RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 12a0289p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT _________________

STATIC CONTROL COMPONENTS, INC.,

Plaintiff-Appellant/Cross-Appellee,

v.

LEXMARK INTERNATIONAL, INC.,

Defendant-Appellee/Cross-Appellant.

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Nos. 09-6287/6288/6449

Appeal from the United States District Court

for the Eastern District of Kentucky at Lexington.

Nos. 02-00571; 04-00084—Gregory F. Van Tatenhove, District Judge.

Argued: March 6, 2012

Decided and Filed: August 29, 2012 

Before: KEITH, BOGGS, and MOORE, Circuit Judges.

_________________

COUNSEL

ARGUED: Seth D. Greenstein, CONSTANTINE & CANNON LLP, Washington, D.C.,

for Appellant/Cross-Appellee. Steven B. Loy, STOLL KEENON OGDEN PLLC,

Lexington, Kentucky, for Appellee/Cross-Appellant. ON BRIEF: Seth D. Greenstein,

CONSTANTINE & CANNON LLP, Washington, D.C., Joseph C. Smith, Jr., BARTLIT

BECK HERMAN PALENCHAR & SCOTT, LLP, Denver, Colorado, William L.

London III, STATIC CONTROL COMPONENTS, INC., Stanford, North Carolina, M.

Miller Baker, Stefan M. Meisner, McDERMOTT WILL & EMERY LLP, Washington,

D.C., W. Craig Robertson III, Mickey T. Webster, WYATT, TARRANT & COMBS,

LLP, Lexington, Kentucky, for Appellant/Cross-Appellee. Steven B. Loy, Anthony J.

Phelps, Christopher L. Thacker, STOLL KEENON OGDEN PLLC, Lexington,

Kentucky, William J. Hunter, Jr., STOLL KEENON OGDEN PLLC, Louisville,

Kentucky, Timothy C. Meece, Binal J. Patel, Matthew P. Becker, Jason S. Shull,

Michael L. Krashin, BANNER & WITCOFF, LTD., Chicago, Illinois, Joseph M.

Potenza, Christopher B. Roth, BANNER & WITCOFF, LTD., Washington, D.C., for

Appellee/Cross-Appellant.

1
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 2

1

Citations to the record herein are to the 04 Action unless designated with “02R.”

_________________

OPINION

_________________

KAREN NELSON MOORE, Circuit Judge. Lexmark International, Inc.

(“Lexmark”) is a major producer of laser printers and toner cartridges for its laser

printers. Other companies, called remanufacturers, acquire used Lexmark toner

cartridges, refill them, and sell them to owners of Lexmark printers at a lower cost.

Lexmark developed microchips for both the toner cartridges and the printers so that

Lexmark printers will reject any toner cartridges not containing a matching microchip,

and over time Lexmark has patented certain aspects of the cartridges. Static Control

Components, Inc. (“Static Control”) has identified how to replicate the cartridge

microchips and sells the microchips to the remanufacturers along with other parts to

facilitate the repair and resale of Lexmark toner cartridges.

Lexmark sued Static Control in 2002 (the “02 Action”) for copyright violations

related to its source code in making the duplicate microchips and was given a

preliminary injunction by the district court. Static Control counterclaimed under federal

and state antitrust and false-advertising laws. While that suit was pending, Static

Control redesigned its microchips and sued Lexmark for declaratory judgment in 2004

(the “04 Action”) to establish that the redesigned microchips did not infringe any

copyright.1

 Lexmark counterclaimed again for copyright violations and this time added

patent counterclaims against Static Control and eventually three of the remanufacturers.

The two suits were consolidated into the 04 Action.

On appeal of the preliminary injunction, the Sixth Circuit vacated and rejected

Lexmark’s copyright theories. Lexmark Int’l, Inc. v. Static Control Components, Inc.,

387 F.3d 522 (6th Cir. 2004) (“Lexmark I”). On remand, Lexmark successfully moved

to dismiss all of Static Control’s counterclaims. The case proceeded to trial, and the

only issues ultimately submitted to the jury were Lexmark’s claim of patent inducement
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2

Wazana Brothers International, Inc. d/b/a Micro Solutions Enterprises (“Wazana”), Pendl

Companies, Inc. (“Pendl”), and NER Data Products, Inc. (“NER”) are three remanufacturers who have

purchased microchips from Static Control for Lexmark toner cartridges and were once third-party

defendants to the suit. They are not parties to the appeal.

against Static Control and Static Control’s defense of patent misuse. The district judge

instructed the jury that its findings on patent misuse would be advisory; the jury held that

Static Control did not induce patent infringement and advised that Lexmark misused its

patents. Lexmark renewed its earlier request for a judgment as a matter of law and also

filed a motion for a retrial, which the district court denied. Both parties timely appealed.

For the following reasons, we AFFIRM the district court’s dismissal of Static

Control’s federal antitrust claims, but REVERSE the dismissal of Static Control’s

claims under the Lanham Act and certain claims under state law. We AFFIRM the

remainder of the judgment on appeal.

I. BACKGROUND

A. Factual Background

Lexmark manufactures laser printers, which require toner cartridges to print. The

market for printers and toner cartridges generally has many players, e.g., Xerox, Epson,

Hewlett-Packard, and Canon, and Lexmark’s share of the overall printer market is less

than 15%. Second Appellee Br. at 4. Each company generally manufactures its printers

to work with only its own style of cartridges, and each company’s cartridges will work

with only its brand of printers. Therefore, each company typically dominates the

aftermarket for cartridges compatible with its brand of printers, although the primary

market for printers is well populated.

