market for component parts or microchips as a result of Lexmark’s conduct. The
only specific allegations as to price and output relate to the market for toner cartridges.
Id. at ¶¶ 50-52, 58. Therefore, although we read the allegations of the counterclaim in
the light most favorable to Static Control, we must carefully consider the actual factual
allegations underlying such conclusory allegations. Twombly, 550 U.S. at 556-57.
In its counterclaim, Static Control’s allegations can be categorized into five
practices by Lexmark that Static Control claims constitute anticompetitive conduct:
5
Lexmark argued below that the relevant market was the larger primary market for all brands of
laser printer cartridges and parts, not just the aftermarket for Lexmark products. The jury in its advisory
findings sided with Static Control. R. 1366 (Special Verdict Form at 15). On appeal, Lexmark does not
concede its position on the relevant market, but argues against standing using the aftermarket. Second
Appellee Br. at 40.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 15
(1) the Prebate program;6 (2) using “lock-out” microchip technology in its printers,
causing them to disable when any non-Lexmark replacement cartridge is inserted;
(3) requiring Lexmark’s microchip supplier to refuse to sell replacement chips to anyone
but Lexmark; (4) redesigning its microchips specifically to render cartridges that used
Static Control’s microchips incompatible; and (5) filing the 02 Action targeting Static
Control. First Appellant Br. at 12-15; 02R. 172 (2d Am. Answer & Countercl. at ¶¶ 32,
44-46, 54-56). When the allegations are read for specificity and plausibility, these
actions target and affect the different markets in different ways. We therefore examine
each of these alleged violations separately to see if Static Control has standing to pursue
any of them.
1. Prebate Program
Static Control alleges that the Prebate Program, through its lower prices and
misleading statements that the end user committed to a license agreement when no such
license existed, cajoled end users into purchasing fewer remanufactured cartridges and
thereafter returning them primarily to Lexmark. As a result, Static Control was also
harmed because it lost profits from the decline in sales of microchips and components
for Lexmark-compatible cartridges following the decline in sales of remanufactured
cartridges. First Appellant Br. at 16.
As alleged, the Prebate Program targets only the market for remanufactured
cartridges. No part of the Prebate Program relates to the market for microchips or
components, even though the allegations support the Prebate Program’s incidental
effects in the other markets. Static Control itself states that “Lexmark specifically
launched its Prebate program to intimidate and to exclude competition from
remanufacturers.” 02R. 172 (2d Am. Answer & Countercl. at ¶ 33) (emphasis added).
And as discussed above, although Static Control’s allegations often refer to the “relevant
markets,” the specific factual allegations explain only Prebate’s impact on the market
6
Specifically, Static Control complains that Lexmark engaged in anticompetitive conduct by
creating two classes of otherwise identical cartridges, Prebate and non-Prebate, selling the non-Prebate
cartridges at artificially inflated prices, falsely invoking patent rights to prevent remanufacturers from
repairing Prebate cartridges, and engaging in other threatening behavior.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 16
for remanufactured cartridges. For example, when Static Control alleges that Lexmark
used Prebate to “effect[] its deliberate, unlawful, anticompetitive intent to raise prices
and exclude competition,” id., we can conclude only that this allegation relates to the
market for toner cartridges because of the lack of any allegations that the prices were
raised in other markets. Having identified the proper market, we easily conclude that all
five of the AGC factors are lacking with respect to the Prebate program.
Although causation in the traditional sense appears properly alleged—the
implementation of the Prebate program decreased the number of remanufactured
Lexmark cartridges, which in turn decreased Static Control’s sales—Static Control fails
to allege plausibly that the Prebate program was intended to harm Static Control. As the
district court correctly held, the intended targets of Lexmark’s Prebate Program were the
end users and the remanufacturers, not Static Control. R. 392 (D. Ct. Order 9/28/06 at
9). Static Control asserts that these conclusions erroneously rely on factual averments
and that the district court failed to accept its facts as alleged, but Static Control itself
alleges this: “Lexmark specifically launched its Prebate program to intimidate and to
exclude competition from remanufacturers.” 02R. 172 (2d Am. Answer & Countercl.
at ¶ 33); see also id. at ¶ 42 (“Lexmark’s sole purpose for deceiving end-users to believe
they are contractually bound by [the Prebate Program] is to preserve, maintain, and
enhance its unlawful monopoly power in the relevant markets.”).
Static Control also fails sufficiently to identify its role in the relevant market for
remanufactured cartridges. Traditionally, only claimants who are competitors or
consumers within the injured market have standing to sue. Southaven, 715 F.2d at 1086.
However, claimants who are not direct players in the relevant market may nonetheless
have standing if their injury is “‘inextricably intertwined’ with the injury sought to be
inflicted upon the relevant market or participants therein.” Id. The “inextricably
intertwined” exception, however, is narrow. See Blue Shield of Va. v. McCready,
457 U.S. 465, 483-84 (1982). This exception was not designed to give standing to
claimants whose injuries are a tangential byproduct of monopolistic conduct in a related
market. Southaven, 715 F.2d at 1086. To succeed, the claimant must show that the
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 17
defendants “manipulated or utilized [the claimant] as a fulcrum, conduit or market force
to injure competitors or participants in the relevant product and geographical markets.”
Id.Static Control must therefore have alleged that an injury in Lexmark’s
market—the market for replacement toner cartridges—is inextricably intertwined with
the injuries Static Control claims to be suffering in the market for component parts and
microchips. The district court rejected Static Control’s argument, because Static Control
failed adequately to allege that it was “manipulated or utilized by the defendant as a
fulcrum, conduit or market force to injure competitors or participants in the relevant
product and geographical market.” R. 392 (D. Ct. Order 9/28/06 at 10) (quoting
Province v. Cleveland Press Publ’g Co., 787 F.2d 1047, 1052 (6th Cir. 1986) (internal
quotation marks and brackets omitted)). “If anyone is being manipulated according to
[Static Control’s] allegations, it is the end consumer.” Id. at 10-11. We agree.
Static Control’s counterclaim makes no mention of being used by Lexmark as
a fulcrum, and Static Control does not allege that it was harmed because it was
manipulated into harming the remanufacturers. Static Control on appeal argues that
Lexmark used Static Control as a fulcrum to injure the remanufacturers by (1) falsely
telling remanufacturers that using Static Control’s products would constitute
infringement; (2) redesigning its microchips, thus forcing Static Control to redesign its
microchips to remain compatible; (3) threatening legal action against Static Control;
(4) and suing Static Control for baseless copyright claims. First Appellant Br. at 39.
But, although these specific allegations are sprinkled in various sections of the
counterclaim to support other arguments, we can find no allegations in the counterclaim
that Lexmark manipulated Static Control in any way to carry out its anticompetitive
Prebate Program in the market for remanufactured cartridges. “An inextricably
intertwined injury is one that results from the manipulation of the injured party as a
means to carry out the restraint of trade in the product market.” Province, 787 F.2d at
1052.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 18
Static Control’s allegations establish that it was negatively affected by Lexmark’s
manipulation of the end users into buying Prebate cartridges, but that Static Control itself
was not used as a conduit to achieve the alleged anticompetitive effect in the
remanufactured cartridge market. See Southaven, 715 F.2d at1086 (harm from tangential
effects of anticompetitive conduct not enough to convey standing). Indeed, the
allegations make very clear that Lexmark is using the end users to obtain the desired
anticompetitive effects, rather than using Static Control. Static Control specifically
alleges that Lexmark “fraudulently induces customers’ use of Prebate cartridges” and
“exploit[s] consumers’ lack of information about choices in replacement cartridges” to
reduce the number of non-Prebate cartridges on the market. 02R. 172 (2d Am. Answer
& Countercl. at ¶ 37); see also id. at ¶ 38 (“Lexmark’s anticompetitive exploitation of
consumers’ and end-users’ lack of adequate information increases prices and reduces
output in the relevant markets.”) (emphasis added). No such allegations of exploitation
or manipulation exist with respect to Static Control. The level of manipulation of the
claimant—and the necessity of the success of such manipulation to achieve the
anticompetitive conduct—is simply not present in this case with respect to Static
Control. See Peck, 894 F.2d at 847.
