Lexmark International, Inc. v. Static Control Components, Inc.

572 U.S. 118 (2014)

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Nature of the Case

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Facts

P is a manufacturer of laser and inkjet printers and has sold printers and toner cartridges for its printers since 1991. D makes a wide range of technology products, including microchips that it sells to third-party companies for use in remanufactured toner cartridges. P's 'Toner Loading Program,' measures the amount of toner remaining in a cartridge based on the amount of torque (rotational force) sensed on the toner cartridge wheel. The Toner Loading Program relies upon eight program commands -- 'add,' 'sub' (an abbreviation for subtract), 'mul' (multiply), 'pct' (take a percent), 'jump,' 'if,' 'load,' and 'exit' -- to execute one of several mathematical equations that convert the torque reading into an approximation of toner level. The exact code of the Toner Loading Program varies slightly for each printer model. The phrase 'Lexmark International, Inc. vs. Static Control Components, Inc.' in ASCII format would occupy more memory than either version of the Toner Loading Program at issue in this case. P's 'Printer Engine Program' occupies far more memory than the Toner Loading Program and translates into over 20 printed pages of program commands. The program controls a variety of functions on each printer -- e.g., paper feed and movement, and printer motor control. The Printer Engine Program is located within P's printers. P has Certificates of Registration from the Copyright Office for both programs. Neither program is encrypted and each can be read (and copied) directly from its respective memory chip. P markets two types of toner cartridges for its laser printers: 'Prebate' and 'Non-Prebate.' Prebate cartridges are sold to business consumers at an up-front discount. In exchange, consumers agree to use the cartridge just once, then return the empty unit to Lexmark; a 'shrink-wrap' agreement on the top of each cartridge box spells out these restrictions and confirms that using the cartridge constitutes acceptance of these terms. Non-Prebate cartridges are sold without any discount, are not subject to any restrictive agreements, and may be re-filled with toner and reused by the consumer or a third-party remanufacturer. P uses an 'authentication sequence' that performs a 'secret handshake' between each Lexmark printer and a microchip on each Lexmark toner cartridge. Both the printer and the chip employ a publicly available encryption algorithm known as SHA-1 which calculates a 'Message Authentication Code' based on data in the microchip's memory. If the code calculated by the microchip matches the code calculated by the printer, the printer functions normally. If the two values do not match, the printer returns an error message and will not operate, blocking consumers from using toner cartridges that P has not authorized. D sells its 'SMARTEK' chip -- that permits consumers to satisfy P's authentication sequence each time it would otherwise be performed, i.e., when the printer is turned on or the printer door is opened and shut. D boasts that its chip breaks P's 'secret code' (the authentication sequence), which 'even on the fastest computer available today . . . would take years to run through all of the possible 8-byte combinations to break.' D sells these chips to third-party cartridge remanufacturers, permitting them to refurbish the Prebate cartridges. D's chip contains a copy of P's Toner Loading Program, which SCC claims is necessary to make its product compatible with P's printers. D admits it is an exact copy. P's printers perform a second calculation independent of the authentication sequence. The Printer Engine Program downloads a copy of the Toner Loading Program from the toner cartridge chip onto the printer in order to measure toner levels. It performs a 'checksum operation,' a 'commonly used technique' to ensure the 'integrity' of the data downloaded from the toner cartridge microchip. If the checksum does not match P shuts the cartridge down. P seeks to enjoin D from distributing the SMARTEK chips. The district court determined that the Toner Loading Program was not a 'lock-out code' (and unprotectable because its elements are dictated by functional compatibility requirements) since 'the use of any Toner Loading Program could still result in a valid authentication sequence and a valid checksum.' Even if the Toner Loading Program were a 'lock-out code,' the district court believed copyright infringement had still taken place because ''security systems are just like any other computer program and are not inherently unprotectable.'' The court rejected D's fair use defense in view of the commercial purpose of the copying. It rejected D's argument that P was 'misusing' the copyright laws 'to secure an exclusive right or limited monopoly not expressly granted by copyright law.' The district court held that D violated the anti-trafficking provision of the DMCA, 17 U.S.C. § 1201(a)(2). The district court concluded that the preliminary injunction should issue. D appealed. It identified three competing approaches to determining whether a plaintiff has standing to sue under the Lanham Act. It observed that the Third, Fifth, Eighth, and Eleventh Circuits all refer to “antitrust standing or the [Associated General Contractors] factors in deciding Lanham Act standing,” as the District Court had done. By contrast, “the Seventh, Ninth, and Tenth [Circuits] use a categorical test, permitting Lanham Act suits only by an actual competitor.” And the Second Circuit applies a “‘reasonable interest’ approach,” under which a Lanham Act plaintiff “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.’” The Sixth Circuit applied the Second Circuit’s reasonable-interest test and concluded that Static Control had standing because it “alleged a cognizable interest in its business reputation and sales to remanufacturers and sufficiently alleged that those interests were harmed. The court of appeals reversed. The Supreme Court granted certiorari.