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Doug Kari-August 29, 2015 at 3:00 PM UTC

Intellectual property interests reappear, trying to use their rights to take away your rights. No one knows this better than 44-year-old Eric Smith of Charleston, West Virginia. Smith dedicated his life to the office supplies company founded by his father-the company is now under legal attack by printing giant Lexmark International.

Although Smith tried to resist Lexmark like a lone Ukrainian trying to stop the Russian army, when I found the embarrassed businessman in his office, he said he was determined to persevere. "We have nothing to rely on."

Smith started this business as a teenager, supplying typewriter ribbons to customers in the town. When IBM Selectrics gave way to computers and dot matrix printers, Smith found a niche market for recycled ink cartridges—buying empty ink cartridges and refilling them. As his income grew, he hired friends to work in the store, and eventually he became the president.

But in 2013, Smith began to receive threats from Lexmark lawyers. These letters allege that his family company, Impression Products, Inc., infringed patents, were based on theories that Smith thought was puzzling.

Some of the empty ink cartridges recycled by Impression Products have been sold overseas. Lexmark insists that, as the patent holder, it has the right to prevent Impression Products from refilling or reselling these ink cartridges in foreign markets in the United States.

By extension, Lexmark’s argument applies to any patent-protected product that is first sold abroad. According to Lexmark, worldwide, an American eBay user who bought a video game originally sold in Canada may be sued for patent infringement. An American traveler returning from Europe with a new Swiss watch may be detained by customs, believing that it is illegal to use it in the country.

Even more ominous is that patent holders may prevent vital supplies from crossing the border. During periods of shortage, American technology users—hospitals, defense agencies, companies, schools—may find themselves unable to obtain replacement parts from overseas.

Although it sounds illogical, Lexmark's position is supported by a 2001 case called Jazz Photo Corp. v. ITC. Because of Jazz Photo, when Lexmark sued Impression Products and dozens of other ink cartridge recyclers in federal court, most of the defendants gave in.

But Smith persevered, and now his fight with Lexmark is being heard in the Court of Appeals for the Federal Circuit in Washington, DC. In April 2015, the Court of Appeal decided to reconsider Jazz Photo & Sons, Inc. in accordance with the Supreme Court’s decision in Kirtsaeng v. John Wiley, holding that copyrighted products manufactured abroad can be freely traded in the United States

Although Smith hopes that the Federal Circuit will veto Jazz Photo, he is prepared to fight a protracted battle. The oral argument is scheduled to be held on October 2, 2015, and the case may eventually end in the Supreme Court.

Eric's father, Walter Smith, founded Impression Products in 1978 to provide services for typewriters and photocopiers in the capital city of West Virginia. When Eric started delivering deliveries to customers near Charleston, it was supposed to be a summer job. "I noticed all the offices we didn't deliver to," he said. He skipped college and went directly to the sales field.

In the 1990s, Smith switched from selling IBM-compatible typewriter ribbons to selling remanufactured printer cartridges. He bought used ink cartridges from a recycler, and the recycler provided them through the trash can. Smith doesn't know where in the world these cartridges were first sold-it doesn't matter to him. He wanted "original" cartridges that were never refilled, and he invested thousands of dollars in high-quality equipment.

"We deal with many hospitals, law firms and banks," Smith said. "If we can't be as good as new, we won't succeed."

At the same time, IBM sold its printer business and the new entity was renamed Lexmark, headquartered in Lexington, Kentucky. Lexmark is now a public company (NYSE: LXK) with more than 12,000 employees and annual revenue of $3.7 billion. Impression Products began recycling and reselling Lexmark ink cartridges and ink cartridges originally produced by HP, Canon and other companies.

The printer business—especially consumables—has developed into a huge profit center for manufacturers. HP is the best example: by 2004, ink and toner supply accounted for half of HP's profits. The remanufactured ink cartridge business is also growing, as remanufacturers save customers a lot of costs by cleaning and refilling ink cartridges.

Impression products are still small; Smith employs about 25 employees, some of which are only part-time. He said that the workload was “uninterrupted,” and profit margins were shrinking as competition intensified, especially from Chinese companies. If customers continue to purchase consumables from Impression Products, Smith will redouble his efforts to repair customers' printers and copiers for free.