Even if we were to consider Static Control’s injury in the market for components
and microchips sufficiently related to the harm caused by the Prebate Program in the
remanufactured cartridges market, Static Control still lacks standing due to its failure to
satisfy the remaining AGC factors. See Fallis v. Pendleton Woolen Mills, Inc., 866 F.2d
209, 211 (6th Cir. 1989) (holding no antitrust standing despite assuming claimant was
used as a fulcrum in relevant market), abrogated on other grounds by Humphreys v.
Bellaire Corp., 966 F.2d 1037 (6th Cir. 1992). Antitrust causation is much more limited
than Article III standing. Here, Static Control’s injury is too attenuated to qualify.
“[Static Control’s] injury is derivative; it is simply a side effect of [Lexmark’s] alleged
antitrust violations.” Fallis, 866 F.2d at 210.
Static Control also fails to establish the final three AGC factors, which all relate
to the directness of Static Control’s injuries relative to potentially more-direct victims.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 19
Static Control’s injuries as a result of the Prebate program are clearly a “byproduct” of
the alleged antitrust violation. Province, 787 F.2d at 1053; Fallis, 866 F.2d at 211. The
more-direct victims are the end users, who according to the allegations had to pay more
for their cartridges as a result of the allegedly anticompetitive conduct, and the
remanufacturers, who were unable to compete in the market for Lexmark-compatible
toner cartridges after Lexmark’s Prebate program undercut their prices and reduced
supply. Although the end users may have little incentive to sue, two of the
remanufacturers raised (and ultimately settled) antitrust claims against Lexmark in the
same action. R. 392 (D. Ct. Order 9/28/06 at 12). Where there are more-direct victims
of the anticompetitive conduct, those victims have the standing to sue, rather than those
affected indirectly. Southaven, 715 F.2d at 1087; Province, 787 F.2d at 1053-54.
The existence of this clear class of direct victims increases the danger of
duplicative recovery should Static Control be given antitrust standing to pursue the
Prebate Program and receive treble damages.7 Static Control may seek only the
damages from its own losses, but the concern of duplicative recovery relates more
broadly to the issue of requiring a defendant to pay treble damages to parties both
directly and indirectly injured from the same antitrust violation. See Ill. Brick Co. v.
Illinois, 431 U.S. 720, 731 n.11 (1977) (discussing risk of duplicative recovery between
direct and indirect purchasers). Finally, we agree with the district court that Static
Control’s calculation of over $18 million in damages is speculative. R. 392 (D. Ct.
Order 9/28/06 at 11).
Static Control’s argument for directness of its injury relies heavily on the Second
Circuit case Crimpers Promotions, Inc. v. Home Box Office, Inc., 724 F.2d 290, 294-95
(2d Cir. 1983), cert. denied, 467 U.S. 1252 (1984), as does much of its argument on
standing. The plaintiff in Crimpers had standing because HBO and Showtime colluded
to prevent his tradeshow from serving as a middleman between television show
producers and cable operators, which was the only alternative forum for them to
communicate. Crimpers had standing because “[i]njury to Crimpers was the precisely
7
The district court did not explicitly discuss the potential for duplicative recovery.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 20
intended consequence of defendants’ boycott,” even more than the resulting injury to the
tradeshow participants. Id. at 294. Here, the allegations of both intent and injury are
less direct. The Prebate program reduced the number of cartridges available for
remanufacture, which in turn reduced the number of microchips sold by Static Control
to the remanufacturers. Static Control’s allegations resemble a classic case of a supplier
seeking standing to recover for indirect damages following anticompetitive conduct
directed at its customers’ market. Crimpers is simply inapposite. We agree that Static
Control lacks standing to pursue its antitrust claims as they relate to the Prebate program.
2. Restraints on Microchips in Lexmark Printers and Cartridges
Static Control also argues that the existence of microchips in the cartridges in the
first place and Lexmark’s exclusive distribution agreement with its own microchip
supplier are anticompetitive acts. These acts differ from the Prebate program because
they directly target the microchip market in which Static Control is a competitor.
Although Lexmark does not compete in the market for microchips, the allegations
suggest that Lexmark uses its influence to restrain trade in the microchip market in order
to restrain trade in the remanufactured cartridge market. Here, however, Static Control
again lacks standing because it has failed to allege how Lexmark’s actions caused any
antitrust injury.
Static Control objects to the initial creation of the “anticompetitive microchips,”
but fails to allege how the existence of a microchip requirement alone caused Static
Control any injury. See 02R. 172 (2d Am. Answer & Countercl. at ¶ 44). Static Control
makes no allegations at all relating to the change in prices for components and
microchips as a result of Lexmark’s use of microchips in its toner cartridges, and Static
Control makes no allegations regarding how a microchip requirement affected Static
Control’s share of the market for components and microchips. Indeed, Static Control
fails to allege plausibly how the creation of a microchip requirement hurt Static
Control’s share of the microchip market, because without the requirement that market
would not exist. It is possible that, without the microchips, Static Control would be able
to sell more component parts, but Static Control does not make this allegation. Static
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 21
Control has failed to allege how the existence of a microchip requirement injured Static
Control or otherwise gave Lexmark a monopoly in the related market for Lexmark
component parts.
Static Control’s allegations relating to Lexmark’s microchip supplier’s refusal
to compete with third parties fares no better. As a self-proclaimed “leading supplier to
toner cartridge remanufacturers,” id. at ¶ 30, Static Control fails to allege how the
removal of one of its direct competitors from the components and microchips market
following an exclusive distributorship agreement with a single customer caused any
damage to Static Control’s position within those markets or profits. See New Albany
Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1052 (6th Cir. 2011) (“Merely
demonstrating the existence of an exclusive distributorship in a market area does not
violate Robinson–Patman—or any other antitrust provision.”). In general, the removal
of a competitor increases (not decreases) the remaining suppliers’ market share, and
Static Control has not alleged that Lexmark was a former customer or that absent the
exclusive agreement Lexmark would have purchased from Static Control.
“Antitrust injury does not arise for purposes of § 4 of the Clayton Act until a
private party is adversely affected by an anticompetitive aspect of the defendant’s
conduct.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339 (1990) (citation
and emphasis omitted). Cases have routinely rejected claims of antitrust violations that
may very well be violations when the claimants stood to gain from the anticompetitive
conduct. Therefore, “[Static Control] cannot recover for a conspiracy to impose
nonprice restraints that have the effect of either raising market price or limiting output.”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 583 (1986); Datagate,
Inc. v. Hewlett-Packard Co., 941 F.2d 864, 868-69 (9th Cir. 1991) (“As an existing
competitor, [claimant] would have benefitted from any chilling of new entry into the
market. Therefore, [claimant] can claim no injury as a result of such chilling.”) (citation
omitted), cert. denied, 503 U.S. 984 (1992). Static Control has failed plausibly to allege
any antitrust injury stemming from Lexmark’s decision to use microchips in its
cartridges and to remove its own supplier from the market for microchips.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 22
3. Redesigning Microchips to Circumvent Static Control’s product
Once the market for microchips was created, however, the issue becomes
whether Lexmark can engage in a conspiracy to eliminate that market or stifle
competition within that market. If Lexmark were able to maintain a monopoly on
remanufactured toner cartridges by making cartridge parts wholly unavailable, Static
Control might have standing to pursue an antitrust violation. See Eastman Kodak Co.
v. Image Technical Servs., Inc., 504 U.S. 451, 463-64 (1992). The allegations, however,
do not sufficiently allege such behavior. Static Control does not specifically allege a
tying scheme under § 1 of the Sherman Act, as was the case in Eastman Kodak, nor does
Static Control allege any facts to suggest that the prices for parts increased as a result of
being illegally tied to the market for cartridges. Static Control alleges that Lexmark
continuously redesigned its microchips “to exclude competitors from the relevant
markets, restrict output, and increase end-user prices.” 02R. 172 (2d Am. Answer &
Countercl. at ¶ 45). But Static Control does not allege how Lexmark’s redesign
decreased competition in the markets in which Static Control competes, the market for
microchips or parts. Static Control does not even identify in its pleading who competes
in the microchip or parts markets, what their market share is, whether they are controlled
by Lexmark, what their prices were, or how their prices were affected by Lexmark’s
redesign (or any of Lexmark’s conduct for that matter). See CBC Companies, Inc. v.
