Arizona Cartridge Remanufacturers Association Inc. v. Lexmark International Inc.[1] 421 F.3d 981 (9th Cir. 2005) was a decision by the United States Court of Appeals for the Ninth Circuit which ruled that an End User License Agreement on a physical box can be binding on consumers who signal their acceptance of the license agreement by opening the box.
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Over the lifetime of modern computer printers, the cost of the ink cartridges can in typical usage be much more than the printer itself. Consumers have a motivation to refill their own cartridges either themselves or through third-parties. Lexmark produced "Prebate" ink cartridges with a purchase contract that states that in exchange for purchasing the ink cartridge at a lower price, the consumer agrees to not tamper with the cartridge and return it to Lexmark for refurbishing and repackaging. Arizona Cartridge Remanufacturers Association Inc. (ACRA), a consumer group, brought suit that alleges it was deceptive for Lexmark to claim that its restriction was enforceable.
Lexmark has since renamed the Prebate cartridges to Lexmark Return Program Cartridges.[2]
Three major points leap out:
First, "We agree with the district court that ACRA has not offered evidence that Lexmark's advertisements constitute deceptive or unfair business practices". The rest of the decision is justification for this statement.
Second, that the ruling explicitly addresses patent licensing: "It found that the company could legally enforce the post-sale restriction under a Federal Circuit decision allowing patent holders to limit the use of their products after sale...citing Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 708 (Fed. Cir. 1992)).". The issue of copyright licensing is unaddressed.
Third, the fact that a quid pro quo exists between the vendor and the customer, in the form of a price incentive to accept the licensed product over a near-identical non-licensed variant. In contract law this is referred to as "receiving consideration".
However, the ruling does generally accept the theory that EULAs are binding on consumers who "indicate their agreement" by performing a physical action, as long as that contract was available to consumers before purchase: "Lexmark has presented sufficient unrebutted evidence to show that it has a facially valid contract with the consumers who buy and open its cartridges. Specifically, the language on the outside of the cartridge package specifies the terms under which a consumer may use the purchased item. The consumer can read the terms and conditions on the box before deciding whether to accept them or whether to opt for the non-Prebate cartridges that are sold without any restrictions. The district court found that the ultimate purchasers of the cartridge—consumers—had notice of the restrictions on use and had a chance to reject the condition before opening the clearly marked cartridge container."
It is sometimes overlooked that this ruling only applies to Lexmark's "Prebate" ink cartridges, where the contract states that in exchange for purchasing the ink cartridge at a lower price, the consumer agrees to not tamper with the cartridge and return it to Lexmark for refurbishing and repackaging. The Electronic Frontier Foundation has concerns that this decision will allow patent owners to "impose over-reaching restrictions on formerly permitted post-sale uses".[3]