Remanufacturers are companies that participate in the toner-cartridge

aftermarkets by acquiring used toner cartridges of all kinds of printers, repairing and

refilling them, and selling them to owners of that kind of printer at a lower price.2

 First

Appellant Br. at 11. Lexmark also acquires and repairs its used toner cartridges for

resale. In the 1990s, Lexmark started a “Prebate” program with certain large customers

whereby Lexmark would sell new toner cartridges at an upfront discount of around 20%
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 4

3

In comparison, Static Control claims that the price of Hewlett Packard toner cartridges fell

during the same period because Hewlett Packard does not employ a similar “Prebate” program and

remanufacturers are able to occupy a larger share of the aftermarket for Hewlett Packard toner.

if the end user agreed to (1) a single-use license and (2) a restriction that the cartridge

be returned to Lexmark for remanufacturing or recycling and not to a third-party

remanufacturer. Second Appellee Br. at 6. These terms were printed on several notices

on the outside of the toner-cartridge box, which instructed the user that opening the box

would indicate acceptance of the terms. Regular cartridges not subject to the Prebate

terms are still sold, but at a higher price than the Prebate cartridges. According to Static

Control, the price of Lexmark toner cartridges increased following the implementation

of the program because of reduced competition from remanufacturers. First Appellant

Br. at 16.3

Lexmark toner cartridges each contain a microchip that communicates with the

printer once installed. Toner cartridges that are otherwise compatible with Lexmark

printers will not function without the microchip. Lexmark obtains these microchips from

a supplier that has allegedly agreed to sell microchips only to Lexmark. All Lexmark

toner cartridges are initially manufactured with the necessary microchip, but the

microchip for the Prebate cartridges is specifically designed to enforce the Prebate terms

by disabling the cartridge for future use after the cartridge runs out of toner. To use the

Prebate cartridge again, the microchip needs to be replaced. To use a non-Prebate

cartridge again, the microchip does not need to be replaced unless it was damaged.

Lexmark eventually obtained several patents relating to its toner cartridges. At

issue on appeal are nine utility patents that the remanufacturers allegedly infringe

(referred to as the “nine mechanical patents”) and two design patents relating to seven

different toner cartridges. Static Control developed a microchip that could replace the

microchip on the Prebate toner cartridges, permitting a third party to remanufacture and

sell the toner cartridge again. Static Control also sent its customers a letter, referred to

as an “Anti-Prebate kit,” consisting of information from Static Control’s general counsel

regarding why the Prebate program is not valid under principles of contract law. Second

Appellee Br. at 33. Remanufacturers buy these microchips from Static Control, along
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 5

with other parts. Static Control does not manufacture, remanufacture, or sell toner

cartridges of any kind, but it is the market leader on making and selling the components

necessary to remanufacture Lexmark cartridges. First Appellant Br. at 11. Lexmark, on

the other hand, sells toner cartridges but does not sell any of the component parts

necessary to repair or remanufacture its toner cartridges, whether Prebate cartridges or

not.

B. Procedural Background

Lexmark sued Static Control in December 2002 for violations of federal

copyright laws and the Digital Millennium Copyright Act (“DMCA”), relating to two

computer programs on its printer chips. Lexmark sought to halt Static Control’s sale of

the allegedly infringing chips. Static Control responded, ultimately counterclaiming

under federal and state antitrust and false-advertising laws. Static Control claimed that

Lexmark’s Prebate program unlawfully excluded competition in the aftermarket for

Lexmark-compatible cartridges, reducing competition and increasing prices, and that

Lexmark falsely told remanufacturers that Static Control was infringing on Lexmark’s

patents. Lexmark then counterclaimed in reply, adding remanufacturers as defendants

and making additional claims under the DMCA and various state-law claims, but no

patent claims.

On January 8, 2003, Lexmark received a temporary restraining order in the

02 Action, and on January 24, 2003, the district court required Static Control to post an

injunction bond of $75,000. On February 7, 2003, the district court increased the bond

to $250,000 and extended relief for 21 days. On February 27, 2003, district court

granted the preliminary injunction. Static Control appealed both the injunction and the

bond amount, and in October 2004 the Sixth Circuit reversed the preliminary injunction,

making no comment on the bond amount. Lexmark I, 387 F.3d at 551. Static Control

sought rehearing on the issue of the bond amount, which we denied in a one-sentence

order. Lexmark Int’l, Inc. v. Static Control Components, Inc., No. 03-5400 (6th Cir.

Dec. 29, 2004) (unpublished order). In light of the ruling, the parties stipulated to
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 6

summary judgment against Lexmark on its DMCA claims. R. 216 (D. Ct. Order

2/23/06).

Before the Sixth Circuit ruled, however, Static Control initiated the 04 Action

seeking declaratory judgment under federal copyright laws and the DMCA that its newly

modified chips did not infringe Lexmark’s copyrights. Lexmark counterclaimed raising

patent infringement, DMCA violations, and tort claims, and added three remanufacturers

as third-party defendants—Wazana, NER, and Pendl. Following the Sixth Circuit’s

remand, Lexmark moved to dismiss Static Control’s counterclaims. The district court

granted the motion in September 2006. During the course of the proceedings, which

concluded in a jury trial, nine of Lexmark’s mechanical patents were held valid, see

R. 1008 (D. Ct. Order 4/24/07), and summary judgment was granted to Lexmark on its

claims of direct patent infringement against Wazana, NER, and Pendl, see

R. 1203 (D. Ct. Order 5/25/07); R. 1245 (D. Ct. Order 5/31/07). All three defendant

remanufacturers ultimately settled with Lexmark at various points before the verdict.

The district court also granted summary judgment to Lexmark on the validity of its

single-use license for Prebate cartridges, which the district court concluded prevented

Lexmark’s patents from exhausting following the initial sale of the Prebate toner

cartridges to end users. R. 1008 (D. Ct. Order 4/24/07).

By the close of trial, the only remaining issues were Lexmark’s patentinfringement-inducement claims against Static Control and Static Control’s equitable

defense of patent misuse. Because the district court had already ruled on summary

judgment that three of the remanufacturers directly infringed, the jury was asked to

decide whether the unnamed remanufacturers directly infringed as a class and whether

Static Control induced any direct infringement. Because the district court determined

that patent misuse was an equitable defense, the final jury instructions indicated that the

jury’s findings with respect to misuse would be merely advisory. R. 1365

(Jury Instructions). The jury returned a verdict that Lexmark had failed to show that the

remanufacturers as a class directly infringed Lexmark’s patents and failed to show that

Static Control induced the direct infringement of the three named remanufacturers,
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 7

Wazana, NER, and Pendl. R. 1366 (Special Verdict Form at 1-3). The jury then advised

that it found Static Control had proven by a preponderance of the evidence certain facts

that supported Static Control’s defense that Lexmark misused its patents. Id. at 11-19;

see also R. 1365 (Jury Instructions at 35-41) (defining misuse).