Equifax, Inc., 561 F.3d 569, 572 (6th Cir. 2009) (holding allegations insufficient to
establish antitrust injury in part due to failure to identify other market players). The
counterclaim lacks other supporting allegations such as the nature and frequency of
Lexmark’s redesigns and how quickly replacement products were able to adapt to the
changes. Nor does Static Control make any non-conclusory allegations to refute the
possible business explanation that Lexmark, like most companies, continuously updates
its products over the years for legitimate competitive reasons. Twombly, 550 U.S. at
553. Static Control’s allegations with respect to the microchip redesign therefore also
fail to establish antitrust standing for any cognizable antitrust injury.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 23
4. Filing Suit
Lexmark further correctly observes that the act of filing suit generally does not
constitute an antitrust injury under the Noerr-Pennington doctrine.8 Second Appellee
Br. at 47; see E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127(1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965). Although exceptions
are made when the filing is a sham for interfering with competition, the first inquiry for
identifying sham litigation is objective reasonableness: “Only if challenged litigation
is objectively meritless may a court examine the litigant’s subjective motivation.” Prof’l
Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993).
We cannot say that Static Control has plausibly alleged that the 02 Action was
“objectively meritless.” See 02R. 172 (2d Am. Answer & Countercl. at ¶ 56). Static
Control’s allegations focus solely on Lexmark’s intent behind bringing the copyright
action; Static Control does not offer any allegations upon which we can plausibly
conclude that the copyright action was “objectively meritless.” The Sixth Circuit’s
ultimate conclusion that Lexmark lacked a valid copyright claim is not determinative of
whether the initial suit was reasonable. Prof’l Real Estate, 508 U.S. at 60 n.5. We agree
with Lexmark that its efforts in federal court, as alleged, should be immune from
antitrust suit.
C. Antitrust Standing for Counterclaims Seeking Injunctive Relief
The Clayton Act also permits a private party to obtain injunctive relief “against
threatened loss or damage by a violation of the antitrust laws.” 15 U.S.C. § 26. The
district court did not distinguish between Static Control’s request for injunctive relief
and its request for monetary damages when dismissing the counterclaim for lack of
standing. See R. 392 (D. Ct. Order 9/28/06 at 12). Static Control argues that the district
court separately erred in dismissing its claim for equitable relief because the last three
AGC factors are inapplicable to whether a claimant has standing to seek injunctive relief.
8
Static Control claims Lexmark’s Noerr-Pennington argument is waived as it was not raised
below and was raised on appeal only in a footnote. Third Appellant Br. at 7 n.3. However, “standing is
a jurisdictional requirement that cannot be waived, and such may be brought up at any time in the
proceeding.” Zurich Ins. Co. v. Logitrans, Inc., 297 F.3d 528, 531 (6th Cir. 2002).
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 24
First Appellant Br. at 51. Lexmark argues that the standing requirements for obtaining
injunctive relief are no different from the standing requirements for obtaining monetary
relief when, as here, Static Control also seeks money damages. Second Appellant Br.
at 56 (“The requirements for antitrust standing are the same whether the antitrust
plaintiff seeks damages only or damages and injunctive relief.”).
The Clayton Act does not “authorize a private plaintiff to secure an injunction
against a threatened injury for which he would not be entitled to compensation if the
injury actually occurred.” Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 112
(1986). The only difference between a claim for equitable relief and one for damages
is that equitable relief is available at the mere threat of antitrust injury. Because we have
held that Static Control has failed to plead an antitrust injury, we affirm the dismissal of
Static Control’s claim for equitable relief. See Valley Prods. Co. v. Landmark, 128 F.3d
398, 402 (6th Cir. 1997).
V. STATIC CONTROL’S LANHAM ACT COUNTERCLAIM
Static Control contends that Lexmark violated the Lanham Act by engaging in
false advertising. Static Control alleges that Lexmark “falsely informed customers that
SCC’s products infringe Lexmark’s purported intellectual property,” and “misled . . .
customers of SCC’s products that license agreements prohibit remanufacturing Lexmark
toner cartridges, when no license agreements actually exist,” causing Static Control’s
customers to believe that Static Control is engaging in illegal conduct and thereby
damaging Static Control’s business and reputation.9 02R. 172 (2d Am. Answer &
9
The Lanham Act provides:
Any person who, on or in connection with any goods or services, or any container for
goods, uses in commerce any word, term, name, symbol, or device, or any combination
thereof, or any false designation of origin, false or misleading description of fact, or
false or misleading representation of fact, which
(A) is likely to cause confusion, or to cause mistake, or to deceive
as to the affiliation, connection, or association of such person
with another person, or as to the origin, sponsorship, or
approval of his or her goods, services, or commercial activities
by another person, or
(B) in commercial advertising or promotion, misrepresents the
nature, characteristics, qualities, or geographic origin of his or
her or another person’s goods, services, or commercial
activities,
shall be liable in a civil action by any person who believes that he or she is or is likely
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 25
Countercl. at ¶¶ 2, 84-90). The district court dismissed Static Control’s counterclaim for
lack of Lanham Act standing because Static Control lacked antitrust standing, holding
that “[m]ultiple courts have held that the factors” for antitrust standing are the same as
for Lanham Act standing. R. 392 (D. Ct. Order 9/28/06 at 13) (citing Fifth and Third
Circuit cases).
Static Control maintains that the test “[i]n this Circuit” is “not the same as the . . .
test for antitrust standing.” First Appellant Br. at 53 (citing Frisch’s Rests., Inc. v.
Elby’s Big Boy of Steubenville, Inc., 670 F.2d 642, 649-50 (6th Cir.), cert. denied, 459
U.S. 916 (1982)). Frisch’s Restaurants held that a Lanham Act claimant need not
demonstrate actual losses as a result of the defendant’s misleading use of the claimant’s
trademarks in its advertisements, only a “‘likelihood of injury and causation.’” Id. at
650 (quoting Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 190 (2d Cir.
1980)). Since Frisch’s Restaurants, the Second Circuit has further described its
approach, called the “reasonable interest” approach, as finding that the claimant has
standing if the claimant can demonstrate “(1) a reasonable interest to be protected
against the alleged false advertising and (2) a reasonable basis for believing that the
interest is likely to be damaged by the alleged false advertising.” Famous Horse, Inc.
v. 5th Ave. Photo Inc., 624 F.3d 106, 113 (2d Cir. 2010). We have not addressed
Lanham Act standing since Frisch’s Restaurants.
Lexmark urges us to follow one of the narrower approaches adopted by our sister
circuits. The Seventh, Ninth, and Tenth use a categorical test, permitting Lanham Act
suits only by an actual competitor making an unfair-competition claim. L.S. Heath &
Son, Inc. v. AT & T Info. Sys., Inc., 9 F.3d 561, 575 (7th Cir. 1993); Waits v. Frito-Lay,
Inc., 978 F.2d 1093, 1108-09 (9th Cir. 1992), cert. denied, 506 U.S. 1080 (1993);
Stanfield v. Osborne Indus., Inc., 52 F.3d 867, 873 (10th Cir.), cert. denied, 516 U.S. 920(1995). These circuits, however, have distinguished the standing inquiry between claims
of false association under 15 U.S.C. § 1125(a)(1)(A) and false advertising under
to be damaged by such act.
15 U.S.C. § 1125(a)(1).
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 26
§ 1125(a)(1)(B) and do not require direct competition for claims of false association.
See e.g., Waits, 978 F.2d at 1108-09. Static Control’s claim is for false advertising and
would fail under this stricter standard, because Static Control and Lexmark are not actual
competitors.
The Third, Fifth, Eighth, and Eleventh Circuits all reference antitrust standing
or the AGC factors in deciding Lanham Act standing. Conte Bros. Auto., Inc. v. Quaker
State-Slick 50, Inc., 165 F.3d 221, 233-34 (3d Cir. 1998) (Alito, J., authoring); Procter
& Gamble Co. v Amway Corp., 242 F.3d 539, 562-63 (5th Cir.), cert. denied, 534 U.S.
945 (2001); Gilbert/Robinson, Inc. v. Carrie Beverage-Missouri, Inc., 989 F.2d 985,
990-91 (8th Cir.), cert. denied, 510 U.S. 928 (1993); Phoenix of Broward, Inc. v.
