Tuesday, August 12, 2003

Antitrust News: North Carolina's Ink Problem

It must have been a slow legislative session this year in Raleigh, as North Carolina legislators felt an insatiable need to meddle in the inkjet cartridge market:
Shares of printer-maker Lexmark International Inc. fell sharply Monday morning after a news release was issued praising North Carolina Gov. Mike Easley's decision to sign into law a bill giving printer users in the state the right to refill any inkjet cartridge. The law essentially voids contracts or purchase agreements that ban some cartridges from being remanufactured.

The law stems from lawsuits between Lexmark and Greensboro, N.C.-based Static Control Components over rights to refill some inkjet cartridges manufactured by Lexmark for its printers. Lexmark has accused Static Control of selling chips that disarm Lexmark's "technological controls" and infringe on its patents.

Static Control alleges that Lexmark has attempted to monopolize the market for toner cartridges that are used in Lexmark printers and contends the Lexington company is in violation of antitrust laws.

Officials with Lexmark could not immediately be reached for comment.

Company officials previously have defended the company's "prebate" program, which sells discounted printer cartridges to consumers who agree to return empty cartridges to Lexmark to be refilled.

Tim King, director of corporate public relations at Lexmark, told Business First in March that rather than stifling competition from competitors, the prebate program "adds another layer of choice" for Lexmark customers. He said that competitor companies still are able to refill basic Lexmark printer cartridges that are not discounted.

On Monday, Static Control issued a news release touting the North Carolina law as a victory in its battle with Lexmark.

"I think the issues are extremely simple," Static CEO Ed Swartz said in the release. "Does the (original-equipment manufacturer) have the right to tell as a matter of public policy that their product cannot be remanufactured and therefore it must go into landfills? I am glad that the legislature intervened to protect the jobs of North Carolinians and our environment."
The invocation of "public policy" is predictable, if not misleading. If you're a rationalist, it's good "public policy" to enforce voluntary private contractual agreements. If you're a mixed-economy proponent, as Lexmark's competitor appears to be, "public policy" is a subjective matter of getting some state legislators to pass a law favoring your company's interest over your competitors.

Here's what the North Carolina law in question says:
Any provision in any agreement or contract that prohibits the reusing, remanufacturing, or refilling of a toner or inkjet cartridge is void and unenforceable as a matter of public policy. Nothing in this section shall prevent any maintenance contract that warrants the performance of equipment under the contract from requiring the use of new or specified toner or inkjet cartridges in the equipment under contract.
It's worth noting the legislature felt no need to address Lexmark's allegation that Static Control was illegally infringing upon its patents. Obviously protecting valid intellectual property rights--or private contract rights--are not a matter of "public policy" in North Carolina. No wonder the Justice Department was able to destroy Asheville-based Mountain Health Care without a word of protest from state officials.

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