Lexmark moved for judgment as a matter of law both before and after the verdict

and also filed a motion for a new trial on its patent inducement claim, arguing that the

evidence was sufficient to establish direct infringement by Static Control’s customers

as a class and that, with respect to inducement, the district court erroneously excluded

evidence at trial. The district court denied the motions. R. 1430 (D. Ct. Op. 10/03/08);

R. 1521 (D. Ct. Op. & Order 10/28/10). The district court subsequently reversed its

prior ruling that Lexmark’s patents were not exhausted in its Prebate cartridges in light

of recent Supreme Court precedent. R. 1443 (D. Ct. Op. & Order 3/31/09). Both parties

filed timely appeals.

II. JURISDICTION

The parties did not state in their initial briefs the basis for this court’s appellate

jurisdiction. We therefore asked the parties to submit letter briefs addressing whether

we have jurisdiction over this appeal or whether the Federal Circuit has exclusive

jurisdiction to review the case under 28 U.S.C. § 1295. After all, the entirety of

Lexmark’s appeal requires us to resolve substantive issues of patent law. Static Control

responds that this court has jurisdiction; Lexmark maintains that the Federal Circuit has

exclusive jurisdiction. On review, we determine that 28 U.S.C. § 1295 does not require

that the Federal Circuit hear this case on appeal. We have jurisdiction under 28 U.S.C.

§ 1291.

The Federal Circuit has exclusive jurisdiction over appeals from final decisions

of a district court “if the jurisdiction of that court was based, in whole or in part, on

section 1338 of this title.” 28 U.S.C. § 1295(a)(1) (2000). Section 1338 gives federal

district courts original jurisdiction exclusive of the state courts over “any civil action

arising under any Act of Congress relating to patents.” 28 U.S.C. § 1338(a) (1999).

Because Congress used the phrase “arising under,” the Supreme Court has held that
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 8

patent issues raised in relation to a defense or as counterclaims are insufficient to confer

Federal Circuit jurisdiction. Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc.,

535 U.S. 826, 831 (2002). Congress amended 28 U.S.C. §§ 1295 and 1338 in the LeahySmith America Invents Act to provide additionally for exclusive Federal Circuit

jurisdiction over “any civil action in which a party has asserted a compulsory

counterclaim arising under[] any Act of Congress relating to patents,” but the

amendment is applicable only “to any civil action commenced on or after the date of the

enactment of this Act.” Pub. L. 112-29, § 19(b), (e), 125 Stat. 333. The law was enacted

on September 16, 2011. The civil actions here were commenced well before that date;

therefore, the new provision does not apply.

At first glance, this case appears clear cut: In both the 02 and the 04 Actions, the

issues implicating patent law arose as counterclaims. However, the Supreme Court has

suggested—but declined to decide—that the evolving circumstances of a case may create

a situation wherein exclusive Federal Circuit appellate jurisdiction would follow.

Holmes, 535 U.S. at 829 n.1 (“[T]his case does not call upon us to decide whether the

Federal Circuit’s jurisdiction is fixed with reference to the complaint as initially filed or

whether an actual or constructive amendment to the complaint raising a patent-law claim

can provide the foundation for the Federal Circuit’s jurisdiction.”); Christianson v. Colt

Indus. Operating Corp., 486 U.S. 800, 814-15 (1988) (“We need not decide under what

circumstances, if any, a court of appeals could furnish itself a jurisdictional basis

unsupported by the pleadings by deeming the complaint amended in light of the parties’

‘express or implied consent’ to litigate a claim.”).

Whatever those evolving circumstances may be, however, they are not present

in this case. Lexmark can point to no actual or constructive amendment of either

complaint. Constructive amendments typically occur when a specific claim is not raised,

but the parties by their actions act as if they consent to making the claim a part of the

proceedings. See Torry v. Northrop Grumman Corp., 399 F.3d 876, 878 (7th Cir. 2005)

(Posner, J.); Sunbeam Prods., Inc. v. Wing Shing Prods. (BVI) Ltd., 153 F. App’x 703,

706-07 (Fed. Cir. 2005) (unpublished opinion), cert. denied, 546 U.S. 1095 (2006)
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 9

(holding Federal Circuit had jurisdiction because pretrial order that added patent issue

debated by the parties constructively amended the complaint even though not raised as

a claim). Here, the patent claims were raised ab initio by the interested party as

counterclaims, and no amendment would be necessary to make them formally part of the

suit. Furthermore, Lexmark sought actually to amend the complaint in the 02 Action to

add its patent claims with the express purpose of assuring Federal Circuit jurisdiction.

R. 456 (Lexmark’s Mot. to Amend). Static Control objected, and Lexmark’s motion was

denied. R. 649 (D. Ct. Order 1/9/07). Constructive amendment typically requires

express or implied consent of the parties, both of which are lacking.

Lexmark’s best argument is that its patent counterclaims in the 04 Action added

new parties, and that the district court’s jurisdiction over Lexmark’s third-party

complaint potentially “arose under” the patent laws. Unfortunately for Lexmark, this too

seems insufficient to make the case one “arising under” patent laws. Lexmark offers no

law or case addressing whether a third-party complaint can render any part of the

controversy “arising under” patent law. However, the Supreme Court in Holmes

compared the “arising under” inquiry for 28 U.S.C. § 1338 to the “arising under” inquiry

for original jurisdiction under 28 U.S.C. § 1331. And we know that third-party

defendants may not remove a controversy to federal court solely because the original

defendant filed related federal claims against them. First Nat’l Bank of Pulaski v. Curry,

301 F.3d 456, 461-67 (6th Cir. 2002). Lexmark has presented no compelling reason to

treat this case any differently. The district court’s jurisdiction arose under 28 U.S.C.

§§ 1331 and 1367, and not under § 1338. Therefore, we have appellate jurisdiction

under 28 U.S.C. § 1291.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 10

4

Static Control concedes that “a party cannot recover more than the value of the bond for

injunction-related damages.” First Appellant Br. at 25 & n.10 (citing Mich. AFSCME Council 25, Local

1640 v. Matrix Human Servs., 589 F.3d 851, 860 (6th Cir. 2009)).

III. INJUNCTION-BOND AMOUNT

Static Control appeals the amount of the injunction bond entered by the district

court when the district court issued the preliminary injunction in 2002.4 The final bond

amount entered by the district court was $250,000; Static Control sought estimated

damages of over $17 million. When the preliminary injunction was entered in 2003,

Static Control appealed both the injunction and the bond amount to the Sixth Circuit.

We vacated the injunction, but we made no mention of the bond. Lexmark I, 387 F.3d

522. Static Control sought rehearing from the Sixth Circuit specifically on the issue of

the proper injunction-bond amount, which we summarily denied.