McDonald’s Corp., 489 F.3d 1156, 1162-64 (11th Cir. 2007), cert. denied, 552 U.S.
1275 (2008). The Third Circuit nominally uses a “reasonable interest” approach, but
applies it by looking to the five AGC factors. Conte Bros., 165 F.3d at 233-34. The
Third Circuit has also rejected any distinction in standing between the two types of
Lanham Act claims. Id. at 232. The Second Circuit’s more recent cases reject the Third
Circuit’s conflation of the reasonable-interest test with the AGC factors as
“unnecessarily complicat[ing] the inquiry,” Famous Horse, 624 F.3d at 115 n.3, setting
its approach apart. Therefore, Lexmark’s statement that the reasonable interest test and
the AGC test are not “conceptually different,” Second Appellee Br. at 60, is not correct.
Although the claimant in Frisch’s Restaurants brought a claim under 15 U.S.C.
§ 1125(a)(1)(A) for false association of trademark, not under § 1125(a)(1)(B) for false
advertising, we agree with the Third Circuit’s reasoned analysis rejecting a distinction
between these two types of claims for purposes of standing. Conte Bros., 165 F.3d at
232-33. Because we have already addressed the appropriate level of standing for claims
brought under 15 U.S.C. § 1125(a), even if we were to prefer the approach taken by our
sister circuits, we cannot overturn a prior published decision of this court absent
inconsistent Supreme Court precedent or an en banc reversal.10 Geiger v. Tower Auto.,
10
Even if we were to adopt the AGC factors, Static Control’s claim would not necessarily fail.
Although we have determined that Static Control failed to satisfy the AGC factors regarding its antitrust
allegations, this does not necessarily mean Lanham Act standing would be lacking. Not all of Lexmark’s
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 27
579 F.3d 614, 622 (6th Cir. 2009). Static Control has therefore sufficiently alleged a
Lanham Act claim. Static Control alleged a cognizable interest in its business reputation
and sales to remanufacturers and sufficiently alleged that these interests were harmed by
Lexmark’s statements to the remanufacturers that Static Control was engaging in illegal
conduct. This is sufficient to state a claim under the Lanham Act. We therefore
REVERSE the district court’s dismissal of this claim and REMAND with instructions
to reinstate the Lanham Act claim.
VI. STATE-LAW COUNTERCLAIMS
The district court dismissed Static Control’s counterclaims for unfair competition
and false advertising under North Carolina law for lack of standing. Static Control
appeals and agrees that substantively the state law claims all “substantially mirror” the
federal claims. First Appellant Br. at 54.11
The parties dispute whether standing under the North Carolina Unfair Deceptive
Trade Practices Act (“NCUDTPA”), N.C. Gen. Stat. §§ 75-1, et seq., which is the state-
law equivalent of the Sherman, Clayton, and Lanham Acts, is identical to the standing
requirements of the federal acts. The district court held that North Carolina had not yet
decided the question, and applying “North Carolina’s general rule that federal case law
is persuasive and instructive in construing North Carolina’s own antitrust statutes,” the
district court dismissed the state-law counterclaims “for the same reasons that it
dismissed [Static Control’s] federal claims above.” R. 392 (D. Ct. Order 9/28/06 at 16).
Static Control disagrees that the North Carolina standard is the same.
conduct supposedly in violation of the Lanham Act is the same as the conduct supposedly violating the
Sherman Act. In particular, Static Control alleges that Lexmark violated the Lanham Act when Lexmark
falsely advertised that Static Control infringed Lexmark’s patents. Because this was not part of Static
Control’s antitrust allegations, the district court at a minimum should have applied the AGC factors to
Static Control’s allegations of false advertising directly targeting Static Control (not just the Prebate
program) and its injuries in conducting the five-factor analysis.
11
The district court also dismissed the state-law civil-conspiracy claim for lack of standing;
however, Static Control has not raised this issue on appeal. Static Control mentioned in a footnote in its
opening brief that the district court also erred in dismissing its state-law civil-conspiracy claim. First
Appellant Br. at 56 n.14. Lexmark then pointed out the waiver, Second Appellee Br. at 62, and Static
Control did not dispute the waiver or make any arguments on either waiver or the civil-conspiracy claim
in its Third Brief.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 28
North Carolina has held that the AGC factors “do not apply in determining which
indirect purchasers have standing to sue under the North Carolina antitrust statutes.”
Teague v. Bayer AG, 671 S.E.2d 550, 557 (N.C. Ct. App. 2009). Static Control is a
supplier rather than an indirect purchaser, but Static Control argues that Teague supports
the general proposition that North Carolina antitrust standing diverges from federal
antitrust standing. Although ruling before Teague came down, the district court rejected
the relevance of a similar case upon which Teague relied—Hyde v. Abbott Labs., Inc.,
473 S.E.2d 680, 681-82 (N.C. Ct. App.), rev. denied, 344 N.C. 734 (1996)—precisely
because the present case did not involve an indirect purchaser. Teague does not state,
as Static Control suggests, that antitrust standing under North Carolina law is generally
more flexible than the equivalent federal law. We must therefore closely examine North
Carolina’s departure from federal law on the question of standing for indirect purchasers
to determine whether North Carolina would similarly depart on the question of standing
for suppliers.
In deciding to reject the federal test for standing for indirect purchasers, the
North Carolina Court of Appeals examined the standing landscape when the North
Carolina statute governing standing, N.C. Gen. Stat. §§ 75-16, was most recently
substantively amended in 1969. Hyde, 473 S.E.2d at 684-85 (citing Ill. Brick Co. v.
Illinois, 431 U.S. 720 (1977), and Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392
U.S. 481 (1968)). Because the amendments expanded the class of persons who could
recover under the Act to all consumers, and indirect purchasers were frequently
consumers, the court found it “unlikely” that the legislature intended to exclude indirect
purchasers as a class. Id. at 684. Although acknowledging federal law as “persuasive
authority” in interpreting North Carolina antitrust provisions, id. at 685, the court
observed that most federal circuits permitted suit by indirect purchasers in 1969 when
the amendments were passed. The Supreme Court’s decision in Illinois Brick that
indirect purchasers lacked standing to bring antitrust claims was not issued until 1977.
Id. at 683.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 29
Applying the same considerations to the circumstances at hand, we believe North
Carolina would grant standing to suppliers such as Static Control. Prior to 1969, the law,
at least in the Sixth Circuit, was that suppliers like Static Control lacked standing.
See Volasco Prods. Co. v. Lloyd A. Fry Roofing Co., 308 F.2d 383, 395 (6th Cir. 1962)
(“It is well established in the law that a supplier is too remote and too far removed from
the direct injury to recover damages resulting from violation of the anti-trust laws
directed against the supplier’s customer.”), cert. denied, 372 U.S. 907 (1963). However,
the Fourth Circuit had declined to say that no supplier could bring a claim and followed
what was previously known as the “target area” test for antitrust standing. S.C. Milk
Council of Milk Producers, Inc. v. Newton, 360 F.2d 414, 418 (4th Cir.), cert. denied,
385 U.S. 934 (1966). The “target area” test gave antitrust standing to anyone who was
within the zone of economic harm caused by the anticompetitive conduct whose harm
was proximately caused by such conduct. Id.In ruling that indirect purchasers were not subject to the AGC factors, the court
in Teague emphasized the differences between cases involving indirect purchasers and
those, such as AGC itself, that did not. Teague, 671 S.E.2d at 556 (rejecting analogies
to AGC and other state cases applying AGC factors to state-law claims because they did
not involve indirect purchasers). However, the Hyde court independently rejected many
of the concerns identified in Illinois Brick (and later repeated in AGC) as simply
inapplicable to state-law antitrust statutes. Hyde, 473 S.E.2d at 687-88 (addressing
issues of multiple liability, incentives to sue, and complexity of damages). Because the
state of the law in 1969 in the Fourth Circuit appears more consistent with North
Carolina’s reasoning in Hyde than the Sixth Circuit’s position on supplier standing in
1969, we conclude that North Carolina would not apply the AGC factors to cases like
this one. As a result, Static Control’s counterclaims under state law were incorrectly
dismissed for lack of standing. We REVERSE and REMAND for further proceedings
on these claims.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 30
VII. IMPACT OF JURY VERDICT ON REMAND
Because we have reinstated some of Static Control’s counterclaims, Static
Control requests that we instruct the district court on remand to treat retroactively the
advisory jury’s findings that Lexmark misused its patents as binding jury findings.
