Chip-per Copyright Infringement

IBLS Editor — Tue, 17 Jul 2007 18:53:00 GMT

IBLS Contributor: Attorney Odia Kagan, Tel Aviv, Israel, odia@okaganlaw.com, writes:

US Federal Court determined that the Digital Millennium Copyright Act should be used for the prevention of piracy and illegal copying and not for the prevention of the sale of programs which facilitate legitimate access and use and enable significant non-infringing commercial action.

The United States Court of Appeals for the Sixth Circuit held that the Digital Millennium Copyright Act (DMCA) cannot be used to prevent competition in the printer ink cartridge market.

In a decision issued on October 26, 2004, in the case of Lexmark International Inc. v. Static Control Components, the United States Court of Appeals held that printer maker Lexmark cannot use the DMCA in order to prevent its competitors from producing ink cartridges to be used in Lexmark printers. This decision vacated the injunction which the District Court in the State of Kentucky granted Lexmark against SCC, a company that produced chips enabling the manufacture of such cartridges.

More expensive than Chanel No. 5

A liter of ink for a Lexmark printer is more expensive than a liter of the luxury perfume Chanel No. 5 and a liter of premium whisky, according to research conducted by Gartner Group. The manufacturers of printers, who sell their printers at low prices, make most of their profits from the sale of printer cartridges. Companies like Lexmark are interested in selling as many original cartridges manufactured by them at full price. Therefore, they have an interest in decreasing the competition in this market.

To make sure that buyers of Lexmark printers only purchase licensed cartridges, that is, Lexmark cartridges, a chip is installed in the Lexmark-printer cartridges through which the printer identifies the cartridge used. Upon the insertion of the cartridge, an “electronic handshake” is performed between information in the chip, including a program called the Toner Loading Program, and the software installed in the printer, the Printer Engine Program. The program and the chip calculate a code. If the calculated code is not identical, the printer concludes that this is not a “licensed” cartridge. If this is the case, the printer sends an error report and ceases to operate.

SCC (Static Control Components Inc.), a small North Carolina company produced the Smartek chip. The chip includes the said Toner Loading Program, and thus, when it is installed in cartridges produced by Lexmark’s competitors, it enables the said authentication process successfully. SCC sells its chips to these competitors.

Who copied my software?

Lexmark filed a complaint against SCC based on three theories of liability: (1) That it violated the Federal Copyright statute in that it copied the Toner Loading Program into the chip, (2) that SCC violated the DMCA by selling the chip that circumvents access controls on the Toner Loading Program and (3) that SCC violated the DMCA by selling the chip that circumvents access controls on the Printer Engine Program.

The District Court, in a decision of March 2003, concluded that Lexmark established a likelihood of success on its copyright infringement claim for SCC’s copying of its Toner Loading Program on all three counts. Therefore the Court granted Lexmark an injunction against the production of the chips by SCC. The US Court of Appeals reversed this decision and vacated the district Court’s preliminary injunction.

Copyright Act not Competition-Prevention Act

As to the copyright infringement, the Court of Appeals held that the Toner Loading Program is a “lock out code”, allowing access to the hardware in which it is found only to licensed programs. Therefore, at least with regard to the injunction, the Toner Loading Program is not entitled to copyright protection. Whereas computer programs may be copyrightable, this defense does not apply when the idea embodied in the program may be expressed in only one way. In such case, the idea and the expression effectively merge and the program constitutes a lock out code for competitors and thus is not entitled to copyright protection. In this manner, others are not denied the opportunity to use the idea.

The Court added that the “originality” component has not been sufficiently proven with regard to the Toner Loading Program, and remanded to the District court the question of whether the Federal Copyright Statute had been violated. The Court concluded further that even if the production of the Smartek chip constitutes copyright infringement, SCC enjoyed the fair use defense. When SCC copied the Toner Loading Program, it did not do so to use it for the original purpose for which it had been written (i.e. the calculation of the amount of ink), but rather it did so to successfully pass the authentication process, which causes the printer to function. Thus, SCC may sell the chips to competitors and they, in turn, would be able to sell their printer cartridges for use with Lexmark Printers.

With regard to the violation of the DMCA, the Court accepted the defense argument presented by SCC in the District Court whereunder the program it wrote is a technological means the sole purpose of which is to enable the interoperability of an independent program with other programs.

Judge Merrit concurred with the majority opinion and noted that the Court “should make clear that in the future companies like Lexmark cannot use the DMCA in conjunction with copyright law to create monopolies of manufactured goods for themselves just by tweaking the facts of this case.”

Judge Feikens added that the DMCA must be used for the purposes for which it was legislated, that is, for the prevention of piracy and the manufacturing of programs which facilitate legitimate use and access and enable commercially significant non-infringing use.

In addition, the Court emphasized that the chip did not circumvent the Toner Loading Program, but rather replaced it altogether.