In November 2009, only a few days after filing its notice of appeal, Static

Control filed a Motion for Wrongful Injunction Damages in the district court, seeking

actual damages of $7-10 million, well in excess of the $250,000 injunction-bond amount.

R. 1473 (Static Control’s Mot. to Vacate). Lexmark opposed, arguing that the bond

amount should serve as the cap on damages. R. 1495 (Lexmark’s Opp. to Mot. to

Vacate). As late as January 29, 2010, Static Control was imploring the district court to

“recalculate the bond to reflect the projected damages and set an evidentiary hearing to

allow Static Control to prove its actual damages.” R. 1503 (Static Control’s Reply Mot.

to Vacate at 14). After oral argument in this appeal and prompting from Lexmark, the

district court recently denied this motion and ordered the clerk to release the security

bond to Static Control. R. 1530 (D. Ct. Order 4/24/12). Static Control has sent us a

letter brief asking us to ignore this order because the district court lacked jurisdiction to

decide this amount following the filing of Static Control’s notice of appeal, an argument

which Static Control presented in its most recent papers before the district court but not

in its initial motion seeking the very relief it now claims the district court lacks the

jurisdiction to award.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 11

Lexmark contends that this panel should not consider this argument because the

Sixth Circuit necessarily rejected Static Control’s claim in declining to vacate the bond

amount on the initial appeal. Static Control argues that this issue may be considered

because it was never “squarely decided” on the first appeal. First Appellant Br. at 24 n.9

(internal quotation marks omitted). “Issues decided at an early stage of the litigation,

either explicitly or by necessary inference from the disposition, constitute the law of the

case.” Hanover Ins. Co. v. Am. Eng’g Co., 105 F.3d 306, 312 (6th Cir. 1997) (internal

quotation marks omitted); see also Bowles v. Russell, 432 F.3d 668, 676-77 (6th Cir.

2005), aff’d, 551 U.S. 205 (2007). Static Control appears to have the better of the

argument, because we do not see how the prior panel’s lack of commentary on the bond

amount (and subsequent decision not to rehear the appeal on the bond amount) contains

a necessary inference that we found the bond amount to be proper. Ultimately, however,

whether our refusal to reconsider Static Control’s appeal of the bond amount constitutes

the law of the case does not matter because the bond amount was not improper.

A bond amount shall be set “in an amount that the court considers proper to pay

the costs and damages sustained by any party found to have been wrongfully enjoined

or restrained.” Fed. R. Civ. P. 65(c). District courts have broad discretion in setting the

bond amount. Div. No. 1, Detroit, Bhd. of Locomotive Eng’rs v. Consol. Rail Corp.,

844 F.2d 1218, 1226 (6th Cir. 1988). “[T]he court may order a bond that does not

completely secure the enjoined party or the court may decline to order a bond, if

necessary for the purpose of effecting justice between the parties.” Id. at 1227 n.15

(internal quotation marks omitted).

At the preliminary injunction hearing, Static Control’s CEO testified that the

company would lose $17,463,580 if forced to halt sales for two years. The CEO testified

to the overall method his company used to calculate that number, but never presented

any underlying calculations. Cross-examination revealed a number of assumptions

underlying Static Control’s estimate, including the assumption that it would take six

years for Static Control to regain its previous market position if enjoined. The fact that

the ultimate bond amount selected by the district court was only two percent of Static
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 12

Control’s claimed damages therefore carries little weight. The district court was not

required to credit Static Control’s testimony solely because Lexmark did not present

evidence to the contrary. The district court received evidence from Static Control,

weighed the evidence against the strength of Lexmark’s claims, which were deemed

strong at the time, and accordingly raised the initial bond from $75,000 to $250,000. We

decline to hold that the district court abused its discretion in setting the bond amount

under these circumstances.

IV. STATIC CONTROL’S FEDERAL ANTITRUST COUNTERCLAIMS

Static Control counterclaimed in the 02 Action under §§ 4 and 16 of the Clayton

Act, 15 U.S.C. §§ 15, 26, for violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C.

§§ 1, 2, seeking damages and injunctive relief. 02R. 172 (2d Am. Answer &

Counterclaim). The district court granted Lexmark’s motion to dismiss on the basis that

Static Control did not have standing to bring the federal antitrust claims for damages or

injunctive relief. R. 392 (D. Ct. Order 9/28/06).

A. Standard of Review

We review de novo a district court’s decision to dismiss a counterclaim for

failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). United Ass’n of

Journeymen & Apprentices of the Plumbing and Pipefitting Indus., Local No. 577 v.

Ross Bros. Constr. Co., 191 F.3d 714, 716 (6th Cir. 1999). In reviewing a motion to

dismiss, we accept all non-conclusory allegations of fact as true and decide whether the

claimant has stated a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678-79

(2009). The pleading must state “enough facts to state a claim to relief that is plausible

on its face”; failure to plead sufficient facts will lead to dismissal of the claim. Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 570 (2007).

B. Antitrust Standing for Counterclaims with Money Damages

Pursuant to the Clayton Act, 15 U.S.C. § 15(a), private parties may bring private

actions for violations of the Sherman Act. Section 1 of the Sherman Act prohibits

conspiracies to restrain trade. 15 U.S.C. § 1. “A Section 1 conspiracy requires more
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 13

than a manufacturer’s unilateral refusal to deal. ‘There must be evidence that tends to

exclude the possibility that the [conspirators] were acting independently.’” Watson

Carpet & Floor Covering, Inc. v. Mohawk Indus., Inc., 648 F.3d 452, 457 (6th Cir. 2011)

(internal citation omitted) (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S.

752, 764 (1984)). Section 2 of the Sherman Act prohibits the illegal monopolization of

a market. 15 U.S.C. § 2. To bring a claim under § 2, a claimant must show

“‘(1) possession of monopoly power in the relevant market; and (2) the willful

acquisition or maintenance of that power as distinguished from growth or development

as a consequence of a superior product, business acumen or historic accident.’” Tarrant

Serv. Agency, Inc. v. Am. Standard, Inc., 12 F.3d 609, 613 (6th Cir. 1993) (quoting

United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)), cert. denied, 512 U.S.

1221 (1994).

To bring a private claim for damages under either section of the Sherman Act,

the claimant must first demonstrate that it has standing. Although required in all cases,

standing in an antitrust case is more onerous than the conventional Article III inquiry.