Lexmark unsurprisingly objects to this. The Seventh Amendment provides that “no fact
tried by a jury, shall be otherwise reexamined in any Court of the United States.” U.S.
CONST. amend. VII. Static Control claims that presenting the reinstated antitrust claims
now to a binding jury would violate this prohibition because these issues were already
presented once to a jury, albeit an advisory one. Because those claims must be decided
by a jury if reinstated, Static Control suggests that the only remedy to this problem is
retroactively to call the advisory jury’s findings of fact binding, as opposed to
proceeding with a new trial before a new, binding jury.12
The differences between the defense of patent misuse and affirmative state-law
antitrust claims or a Lanham Act claim notwithstanding, we decline to deem an advisory
jury’s findings binding retroactively. See Hildebrand v. Bd. of Trs. of Mich. State Univ.,
607 F.2d 705, 710 (6th Cir. 1979) (“To convert a trial from a jury trial to a bench trial
(or vice-versa) in the middle of the proceedings is to interfere with counsel’s
presentation of their case and, quite possibly, to prejudice one side or the other.”);
Fischer Imaging Corp. v. Gen. Elec. Co., 187 F.3d 1165, 1174 (10th Cir. 1999)
(rejecting argument by claimant that advisory jury’s verdict should retroactively become
binding); Pradier v. Elespuru, 641 F.2d 808, 811 (9th Cir. 1981) (noting significant
tactical differences in litigating before an advisory jury). Although here the tactical
differences are minimal given that the change to an advisory jury occurred when the
district court gave the final jury instructions, we decline to speculate as to whether the
change in the jury’s instruction altered the jury’s analysis of the issue Static Control now
12
Static Control is right that if a district court erroneously dismisses a legal claim otherwise
entitled to a jury determination, any subsequent findings of fact by the judge must be vacated and the claim
relitigated before a jury. Lytle v. Household Mfg., Inc., 494 U.S. 545, 552-53 (1990). That procedural
posture, however, is not present in this case. Nonetheless, when a party has the right to a jury
determination on an issue under the Seventh Amendment, there is ample precedent that an advisory jury
does not satisfy that requirement. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 337 n. 24 (1979)
(“[A]n advisory jury . . . would not in any event have been a Seventh Amendment jury.”).
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 31
seeks to treat as binding. Cf. Romano v. Oklahoma, 512 U.S. 1, 8-9 (1994) (holding that
court may not “mislead the jury as to its role in the sentencing process in a way that
allows the jury to feel less responsible than it should for the sentencing decision.”)
(internal quotation marks omitted). We therefore decline Static Control’s request.
VIII. LEXMARK’S PATENT COUNTERCLAIMS
Lexmark counterclaimed in the 04 Action that Static Control induced the
remanufacturers to infringe several patents relating to Lexmark’s toner cartridges. At
trial, the jury determined that Lexmark had failed to meet its burden of showing direct
infringement by Static Control’s customers as a class and its burden of showing Static
Control induced infringement by the three named remanufacturers already held to be
direct infringers. Following the trial, Lexmark renewed a motion for judgment as a
matter of law and filed a motion for a new trial on whether the jury’s verdict was
unreasonable in light of the evidence of direct infringement by the class, which the
district court denied. Lexmark also sought a new trial on the issue of inducement after
the district court excluded questions at trial relating to the procurement of opinion-of-
counsel letters, which the district court also denied. Lexmark appeals these rulings, and
we affirm. Lexmark also appeals an earlier ruling by the district court on summary
judgment that Lexmark’s design patents were invalid as a matter of law, which we also
affirm.
A. Standards of Review
We review de novo a district court’s decision to deny a motion for a judgment
as a matter of law under Federal Rule of Civil Procedure 50. Mike’s Train House, Inc.
v. Lionel, L.L.C., 472 F.3d 398, 405 (6th Cir. 2006). A renewed motion for a judgment
as a matter of law following an adverse jury verdict “may only be granted if, when
viewing the evidence in a light most favorable to the non-moving party, giving that party
the benefit of all reasonable inferences . . . reasonable minds could come to but one
conclusion in favor of the moving party.” Barnes v. City of Cincinnati, 401 F.3d 729,
736 (6th Cir.), cert. denied, 546 U.S. 1003 (2005). Judgment as a matter of law is
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 32
appropriate only where there is no “legally sufficient evidentiary basis” for a reasonable
jury “to find for the [non-moving] party on that issue.” Fed. R. Civ. P. 50(a)(1). We
will not substitute our interpretation of the evidence for the jury’s, even if we would
have reached a different conclusion. Barnes, 401 F.3d at 738.
We review for abuse of discretion a district court’s decision to deny a motion for
a new trial under Federal Rule of Civil Procedure 59. Mike’s Train House, 472 F.3d at
405. A new trial is warranted after a jury verdict “for any reason for which a new trial
has heretofore been granted in an action at law in federal court.” Fed. R. Civ. P. 59(a).
We have previously held that a new trial is appropriate when the jury reaches a
“seriously erroneous result as evidenced by (1) the verdict being against the [clear]
weight of the evidence; (2) the damages being excessive; or (3) the trial being unfair to
the moving party in some fashion, i.e., the proceedings being influenced by prejudice or
bias.” Mike’s Train House, 472 F.3d at 405 (internal quotation marks and alterations
omitted) (quoting Holmes v. City of Massillon, 78 F.3d 1041, 1045-46 (6th Cir.), cert.
denied, 519 U.S. 935 (1996)); see also Barnes v. Owens-Corning Fiberglas Corp., 201
F.3d 815, 820 (6th Cir. 2000) (new trial appropriate only if “verdict is against the clear
weight of the evidence”). Lexmark’s argument relies on the first and third of these
potential errors.
We review de novo a district court’s grant of summary judgment. Int’l Union v.
Cummins, Inc., 434 F.3d 478, 483 (6th Cir. 2006). The moving party is entitled to
summary judgment when there is no genuine issue of material fact and the issue may be
resolved as a matter of law. Fed. R. Civ. P. 56(a). The evidence on summary judgment
must be construed in the light most favorable to the non-moving party. Matsushita,
475 U.S. at 587. When genuine issues of material fact remain, the proper course of
action is to submit such questions to the finder of fact.
B. Evidence of Direct Infringement by Static Control’s Customers as a Class
Lexmark argues on appeal that the evidence established as a matter of law that
Static Control’s customers as a class directly infringed Lexmark’s patents. Lexmark
seeks to overturn the jury’s verdict to the contrary. To establish a claim for patent
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 33
inducement under 35 U.S.C. § 271(b), Lexmark bore the burden of showing by a
preponderance of the evidence that (1) Static Control’s customers directly infringed
Lexmark’s patents; (2) Static Control took active steps that induced the customers’
infringement; (3) Static Control intended the customers to take the infringing acts; and
(4) Static Control knew or willfully disregarded the risk that those actions by its
customers would constitute direct infringement. See Global-Tech Appliances, Inc. v.
SEB S.A., 131 S. Ct. 2060, 2065-67 (2011). Patent infringement by a third-party is
therefore a necessary predicate to inducement to infringe.
