The Licenses You Never Sign

Wealth of Ideas Newsletter, September 2005

Most of the time, the way you agree to a legal document is by signing it - but not always. Sometimes you agree to it by tearing it apart.

That's the way a "shrink-wrap" license works - you know, the document with all the fine-print legalese that comes packaged with your new software CD. The fine print states everything that you agree to as the buyer (basically, limiting your use of the software to a certain number of computers and/or users), and that your breaking of the shrink-wrapped seal shall be deemed an acceptance of the license.

When software became available for download via the internet, the license became known as a "click-wrap" license - meaning the terms of the license agreement are displayed and you have to click a button that says "I Agree" in order to download the software.

And now we have the "box-wrap" license, thanks to a recent ruling from the 9th Circuit Court of Appeals in the case of Lexmark International against the Arizona Cartridge Remanufacturers Association (ACRA). ACRA had brought suit to challenge the legality and fairness of Lexmark's imposition of conditions on the sale of its "Prebate" ink cartridges, namely, the condition that the buyer send the cartridge back to Lexmark when empty instead of sending it to a third-party remanufacturer for refilling.

The court, however, found "that as a matter of law Lexmark's Prebate is not a deceptive practice" and that "because of its patents, Lexmark has the right to impose conditions on the sale of its patented product." Furthermore, the court quoted California law as saying that "a contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." Such conduct, in this case as well as in the case of shrink-wrapped software, includes stopping to read the fine print as you tear open the packaging of your next printer cartridge.

The ruling caused a stir among those bloggers and other critics of patent law who don't think much of patent law anyway, but is Lexmark's Prebate license really so unfair? Atlantic Exchange, a reseller of Lexmark products, notes on its website that "if you choose Prebate, in exchange for the up-front discount, we ask that you use the cartridge one time and return the empty cartridge to Lexmark for remanufacturing and recycling. You don't have to choose Prebate products if you want other recycling options." They also mention that there are higher-priced, non-Prebate cartridges available from Lexmark that may be remanufactured by a third party.

So Lexmark isn't overstepping its patent rights this time… but the war will go on, as long as patent-holders and critics of the patent system continue to meet in courtrooms and chatrooms.