“[A]ntitrust standing is a threshold, pleading-stage inquiry and when a complaint by its

terms fails to establish this requirement we must dismiss it as a matter of law . . . .”

NicSand, Inc. v. 3M Co., 507 F.3d 442, 450 (6th Cir. 2007) (en banc). The district court

decides whether a claimant has adequately pleaded antitrust standing by balancing five

factors:

(1) the causal connection between the antitrust violation and harm to the

plaintiff and whether that harm was intended to be caused; (2) the nature

of the plaintiff’s alleged injury including the status of the plaintiff as

consumer or competitor in the relevant market; (3) the directness or

indirectness of the injury, and the related inquiry of whether the damages

are speculative; (4) the potential for duplicative recovery or complex

apportionment of damages; and (5) the existence of more direct victims

of the alleged antitrust violation.

Southaven Land Co., Inc. v. Malone & Hyde, Inc., 715 F.2d 1079, 1085 (6th Cir. 1983)

(citing Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 14

5

Lexmark argued below that the relevant market was the larger primary market for all brands of

laser printer cartridges and parts, not just the aftermarket for Lexmark products. The jury in its advisory

findings sided with Static Control. R. 1366 (Special Verdict Form at 15). On appeal, Lexmark does not

concede its position on the relevant market, but argues against standing using the aftermarket. Second

Appellee Br. at 40.

(“AGC”), 459 U.S. 519, 537-45 (1983)). No one factor controls. Peck v. Gen. Motors

Corp., 894 F.2d 844, 846 (6th Cir. 1990).

Static Control alleges that Lexmark conspired with unidentified microchip

suppliers and resellers of Lexmark-manufactured printers to restrain trade and otherwise

monopolize “the relevant markets,” thereby reducing output, increasing prices, and

maintaining Lexmark’s monopoly. Static Control defines the “relevant markets” as

including three distinct but related aftermarkets for Lexmark-specific products: (1) the

market for Lexmark replacement toner cartridges, (2) the market for component parts for

Lexmark cartridges, and (3) the market for microchips for Lexmark cartridges.5 02R.

172 (2d Am. Answer & Countercl. at ¶¶ 17-18). The allegations repeatedly refer to the

“relevant markets” as a group when the specific facts relate only to the market for

replacement cartridges. For example, Static Control alleges that Lexmark has “an

85% share in each of the relevant markets,” id. at ¶ 18, but on closer examination the

counterclaim alleges that Lexmark competes only in the market for toner cartridges, id.

at ¶¶ 12, 24. Static Control alleges that Lexmark’s anticompetitive chips “exclude

competition, restrict output, and increase end-user prices in the relevant markets,” id. at

¶ 47, but the counterclaim never identifies any change in competition, output, or prices

in the market for component parts or microchips as a result of Lexmark’s conduct. The

only specific allegations as to price and output relate to the market for toner cartridges.

Id. at ¶¶ 50-52, 58. Therefore, although we read the allegations of the counterclaim in

the light most favorable to Static Control, we must carefully consider the actual factual

allegations underlying such conclusory allegations. Twombly, 550 U.S. at 556-57.

In its counterclaim, Static Control’s allegations can be categorized into five

practices by Lexmark that Static Control claims constitute anticompetitive conduct:
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 15

6

Specifically, Static Control complains that Lexmark engaged in anticompetitive conduct by

creating two classes of otherwise identical cartridges, Prebate and non-Prebate, selling the non-Prebate

cartridges at artificially inflated prices, falsely invoking patent rights to prevent remanufacturers from

repairing Prebate cartridges, and engaging in other threatening behavior.

(1) the Prebate program;6 (2) using “lock-out” microchip technology in its printers,

causing them to disable when any non-Lexmark replacement cartridge is inserted;

(3) requiring Lexmark’s microchip supplier to refuse to sell replacement chips to anyone

but Lexmark; (4) redesigning its microchips specifically to render cartridges that used

Static Control’s microchips incompatible; and (5) filing the 02 Action targeting Static

Control. First Appellant Br. at 12-15; 02R. 172 (2d Am. Answer & Countercl. at ¶¶ 32,

44-46, 54-56). When the allegations are read for specificity and plausibility, these

actions target and affect the different markets in different ways. We therefore examine

each of these alleged violations separately to see if Static Control has standing to pursue

any of them.

1. Prebate Program

Static Control alleges that the Prebate Program, through its lower prices and

misleading statements that the end user committed to a license agreement when no such

license existed, cajoled end users into purchasing fewer remanufactured cartridges and

thereafter returning them primarily to Lexmark. As a result, Static Control was also

harmed because it lost profits from the decline in sales of microchips and components

for Lexmark-compatible cartridges following the decline in sales of remanufactured

cartridges. First Appellant Br. at 16.

As alleged, the Prebate Program targets only the market for remanufactured

cartridges. No part of the Prebate Program relates to the market for microchips or

components, even though the allegations support the Prebate Program’s incidental

effects in the other markets. Static Control itself states that “Lexmark specifically

launched its Prebate program to intimidate and to exclude competition from

remanufacturers.” 02R. 172 (2d Am. Answer & Countercl. at ¶ 33) (emphasis added).

And as discussed above, although Static Control’s allegations often refer to the “relevant

markets,” the specific factual allegations explain only Prebate’s impact on the market
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 16

for remanufactured cartridges. For example, when Static Control alleges that Lexmark

used Prebate to “effect[] its deliberate, unlawful, anticompetitive intent to raise prices

and exclude competition,” id., we can conclude only that this allegation relates to the

market for toner cartridges because of the lack of any allegations that the prices were

raised in other markets. Having identified the proper market, we easily conclude that all

five of the AGC factors are lacking with respect to the Prebate program.

Although causation in the traditional sense appears properly alleged—the

implementation of the Prebate program decreased the number of remanufactured

Lexmark cartridges, which in turn decreased Static Control’s sales—Static Control fails

to allege plausibly that the Prebate program was intended to harm Static Control. As the

district court correctly held, the intended targets of Lexmark’s Prebate Program were the

end users and the remanufacturers, not Static Control. R. 392 (D. Ct. Order 9/28/06 at

9). Static Control asserts that these conclusions erroneously rely on factual averments

and that the district court failed to accept its facts as alleged, but Static Control itself

alleges this: “Lexmark specifically launched its Prebate program to intimidate and to

exclude competition from remanufacturers.” 02R. 172 (2d Am. Answer & Countercl.

at ¶ 33); see also id. at ¶ 42 (“Lexmark’s sole purpose for deceiving end-users to believe

they are contractually bound by [the Prebate Program] is to preserve, maintain, and

enhance its unlawful monopoly power in the relevant markets.”).