A plaintiff can establish the first element of inducement to infringe either by
demonstrating “specific instances of direct infringement or a finding that the accused
products necessarily infringe.” Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301,
1322 (Fed. Cir. 2009), cert. denied, 130 S. Ct. 3324 (2010); see also Dynacore Holdings
Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1275-76 (Fed. Cir. 2004) (citing Sony Corp.
of Am. v. Universal City Studios, Inc., 464 U.S. 417, 441 (1984)); 5 DONALD S. CHISUM,
CHISUM ON PATENTS § 17.04[1] (2011). When the plaintiff can show only individual
instances of direct infringement, the plaintiff may recover only for the damages from
those individual acts. Dynacore, 363 F.3d at 1274. If the plaintiff can show an entire
class of customers necessarily infringed, damages can be sought more broadly across the
entire class. Id.Direct patent infringement occurs under 35 U.S.C. § 271(a) when someone
“(1) without authority (2) makes, uses, offers to sell, sells, or imports (3) the patented
invention (4) within the United States, its territories, or its possessions (5) during the
term of the patent.” HERBERT F. SCHWARTZ & ROBERT J. GOLDMAN, PATENT LAW AND
PRACTICE 163-64 (6th ed. 2008); see also Global-Tech, 131 S. Ct. at 2065 n.2 (“Direct
infringement has long been understood to require no more than the unauthorized use of
a patented invention.”). Determining whether someone is making, using, or selling a
patented invention “requires a finding that the patent claim covers the alleged infringer’s
product or process,” Markman v. Westview Instruments, Inc., 517 U.S. 370, 374 (1996)
(internal quotation marks omitted). The determination that a patent’s claims cover a
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 34
specific device is often referred to as “literal infringement.” SCHWARTZ, supra, at 174.
Literal infringement alone is not enough to support a claim for inducement, because the
predicate to inducement is a violation of 35 U.S.C. § 271(a), which requires more than
that the accused devices literally infringe. For example, a party could not be liable for
inducing infringement if an accused device literally infringed a patent claim but the
literal infringer had authority to use the patent or a patent had otherwise expired, thereby
defeating a determination of direct patent infringement. See, e.g., Aro Mfg. Co. v.
Convertible Top Replacement Co., 377 U.S. 476, 483 (1964) (sustaining claim for
contributory infringement upon determining that user of patented item lacked
authorization, thereby directly infringing).
An accused device will necessarily infringe, permitting a finding of direct
infringement by a class of customers and an inference that the inducer intended the
infringement, if the “customers can only use the [defendant’s] products in an infringing
way.” Symantec Corp. v. Computer Assocs. Int’l, Inc., 522 F.3d 1279, 1293 (Fed. Cir.
2008) (reversing summary judgment on inducement because plaintiff did not need to
show specific instances of direct infringement when defendants’ product could not be
used in a non-infringing way); see also Metro-Goldwyn-Mayer Studios Inc. v. Grokster,
Ltd., 545 U.S. 913, 932 (2005) (“[W]here an article is good for nothing else but
infringement, there is no injustice in presuming or imputing an intent to infringe.”)
(internal quotation marks and citation omitted). When an accused device could be used
in either an infringing or a non-infringing way, a claim of direct infringement based on
necessary infringement fails and cannot sustain an inducement claim. ACCO Brands,
Inc. v. ABA Locks Mfr. Co., 501 F.3d 1307, 1313-14 (Fed. Cir. 2007) (reversing jury
verdict of inducement to infringe patented method because no evidence of direct
infringement and accused product could be used in either an infringing or a non-
infringing way); CHISUM, supra, § 17.04[1].
Prior to the jury’s verdict, the district court granted summary judgment to
Lexmark on whether the three named remanufacturers—Wazana, NER, and
Pendl—directly infringed Lexmark’s nine valid mechanical patents. R. 1245 (D. Ct.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 35
Order 5/31/07) (holding direct infringement); R. 1008 (D. Ct. Order 4/24/07 at 48-49)
(holding mechanical patents valid). Lexmark had therefore established the necessary
predicate to inducement, but could recover only for those three remanufacturers’
infringement unless Lexmark could demonstrate that all of Static Control’s customers
as a class necessarily infringed. The question of direct infringement by Static Control’s
customers as a class was submitted to the jury, which held that Lexmark had failed to
meet its burden. R. 1366 (Special Verdict Form at 1). The district court denied
Lexmark’s renewed motion for a judgment as a matter of law and also Lexmark’s motion
for a new trial on this issue, finding that the evidence in support of Lexmark did not
compel a different result. The district court upheld the jury’s verdict because “[t]hough
Lexmark presented evidence of infringement by Static Control’s customers, that
evidence was not so overwhelming that reasonable people could come to but one
conclusion.” R. 1430 (D. Ct. Order 10/03/08 at 9).
Lexmark argues that the district court erroneously conflated the direct-
infringement inquiry, which Lexmark must establish, with the affirmative defense of
patent exhaustion, which Static Control must establish. Lexmark offered as
circumstantial evidence of infringement by the class the testimony of an expert
establishing that the toner cartridges remanufactured by Wazana, NER, and Pendl all
literally infringed the claims present in the nine mechanical patents. Although Lexmark
offered no testimony regarding specific cartridges from other remanufacturers, Static
Control has not argued or even suggested that the unidentified remanufacturers’
cartridges did not literally infringe at least some of the more than one hundred patent
claims that cover the original cartridges. Instead, Static Control argues that Lexmark
confuses literal infringement with direct infringement, and, as the district court held,
some of the toner cartridges could not sustain a claim for direct infringement because
they were sold domestically first, thereby exhausting Lexmark’s patent rights. Third
Appellant Br. at 40-41. Lexmark has conceded that its patent rights were exhausted in
the non-Prebate cartridges sold first in the United States and certain cartridges sold to
IBM customers.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 36
Part of the problem here is that the jury instructions never defined what it means
for a party to “directly infringe” a patent. Lexmark maintains that when the jury was
asked to decide whether Static Control’s customers as a class “directly infringed,” the
question must have related solely to whether the remanufactured toner cartridges as a
class literally infringed, because Static Control’s sole arguments against direct
infringement related to patent exhaustion, which was delineated as a separate question
on the jury’s special-verdict form. R. 1366 (Special Verdict Form at 1, 4). Lexmark is
theoretically correct—exhaustion of a patentee’s rights is a defense to direct
infringement and is not the same as establishing a non-infringing use of a patented
device, which would defeat a finding that Static Control’s customers necessarily
infringed the patents. However, this distinction was never clearly made to the jury.
Lexmark’s claim fails upon closer examination of the jury’s instructions. The
jury instructions explicitly suggested that patent exhaustion would defeat a finding of
“direct” infringement, as opposed to operating only as a defense following a showing of
direct infringement:
I instruct you that there are at least two kinds of uses of microchips made
by Static Control that are lawful and do not directly infringe any
Lexmark patent. . . . The first non-infringing use of Static Control’s
microchips is in the remanufacture of Non-Prebate Lexmark cartridges
that were first sold by Lexmark in the United States. Static Control has
no liability for active inducement of infringement when its microchips
are used in those cartridges because those cartridges may be lawfully
remanufactured by anyone without directly infringing any patent rights
of Lexmark.
R. 1365 (Jury Instructions at 18) (emphasis added). The district court then gave the
same instruction with respect to the IBM cartridges. Although Lexmark is correct that
exhaustion should be an affirmative defense,13 at no point did Lexmark object to the
district court’s statement that exhausted cartridges could not “directly infringe”
Lexmark’s patents. See R. 1119 (Lexmark’s Objections to Proposed Jury Instructions);
13
The jury instructions later also define exhaustion as Static Control’s burden, using the exact
same categories of cartridges the jury was previously instructed did not “directly infringe.” R. 1365
(Jury Instructions at 25-26).
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 37
R. 1171 (Jury Instructions Hr’g Tr.); R. 1361 (Joint Proposed Corrections to Final
Instructions).
Jurors are presumed to be “diligent in following the precise instructions given to
them.” United States v. Tosh, 330 F.3d 836, 842 (6th Cir. 2003). The evidence
presented by Lexmark was not so strong as to prevent a reasonable juror from
concluding that some members of the class remanufactured cartridges in a non-infringing
manner, as defined by the district court. With two categories of cartridges that
categorically did not “directly infringe,” according to the jury instructions, the jury
reasonably could have concluded Lexmark had not met its burden of showing that the
remanufacturers as a class “necessarily infringed” Lexmark’s patents by remanufacturing
exhausted cartridges. See ACCO Brands, 501 F.3d at 1313 (“Because the accused
device can be used at any given time in a noninfringing manner, the accused device does
not necessarily infringe the [plaintiff’s] patent.”). Nor was Lexmark’s circumstantial
evidence of literal infringement sufficient to compel a conclusion that all of Static
Control’s customers literally infringed, even if this were an appropriate inquiry.