Lexmark’s Loss is the Consumers’ Gain

Consumer organizations are praising this decision as a significant victory for the consumer and state that “the court ruled in favor of competition”. The Court ruled that the DMCA may not be used for the prevention of competition by a blanket prohibition of reverse engineering and such technique must be permitted when its sole purpose is to enable the interoperability of different programs. The Court recognized that reverse engineering is often the key for new developments.

The Court’s decision permits the production of printer cartridges which compete with printer cartridges produced by Lexmark. This will increase the competition in this market and is expected to result in a price reduction and in the improvement of the technology. In addition, the Court expressed its objection to frivolous claims under the DMCA, intended to prevent competition rather than to protect copyright.

**Reprinted with permission from the Israel Bar Association Website (www.israelbar.org.il) where it was published on December 29, 2004 (http://www.israelbar.org.il/english_inner.asp?pgId=16712&catId=246). Originally published in Hebrew on NFC (www.nfc.co.il) on November 11, 2004 (http://www.nfc.co.il/archive/003-D-8030-00.html?tag=11-02-05).

Ms. Kagan specializes in Internet and IT law. Her articles on these subjects are published regularly in professional publications of the American Bar Association and the New York State Bar Association, as well as in national Israeli websites. Ms. Kagan authored the Israeli Chapter in the book “Cybercrime and Security” published worldwide by Oceana Publications, a division of Oxford University Press. A graduate of the Law Faculty of Tel Aviv University, Ms. Kagan is a member of the Israel and New York Bars, is qualified as a Solicitor in England & Wales and is also admitted as legal practitioner in New South Wales, Australia.

ASK THE EXPERT: What Can I Do When An Online Retailer Refuses To Take Responsibility For Damaged Goods?

IBLS Editor — Mon, 25 Jun 2007 15:03:00 GMT

Kathy Cartmill from the United States (Yakima) asks:

Online, I purchased futon frame, mattress, and cover. The railings and parts w/it were lost. The 2 boxes had incomplete work, damaged slats. The mattress was 4"; I ordered 6-8". The cover was huge, for a bigger mattress. I reported and sent pics. For 2 weeks I was told nothing, and then I told them I will return for full refund. Then 4 Xs they said they would do one thing or another and never did anything. They told me I had the right mattress and cover. Then when I persisted in asking them to replace damage and missing parts, they said to ship it back. I have all the emails and THEY WANT ME TO PAY OVER $100 IN THEIR SHIPPING COSTS TO SEND IT TO ME. SHIPPING WAS INCLUDED.

European Parliament Adopts New International Roaming Regulation

IBLS Editor — Tue, 29 May 2007 16:04:00 GMT

IBLS Contributor: Bart Goddyn, Goddyn Belgium, bart.goddyn@goddyn.eu, writes:

On 23 May 2007, the plenary session of the European Parliament voted, with a strong majority, for the adoption of a Regulation to reduce international roaming tariffs for mobile communication within the European Union. This Regulation is said to bring a new era in mobile communications with important benefits to consumers.

Rationales for a Regulation

In May 2005, the European Regulators’ Group (ERG) noted that international mobile roaming charges are too high without clear justification. Average retail prices for calls made whilst roaming are four times higher than the equivalent prices for domestic mobile calls. This difference does not reflect the cost incurred by the operators.

Roaming charges for consumers are neither transparent nor comprehensible. Initiatives to address this problem, such as the creation of websites showing roaming prices by regulatory authorities appear to be insufficient.

Roaming services are supplied in at least two Member States. This results in different national approaches to address the consumer prices. These differences bar the development of a single EU market for mobile telecommunication services.

Main Elements for the Regulation

The main elements for the Regulation relate to the cap of charges both among mobile operators and for consumers and to the transparency of these charges. The Regulation should also encourage competition below the price caps (also called “Eurotariff”).

The cap of wholesale charges relates to the charges that mobile phone operators charge each other for their roaming services. This cap takes as its starting point the tariffs for connecting mobile phone calls from other domestic networks. The cap of retail charges sets the maximum price limit at 130% of the average wholesale charge.

This would apply to calls made and received while roaming. Beneath these caps, operators would remain free to compete by offering cheaper roaming services, or packages differentiated according to customer demand.

The proposal also enhances transparency of roaming charges for consumers. Operators will therefore be required to provide and update consumers with readily comprehensible information (either by SMS or by means of a voice call) on applicable roaming charges.

Towards the Regulation

The Council of EU Telecom Ministers is expected to endorse the Regulation on 7 June 2007. The Regulation will then become directly applicable law in all 27 Member States following its publication in the Official Journal, expected by mid-June. The capped retail charges must be made available to customers one month later and will apply by default after a further two months. The wholesale cap will take affect two months after entry into force of the Regulation.

IBLS Speaker's Corner : finance

Chip-per Copyright Infringement

ASK THE EXPERT: What Can I Do When An Online Retailer Refuses To Take Responsibility For Damaged Goods?

European Parliament Adopts New International Roaming Regulation