Static Control also fails sufficiently to identify its role in the relevant market for

remanufactured cartridges. Traditionally, only claimants who are competitors or

consumers within the injured market have standing to sue. Southaven, 715 F.2d at 1086.

However, claimants who are not direct players in the relevant market may nonetheless

have standing if their injury is “‘inextricably intertwined’ with the injury sought to be

inflicted upon the relevant market or participants therein.” Id. The “inextricably

intertwined” exception, however, is narrow. See Blue Shield of Va. v. McCready,

457 U.S. 465, 483-84 (1982). This exception was not designed to give standing to

claimants whose injuries are a tangential byproduct of monopolistic conduct in a related

market. Southaven, 715 F.2d at 1086. To succeed, the claimant must show that the
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 17

defendants “manipulated or utilized [the claimant] as a fulcrum, conduit or market force

to injure competitors or participants in the relevant product and geographical markets.”

Id.

Static Control must therefore have alleged that an injury in Lexmark’s

market—the market for replacement toner cartridges—is inextricably intertwined with

the injuries Static Control claims to be suffering in the market for component parts and

microchips. The district court rejected Static Control’s argument, because Static Control

failed adequately to allege that it was “manipulated or utilized by the defendant as a

fulcrum, conduit or market force to injure competitors or participants in the relevant

product and geographical market.” R. 392 (D. Ct. Order 9/28/06 at 10) (quoting

Province v. Cleveland Press Publ’g Co., 787 F.2d 1047, 1052 (6th Cir. 1986) (internal

quotation marks and brackets omitted)). “If anyone is being manipulated according to

[Static Control’s] allegations, it is the end consumer.” Id. at 10-11. We agree.

Static Control’s counterclaim makes no mention of being used by Lexmark as

a fulcrum, and Static Control does not allege that it was harmed because it was

manipulated into harming the remanufacturers. Static Control on appeal argues that

Lexmark used Static Control as a fulcrum to injure the remanufacturers by (1) falsely

telling remanufacturers that using Static Control’s products would constitute

infringement; (2) redesigning its microchips, thus forcing Static Control to redesign its

microchips to remain compatible; (3) threatening legal action against Static Control;

(4) and suing Static Control for baseless copyright claims. First Appellant Br. at 39.

But, although these specific allegations are sprinkled in various sections of the

counterclaim to support other arguments, we can find no allegations in the counterclaim

that Lexmark manipulated Static Control in any way to carry out its anticompetitive

Prebate Program in the market for remanufactured cartridges. “An inextricably

intertwined injury is one that results from the manipulation of the injured party as a

means to carry out the restraint of trade in the product market.” Province, 787 F.2d at

1052.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 18

Static Control’s allegations establish that it was negatively affected by Lexmark’s

manipulation of the end users into buying Prebate cartridges, but that Static Control itself

was not used as a conduit to achieve the alleged anticompetitive effect in the

remanufactured cartridge market. See Southaven, 715 F.2d at1086 (harm from tangential

effects of anticompetitive conduct not enough to convey standing). Indeed, the

allegations make very clear that Lexmark is using the end users to obtain the desired

anticompetitive effects, rather than using Static Control. Static Control specifically

alleges that Lexmark “fraudulently induces customers’ use of Prebate cartridges” and

“exploit[s] consumers’ lack of information about choices in replacement cartridges” to

reduce the number of non-Prebate cartridges on the market. 02R. 172 (2d Am. Answer

& Countercl. at ¶ 37); see also id. at ¶ 38 (“Lexmark’s anticompetitive exploitation of

consumers’ and end-users’ lack of adequate information increases prices and reduces

output in the relevant markets.”) (emphasis added). No such allegations of exploitation

or manipulation exist with respect to Static Control. The level of manipulation of the

claimant—and the necessity of the success of such manipulation to achieve the

anticompetitive conduct—is simply not present in this case with respect to Static

Control. See Peck, 894 F.2d at 847.

Even if we were to consider Static Control’s injury in the market for components

and microchips sufficiently related to the harm caused by the Prebate Program in the

remanufactured cartridges market, Static Control still lacks standing due to its failure to

satisfy the remaining AGC factors. See Fallis v. Pendleton Woolen Mills, Inc., 866 F.2d

209, 211 (6th Cir. 1989) (holding no antitrust standing despite assuming claimant was

used as a fulcrum in relevant market), abrogated on other grounds by Humphreys v.

Bellaire Corp., 966 F.2d 1037 (6th Cir. 1992). Antitrust causation is much more limited

than Article III standing. Here, Static Control’s injury is too attenuated to qualify.

“[Static Control’s] injury is derivative; it is simply a side effect of [Lexmark’s] alleged

antitrust violations.” Fallis, 866 F.2d at 210.

Static Control also fails to establish the final three AGC factors, which all relate

to the directness of Static Control’s injuries relative to potentially more-direct victims.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 19

7

The district court did not explicitly discuss the potential for duplicative recovery.

Static Control’s injuries as a result of the Prebate program are clearly a “byproduct” of

the alleged antitrust violation. Province, 787 F.2d at 1053; Fallis, 866 F.2d at 211. The

more-direct victims are the end users, who according to the allegations had to pay more

for their cartridges as a result of the allegedly anticompetitive conduct, and the

remanufacturers, who were unable to compete in the market for Lexmark-compatible

toner cartridges after Lexmark’s Prebate program undercut their prices and reduced

supply. Although the end users may have little incentive to sue, two of the

remanufacturers raised (and ultimately settled) antitrust claims against Lexmark in the

same action. R. 392 (D. Ct. Order 9/28/06 at 12). Where there are more-direct victims

of the anticompetitive conduct, those victims have the standing to sue, rather than those

affected indirectly. Southaven, 715 F.2d at 1087; Province, 787 F.2d at 1053-54.

The existence of this clear class of direct victims increases the danger of

duplicative recovery should Static Control be given antitrust standing to pursue the

Prebate Program and receive treble damages.7 Static Control may seek only the

damages from its own losses, but the concern of duplicative recovery relates more

broadly to the issue of requiring a defendant to pay treble damages to parties both

directly and indirectly injured from the same antitrust violation. See Ill. Brick Co. v.