Lexmark’s own expert, Dr. Reinholtz, stated that he examined remanufactured cartridges
from only the three named companies and did not know if other companies’
remanufactured cartridges literally infringed. R. 1216 (Trial Tr. 5/25/07 at 42-43).
Although this may have been sufficient circumstantial evidence to sustain a jury verdict
of infringement, the evidence certainly does not compel one. As a result, Lexmark was
not entitled to judgment as a matter of law or a new trial on the issue of whether Static
Control’s customers directly infringed as a class. Barnes, 401 F. 3d at 736 (holding
post-trial judgment as a matter of law improper unless “reasonable minds could come
to but one conclusion in favor of the moving party”); Owens-Corning, 201 F.3d at 821(holding new trial improper “if a reasonable juror could have reached the challenged
verdict”).
C. Excluded Evidence Relating to Intent to Induce Infringement
Lexmark claims that it was entitled to a new trial on the issue of inducement of
the three direct infringers because the district court erroneously excluded certain
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 38
questions relating to opinion-of-counsel letters at trial, rendering the proceedings unfair.
We review for abuse of discretion.14
At trial, Lexmark was not allowed to ask Static Control’s CEO explicitly whether
Static Control had ever obtained a legal opinion regarding potential patent or antitrust
violat ions. R. 1269 (Trial Tr. at 108-09). Static Control objected to the presentation of
evidence relating to Static Control’s failure to obtain advice of counsel, even though
Static Control had made available to third parties advice of counsel on the issue of
whether Prebate violated contract law.15 R. 1269 (Trial Tr. 06/04/07 at 108-09). The
district court agreed and instructed the witness not to answer. Lexmark claims that it
was “manifestly unfair” to permit the CEO to testify regarding the procurement of
exculpatory advice from counsel but not permit Lexmark “to identify failures to procure
such advice as circumstantial evidence of intent to infringe.” Second Appellee Br. at 34
(quoting Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 699 (Fed. Cir. 2008)).
Lexmark’s argument on appeal relies heavily on Broadcom, 543 F.3d 683, a
Federal Circuit case issued after trial but before the district court ruled on Lexmark’s
motion. Broadcom held that “[i]t would be manifestly unfair to allow
opinion-of-counsel evidence to serve an exculpatory function . . . and yet not permit
patentees to identify failures to procure such advice as circumstantial evidence of intent
to infringe.” Broadcom, 543 F.3d at 699. Although Broadcom appears to support
Lexmark’s position, the district court ruled against Lexmark, see R. 1521 (D. Ct. Op. &
Order at 16-19), after reading Broadcom in the context of the Federal Circuit’s prior
14
Lexmark suggests on appeal that the entirety of the jury’s verdict on inducement was
“unreasonable and against the weight of the evidence.” Second Appellee Br. at 32. This argument,
however, is briefed in the context of the excluded opinion-of-counsel letter and only further elaborated
upon in Reply. Despite Lexmark’s apparent waiver of this issue, the merits of the sufficiency-of-the-
evidence argument is discussed herein due to its relevance to the opinion-of-counsel issue.
15
Static Control’s general counsel had previously obtained a legal opinion letter regarding the
illegality of Lexmark’s Prebate program under principles of property and contract law. Static Control
provided this letter to its customers as assurance that “Prebate does not create any legal barrier to the
purchase and reuse by others of ‘prebate’ cartridges.” J.A. at 1280 (Letter from Static Control). The letter
from counsel stated that it “does not deal with the application of either patent law or antitrust law” to
Lexmark’s Prebate program. However, despite this assertion, the letter includes a short paragraph stating
that counsel “see[s] nothing in either area of [patent or antitrust] law that would raise any questions about
my conclusion [and] there are doctrines in both areas of law that might well prevent the successful
adoption by any manufacturer” of a program to prevent reuse of toner cartridges. Id. at 1286.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 39
ruling in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d
1337 (Fed. Cir. 2004) (en banc), which held that it would be “inappropriate to draw a[n]
. . . adverse inference from failure to consult counsel” when an accused infringer was
under no obligation in the first place to obtain advice of counsel on whether it was
infringing. Id. at 1345.
We need not decide whether a party’s failure to obtain an opinion-of-counsel
letter may ever constitute circumstantial evidence of the requisite intent to induce
infringement. Even if we assume that this evidence was wrongly excluded, the best-case
scenario for Lexmark—a negative answer to the forbidden question—would not have
changed the jury’s verdict on this issue.
Lexmark bore the burden of establishing by a preponderance of the evidence that
Static Control had the requisite intent to induce infringement. The Supreme Court has
recently clarified that this means that the alleged inducer must intend the customers to
take the acts that ultimately constituted infringement and the inducer must know or
willfully disregard the risk that those actions by its customers would constitute direct
infringement. See Global-Tech, 131 S. Ct. at 2065. By way of analogy, the Supreme
Court compared a used-car salesman who encouraged a customer to buy a car that later
turned out to be damaged to a used-car salesman who encouraged a customer to buy a
car knowing it was damaged; we fault the latter more than the former.
Lexmark correctly explains that “advertising infringing uses, instructing how to
engage in infringing uses, demonstrating infringing uses, and recommending infringing
uses is strong evidence of specific intent to cause the actions that constitute direct
infringement.” Second Appellee Br. at 31 (citing Grokster, 545 U.S. at 936). But, given
the jury instructions that delineated certain cartridges as non-infringing, Lexmark’s
evidence needed to show that Static Control advertised, instructed, or otherwise
recommended the remanufacture of infringing cartridges, which at the time of trial were
the Prebate cartridges and the cartridges first sold outside the United States. Lexmark’s
proof, however, is not compelling enough for us to find that the district court abused its
discretion in upholding the jury verdict.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 40
Lexmark argues that it presented specific evidence demonstrating that Static
Control encouraged and instructed remanufacturers to remanufacture Prebate cartridges
and cartridges first sold overseas, the two categories not deemed “non-infringing” at
trial. But the testimony primarily indicated that Static Control encouraged and instructed
its customers to remanufacture cartridges generally and such instructions did not
distinguish between foreign or domestic-sold cartridges or Prebate cartridges. See, e.g.,
R. 1242 (Trial Tr. 5/30/07 at 37-38) (testimony from Static Control that instructions
would enable remanufacture of cartridges, including Prebate); id. at 121-22 (testimony
from NER that Static Control did not differentiate between Prebate and non-Prebate at
tradeshows). However, Static Control offered testimony that its instructions contained
explicit warnings not to use the Static Control chips on Prebate cartridges unless they
were first sold in North Carolina after October 1, 2003,16 and not for resale in the United
States. See, e.g., J.A. at 657 (Instructions for Replacement Chip). And employees of
Static Control were under strict instructions to repeat those conditions to any customer
who called to inquire about the microchips. R. 1285 (Trial Tr. 6/6/07 at 88-89).
Although Lexmark offered testimony that there was simply no way for a remanufacturer
to distinguish between a foreign-sold cartridge and a United States cartridge just by
looking at the cartridge, id. at 155, Static Control offered testimony that the
remanufacturers could determine origin by inquiring at the time of acquisition, id. at 88.
The jury was best situated to weigh the competing evidence and determine whether
Static Control had the requisite intent to induce the infringing acts. The evidence offered
by Lexmark may have been sufficient to sustain a jury finding of inducement; however,
this evidence certainly does not compel such a finding when the jury has rejected it.
The excluded question during Static Control’s CEO’s testimony does not change
this calculus. Lexmark inflates the significance of the exclusion. Static Control’s CEO
was asked if he “ever had an outside patent attorney . . . give you advice on the issue of
single-use patent licenses,” to which the CEO responded in the negative. R. 1269
16
North Carolina passed a law in October 2003 that Static Control believed made Prebate
restrictions unenforceable in North Carolina. The jury was instructed that these cartridges could not
infringe. R. 1365 (Jury Instructions at 19).
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 41
(Trial Tr. 6/4/07 at 94). He was then asked explicitly whether he sought out legal
counsel relating to Prebate, and the CEO answered affirmatively that he “sought advice
about prebate cartridges that had been either put into the landfill or were on the way to
the landfill.” Id. at 95. When asked if that was all he sought advice on, he
unequivocally said “Yes.” Id. It was only when counsel later asked specifically whether
Static Control sought advice relating to patent or antitrust law that Static Control
objected and the district court instructed the witness not to answer. Id. 108-09. And
despite this exclusion in the CEO’s testimony, Static Control’s general counsel was
asked about and specifically discussed concerns over patent-law issues, including
whether or not Static Control’s actions could constitute inducement to infringe. R. 1242
(Trial Tr. 5/30/07 at 249-50, 263-65, 272-73).