But Lexmark, HP and other manufacturers don't want companies like Impression Products to share the spoils. When their lawyers looked for ways to attack recyclers, patent law became a weapon of choice.

Using jargon like "Jepson claim" and "file wrapper esstoppel", the US patent law seems difficult to understand, but it originated from a phrase in the US Constitution. The terms of copyright and patent grant Congress the power to "promote the advancement of science and applied arts by ensuring that authors and inventors have exclusive rights to their respective works and discoveries for a limited time..."

In 1790, Congress passed the first of many laws protecting copyright and patents. But over time, as authors and inventors seek to expand their rights, they clashed with owners of items that embody their intellectual property rights.

In the Bobbs-Merrill v. Straus case in 1908, the publisher added a legend to the novel The Castaway, claiming to set the minimum retail price at $1. When the Straus brothers, owners of RH Macy & Co., bought a large number of books wholesale and then resold them at a retail price of 89 cents, Bobbs-Merrill filed a copyright infringement lawsuit. The U.S. Supreme Court decided to support the Straus brothers, arguing that when Bobbs-Merrill sold a copy of The Castaway, its rights in the copy had been exhausted-this rule is known as the "first sale principle."

Around the same time, the patent law developed the parallel principle of "exhaustion of patents." In the Motion Picture Patents Co. v. Universal Film Manufacturing Co. case in 1917, the patent holder of a movie projector tried to prevent the owner of the projector from using a third-party film reel. The Supreme Court held that once the projector was sold, it "exceeds the monopoly of the patent law and is not subject to all the restrictions that the supplier may try to impose on it."

However, in the following decades, there was a fierce debate about whether the copyright law's first sale principle and the patent law's patent exhaustion principle applied to products manufactured or sold for the first time overseas. In terms of copyright, the dispute finally reached a climax in the Kirtsaeng v. John Wiley & Sons, Inc. case in 2013.

Wiley pursues a business strategy called "market segmentation", charging higher prices for textbooks sold in the lucrative North American market and lower prices for textbooks sold overseas. Supap Kirtsaeng, a student from Thailand, asked his family to buy textbooks and ship them to his apartment in the United States. When Supap was studying for a PhD in mathematics, he funded his education by operating an eBay business, reselling textbooks in foreign markets to American students.

Willie sued Supap in federal court, claiming that his import and resale of textbooks constituted copyright infringement. Supap has been fighting the publisher to the Supreme Court, where he won 6-3.

The court held that authorizing the first sale of textbooks anywhere in the world would exhaust Wiley's copyright. Justice Stephen Breyer explained in writing for the majority that “the language of the constitution does not indicate anywhere that its limited exclusive rights should include the right to divide markets...”

Kirtsaeng is a victory for consumers and the technology industry, who benefit from an unfettered global market. But to paraphrase Yogi Berra's words, "This is deja vu again," because the same issue was filed in the patent field. The Supreme Court has not yet decided whether patent exhaustion is applicable in the same way as the first sale principle of copyright law without geographical restrictions. At the same time, the case law of the lower courts took a different approach.

The key case is Jazz Photo, which was a 2001 Federal Circuit ruling. The case involved the import of "disposable" Fuji cameras that have been reloaded and repackaged. The appeal court held that the refurbished camera did not infringe Fuji's patent because the owner has the right to repair it. However, due to almost no legal analysis and no consideration of broader impact, the court restricted its decision to cameras that were first sold in the United States because "foreign products did not exhaust US patent rights." For recyclers and others who care about free trade and ownership, this is a jaw-dropping "WTF-they are thinking" moment.

Fast forward to 2010, when Lexmark initiated a large-scale patent infringement lawsuit in Ohio's federal court against ink cartridge recyclers from all over the world. After Lexmark discovered that Impression Products had acquired an empty toner cartridge that was first sold overseas, Lexmark's lawyers wrote a letter to Eric Smith, basically saying "close your recycling business, otherwise we will sue you".

Smith told me that this letter left him at a loss. "I think this is bluffing," he admitted. "What did I do? I did nothing wrong."

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