Illinois, 431 U.S. 720, 731 n.11 (1977) (discussing risk of duplicative recovery between

direct and indirect purchasers). Finally, we agree with the district court that Static

Control’s calculation of over $18 million in damages is speculative. R. 392 (D. Ct.

Order 9/28/06 at 11).

Static Control’s argument for directness of its injury relies heavily on the Second

Circuit case Crimpers Promotions, Inc. v. Home Box Office, Inc., 724 F.2d 290, 294-95

(2d Cir. 1983), cert. denied, 467 U.S. 1252 (1984), as does much of its argument on

standing. The plaintiff in Crimpers had standing because HBO and Showtime colluded

to prevent his tradeshow from serving as a middleman between television show

producers and cable operators, which was the only alternative forum for them to

communicate. Crimpers had standing because “[i]njury to Crimpers was the precisely
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 20

intended consequence of defendants’ boycott,” even more than the resulting injury to the

tradeshow participants. Id. at 294. Here, the allegations of both intent and injury are

less direct. The Prebate program reduced the number of cartridges available for

remanufacture, which in turn reduced the number of microchips sold by Static Control

to the remanufacturers. Static Control’s allegations resemble a classic case of a supplier

seeking standing to recover for indirect damages following anticompetitive conduct

directed at its customers’ market. Crimpers is simply inapposite. We agree that Static

Control lacks standing to pursue its antitrust claims as they relate to the Prebate program.

2. Restraints on Microchips in Lexmark Printers and Cartridges

Static Control also argues that the existence of microchips in the cartridges in the

first place and Lexmark’s exclusive distribution agreement with its own microchip

supplier are anticompetitive acts. These acts differ from the Prebate program because

they directly target the microchip market in which Static Control is a competitor.

Although Lexmark does not compete in the market for microchips, the allegations

suggest that Lexmark uses its influence to restrain trade in the microchip market in order

to restrain trade in the remanufactured cartridge market. Here, however, Static Control

again lacks standing because it has failed to allege how Lexmark’s actions caused any

antitrust injury.

Static Control objects to the initial creation of the “anticompetitive microchips,”

but fails to allege how the existence of a microchip requirement alone caused Static

Control any injury. See 02R. 172 (2d Am. Answer & Countercl. at ¶ 44). Static Control

makes no allegations at all relating to the change in prices for components and

microchips as a result of Lexmark’s use of microchips in its toner cartridges, and Static

Control makes no allegations regarding how a microchip requirement affected Static

Control’s share of the market for components and microchips. Indeed, Static Control

fails to allege plausibly how the creation of a microchip requirement hurt Static

Control’s share of the microchip market, because without the requirement that market

would not exist. It is possible that, without the microchips, Static Control would be able

to sell more component parts, but Static Control does not make this allegation. Static
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 21

Control has failed to allege how the existence of a microchip requirement injured Static

Control or otherwise gave Lexmark a monopoly in the related market for Lexmark

component parts.

Static Control’s allegations relating to Lexmark’s microchip supplier’s refusal

to compete with third parties fares no better. As a self-proclaimed “leading supplier to

toner cartridge remanufacturers,” id. at ¶ 30, Static Control fails to allege how the

removal of one of its direct competitors from the components and microchips market

following an exclusive distributorship agreement with a single customer caused any

damage to Static Control’s position within those markets or profits. See New Albany

Tractor, Inc. v. Louisville Tractor, Inc., 650 F.3d 1046, 1052 (6th Cir. 2011) (“Merely

demonstrating the existence of an exclusive distributorship in a market area does not

violate Robinson–Patman—or any other antitrust provision.”). In general, the removal

of a competitor increases (not decreases) the remaining suppliers’ market share, and

Static Control has not alleged that Lexmark was a former customer or that absent the

exclusive agreement Lexmark would have purchased from Static Control.

“Antitrust injury does not arise for purposes of § 4 of the Clayton Act until a

private party is adversely affected by an anticompetitive aspect of the defendant’s

conduct.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339 (1990) (citation

and emphasis omitted). Cases have routinely rejected claims of antitrust violations that

may very well be violations when the claimants stood to gain from the anticompetitive

conduct. Therefore, “[Static Control] cannot recover for a conspiracy to impose

nonprice restraints that have the effect of either raising market price or limiting output.”

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 583 (1986); Datagate,

Inc. v. Hewlett-Packard Co., 941 F.2d 864, 868-69 (9th Cir. 1991) (“As an existing

competitor, [claimant] would have benefitted from any chilling of new entry into the

market. Therefore, [claimant] can claim no injury as a result of such chilling.”) (citation

omitted), cert. denied, 503 U.S. 984 (1992). Static Control has failed plausibly to allege

any antitrust injury stemming from Lexmark’s decision to use microchips in its

cartridges and to remove its own supplier from the market for microchips.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 22

3. Redesigning Microchips to Circumvent Static Control’s product

Once the market for microchips was created, however, the issue becomes

whether Lexmark can engage in a conspiracy to eliminate that market or stifle

competition within that market. If Lexmark were able to maintain a monopoly on

remanufactured toner cartridges by making cartridge parts wholly unavailable, Static

Control might have standing to pursue an antitrust violation. See Eastman Kodak Co.

v. Image Technical Servs., Inc., 504 U.S. 451, 463-64 (1992). The allegations, however,

do not sufficiently allege such behavior. Static Control does not specifically allege a

tying scheme under § 1 of the Sherman Act, as was the case in Eastman Kodak, nor does

Static Control allege any facts to suggest that the prices for parts increased as a result of

being illegally tied to the market for cartridges. Static Control alleges that Lexmark

continuously redesigned its microchips “to exclude competitors from the relevant

markets, restrict output, and increase end-user prices.” 02R. 172 (2d Am. Answer &

Countercl. at ¶ 45). But Static Control does not allege how Lexmark’s redesign

decreased competition in the markets in which Static Control competes, the market for

microchips or parts. Static Control does not even identify in its pleading who competes

in the microchip or parts markets, what their market share is, whether they are controlled

by Lexmark, what their prices were, or how their prices were affected by Lexmark’s

redesign (or any of Lexmark’s conduct for that matter). See CBC Companies, Inc. v.