Lexmark bore the burden of establishing Static Control’s knowledge or willful
blindness to the underlying infringing acts. Based on the related evidence already on the
record, we cannot conclude that the jury would have reached a different conclusion had
the jury been told that Static Control failed to obtain an opinion-of-counsel letter
specifically on issues of patent law. The exclusion of this potential evidence was
harmless in light of the other elements that Lexmark failed to establish by a
preponderance of the evidence. See Bridgeport Music, Inc. v. Justin Combs Publ’g,
507 F.3d 470, 481 (6th Cir. 2007), cert. denied, 555 U.S. 818 (2008).
D. Exhaustion of Prebate Cartridges
Lexmark also challenges the district court’s post-trial ruling holding that
Lexmark’s sale of Prebate cartridges exhausted its patent rights in their cartridges. The
relief Lexmark seeks on this issue, however, is unclear. Whether the Prebate agreement
prevented the exhaustion of Lexmark’s patent rights as a matter of law does not change
the outcome of the jury trial, because at the time of trial the district court had ruled
favorably to Lexmark that Prebate cartridges prevented exhaustion. R. 1008 (D. Ct.
Order 4/24/07). Thus, unlike the non-Prebate cartridges sold in the United States and
the IBM cartridges, the jury was never instructed that Prebate cartridges could not serve
the basis for direct infringement by Static Control’s customers as a class. Nor does the
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 42
question of exhaustion bear in any way on the jury’s verdict that Static Control did not
induce the direct infringement by Wazana, Pendl, and NER. We therefore decline to
resolve this extremely complex and unsettled question, because it would have no
relevance to the outcome of this appeal.
E. Design-Patent Invalidity
The district court held on summary judgment that two of Lexmark’s design
patents relating to the appearance of its toner cartridges—D399,249 and
D458,300—were invalid. R. 1008 (D. Ct. Order 4/24/07). Patent invalidity is a defense
to a claim for patent infringement. 35 U.S.C. § 282. As a result of this ruling, the issue
of whether any party directly infringed Lexmark’s design patents or induced someone
else to infringe was never decided. Lexmark appeals, and we affirm.
All patents are presumed valid, and the burden of overcoming this presumption
rests on the party seeking invalidity. 35 U.S.C. § 282; Campbell v. Spectrum Automation
Co., 513 F.2d 932, 935-36 (6th Cir. 1975). Invalidity must be established by clear and
convincing evidence. Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238, 2243 (2011).
Patent validity is a question of law. Schnadig Corp. v. Gaines Mfg. Co., 494 F.2d 383,
387-88 (6th Cir. 1974). However, where legal analysis rests on factual findings, we will
not reverse such findings absent clear error. Id. at 388.
Design patents are issued to whoever “invents any new, original and ornamental
design for an article of manufacture.” 35 U.S.C. § 171; Schnadig, 494 F.2d at 387 (“To
be patentable a design must be new, original, ornamental and nonobvious.”). A design
patent is not ornamental if the design serves only functional purposes. In other words,
“[a] design patent cannot be obtained to protect a mechanical function or cover an article
whose configuration affects its utility alone.” Kwik-Site Corp. v. Clear View Mfg. Co.,
758 F.2d 167, 171 (6th Cir. 1985) (internal quotation marks and emphasis omitted)
(holding design patent for rifle scope mount invalid because configuration served solely
functional purposes); Fuji Kogyo Co. v. Pacific Bay Int’l, Inc., 461 F.3d 675, 683
(6th Cir. 2006) (“[I]f the particular design is essential to the use of the article, it can not
be the subject of a design patent.”) (internal quotation marks omitted), cert. denied,
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 43
549 U.S. 1252 (2007). An article is less likely to be ornamental if it is not observed, and
the Federal Circuit looks not just to whether the article is ever seen but whether the
appearance of the article may become a “matter of concern” at any point during the
article’s “normal and intended use.” In re Webb, 916 F.2d 1553, 1558 (Fed. Cir. 1990)
(holding design of hip implants could be patented because even though not seen during
normal use the “design[ was] clearly intended to be noticed during the process of sale.”).
The district court held that Lexmark’s design patents were invalid because the
design of Lexmark’s toner cartridges was primarily functional and “the appearance of
Lexmark’s printer cartridges in question are [sic] of no matter of concern during those
cartridges’ entire existence.” R. 1008 (D. Ct. Order 4/24/07 at 10-11). The design of
the cartridges was primarily functional because the design of the printer dictated the
exact design of the cartridge. Id. at 13-14 (citing Best Lock Corp. v. Ilco Unican Corp.,
94 F.3d 1563, 1566 (Fed. Cir. 1996) (holding design of key not patentable because
dictated by function, i.e., the design of the corresponding lock)). And even though the
cartridges may be seen at some point during their lifetime, at no point was their
appearance a matter of concern to the end-user. Id. at 11 (citing In re Stevens, 173 F.2d
1015, 1019-20 (C.C.P.A. 1949)).
Lexmark claims that the district court improperly shifted the burden of proof onto
Lexmark to show validity and improperly credited disputed issues of fact in Static
Control’s favor. Lexmark does not dispute the general proposition that to establish
invalidity, the infringer must show “that consumers do not consider [the patented design]
to be significant.” Second Appellee Br. at 36 (quoting Int’l Seaway Trading Corp. v.
Walgreens Corp., 589 F.3d 1233, 1242 (Fed. Cir. 2009)). Lexmark objects to the lack
of survey evidence showing consumers do not consider Lexmark’s cartridge appearance
to be a matter of concern and argues that the district court ignored the presence of
photographs of the cartridges on the website where the cartridges were sold and on the
cartridge boxes. Lexmark argues that this determination is an issue of fact subject to
genuine dispute and therefore inappropriate on summary judgment.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 44
The district court applied the correct standard and evaluated the undisputed facts
offered by Static Control establishing that the design of the cartridges was functional and
not ornamental.17 The toner cartridges are visible to users at some points, but are
generally hidden from view inside the printer. Their design is dictated solely by the
printer with which they are compatible. Lexmark itself explained that the advertisements
containing photographs were primarily to assist the customer in selecting the cartridge
that was compatible with the printer they owned. R. 506 (Lexmark’s Opp. to Summ. J.
at 10). The cartridges’ appearance had no other role in the purchaser’s decision of which
cartridge to purchase. “[T]he purpose of the statute is to give encouragement to the
decorative arts. It contemplates not so much utility as appearance.” Cavu Clothes, Inc.
v. Squires, Inc., 184 F.2d 30, 32 (6th Cir. 1950) (citing Gorham Mfg. Co. v. White, 81
U.S. 511, 524 (1871)).
On appeal, Lexmark does not attempt to dispute any of these material facts,
arguing instead that Static Control should have presented more evidence, such as
consumer surveys, and suggesting that the presence of photographs of the product should
be enough to create a dispute over whether appearance matters. Second Appellee Br. at
36-37. Although we make all inferences in favor of Lexmark on this issue, Static
Control has demonstrated by undisputed clear and convincing evidence that the design
patents were invalid. Lexmark has not pointed to any genuine fact disputes that would
undermine this conclusion. We therefore AFFIRM the district court’s holding that
Lexmark’s design patents are invalid.
IX. CONCLUSION
For the aforementioned reasons, we AFFIRM the district court on all claims
except the dismissal of some of Static Control’s counterclaims under the Lanham Act
and North Carolina state law, which we REVERSE and REMAND for further
proceedings consistent with this opinion.
17
Lexmark relies heavily on the district court’s statement that “Lexmark fail[ed] to set forth any
evidence,” R. 1008 (D. Ct. Order 4/24/07 at 15). The district court recited at length Static Control’s burden
and applied it to the facts. Id. at 9-15. The district court appears to have been emphasizing that Lexmark’s
suggestion that there were open issues of fact was unsupported by any actual evidence.