Equifax, Inc., 561 F.3d 569, 572 (6th Cir. 2009) (holding allegations insufficient to

establish antitrust injury in part due to failure to identify other market players). The

counterclaim lacks other supporting allegations such as the nature and frequency of

Lexmark’s redesigns and how quickly replacement products were able to adapt to the

changes. Nor does Static Control make any non-conclusory allegations to refute the

possible business explanation that Lexmark, like most companies, continuously updates

its products over the years for legitimate competitive reasons. Twombly, 550 U.S. at

553. Static Control’s allegations with respect to the microchip redesign therefore also

fail to establish antitrust standing for any cognizable antitrust injury.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 23

8

Static Control claims Lexmark’s Noerr-Pennington argument is waived as it was not raised

below and was raised on appeal only in a footnote. Third Appellant Br. at 7 n.3. However, “standing is

a jurisdictional requirement that cannot be waived, and such may be brought up at any time in the

proceeding.” Zurich Ins. Co. v. Logitrans, Inc., 297 F.3d 528, 531 (6th Cir. 2002).

4. Filing Suit

Lexmark further correctly observes that the act of filing suit generally does not

constitute an antitrust injury under the Noerr-Pennington doctrine.8 Second Appellee

Br. at 47; see E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127

(1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965). Although exceptions

are made when the filing is a sham for interfering with competition, the first inquiry for

identifying sham litigation is objective reasonableness: “Only if challenged litigation

is objectively meritless may a court examine the litigant’s subjective motivation.” Prof’l

Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993).

We cannot say that Static Control has plausibly alleged that the 02 Action was

“objectively meritless.” See 02R. 172 (2d Am. Answer & Countercl. at ¶ 56). Static

Control’s allegations focus solely on Lexmark’s intent behind bringing the copyright

action; Static Control does not offer any allegations upon which we can plausibly

conclude that the copyright action was “objectively meritless.” The Sixth Circuit’s

ultimate conclusion that Lexmark lacked a valid copyright claim is not determinative of

whether the initial suit was reasonable. Prof’l Real Estate, 508 U.S. at 60 n.5. We agree

with Lexmark that its efforts in federal court, as alleged, should be immune from

antitrust suit.

C. Antitrust Standing for Counterclaims Seeking Injunctive Relief

The Clayton Act also permits a private party to obtain injunctive relief “against

threatened loss or damage by a violation of the antitrust laws.” 15 U.S.C. § 26. The

district court did not distinguish between Static Control’s request for injunctive relief

and its request for monetary damages when dismissing the counterclaim for lack of

standing. See R. 392 (D. Ct. Order 9/28/06 at 12). Static Control argues that the district

court separately erred in dismissing its claim for equitable relief because the last three

AGC factors are inapplicable to whether a claimant has standing to seek injunctive relief.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 24

9

The Lanham Act provides:

Any person who, on or in connection with any goods or services, or any container for

goods, uses in commerce any word, term, name, symbol, or device, or any combination

thereof, or any false designation of origin, false or misleading description of fact, or

false or misleading representation of fact, which

(A) is likely to cause confusion, or to cause mistake, or to deceive

as to the affiliation, connection, or association of such person

with another person, or as to the origin, sponsorship, or

approval of his or her goods, services, or commercial activities

by another person, or

(B) in commercial advertising or promotion, misrepresents the

nature, characteristics, qualities, or geographic origin of his or

her or another person’s goods, services, or commercial

activities,

shall be liable in a civil action by any person who believes that he or she is or is likely

First Appellant Br. at 51. Lexmark argues that the standing requirements for obtaining

injunctive relief are no different from the standing requirements for obtaining monetary

relief when, as here, Static Control also seeks money damages. Second Appellant Br.

at 56 (“The requirements for antitrust standing are the same whether the antitrust

plaintiff seeks damages only or damages and injunctive relief.”).

The Clayton Act does not “authorize a private plaintiff to secure an injunction

against a threatened injury for which he would not be entitled to compensation if the

injury actually occurred.” Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 112

(1986). The only difference between a claim for equitable relief and one for damages

is that equitable relief is available at the mere threat of antitrust injury. Because we have

held that Static Control has failed to plead an antitrust injury, we affirm the dismissal of

Static Control’s claim for equitable relief. See Valley Prods. Co. v. Landmark, 128 F.3d

398, 402 (6th Cir. 1997).

V. STATIC CONTROL’S LANHAM ACT COUNTERCLAIM

Static Control contends that Lexmark violated the Lanham Act by engaging in

false advertising. Static Control alleges that Lexmark “falsely informed customers that

SCC’s products infringe Lexmark’s purported intellectual property,” and “misled . . .

customers of SCC’s products that license agreements prohibit remanufacturing Lexmark

toner cartridges, when no license agreements actually exist,” causing Static Control’s

customers to believe that Static Control is engaging in illegal conduct and thereby

damaging Static Control’s business and reputation.9

 02R. 172 (2d Am. Answer &
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 25

to be damaged by such act.

15 U.S.C. § 1125(a)(1).

Countercl. at ¶¶ 2, 84-90). The district court dismissed Static Control’s counterclaim for

lack of Lanham Act standing because Static Control lacked antitrust standing, holding

that “[m]ultiple courts have held that the factors” for antitrust standing are the same as

for Lanham Act standing. R. 392 (D. Ct. Order 9/28/06 at 13) (citing Fifth and Third

Circuit cases).

Static Control maintains that the test “[i]n this Circuit” is “not the same as the . . .

test for antitrust standing.” First Appellant Br. at 53 (citing Frisch’s Rests., Inc. v.

Elby’s Big Boy of Steubenville, Inc., 670 F.2d 642, 649-50 (6th Cir.), cert. denied, 459

U.S. 916 (1982)). Frisch’s Restaurants held that a Lanham Act claimant need not

demonstrate actual losses as a result of the defendant’s misleading use of the claimant’s

trademarks in its advertisements, only a “‘likelihood of injury and causation.’” Id. at

650 (quoting Johnson & Johnson v. Carter-Wallace, Inc., 631 F.2d 186, 190 (2d Cir.

1980)). Since Frisch’s Restaurants, the Second Circuit has further described its

approach, called the “reasonable interest” approach, as finding that the claimant 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.” Famous Horse, Inc.

v. 5th Ave. Photo Inc., 624 F.3d 106, 113 (2d Cir. 2010). We have not addressed

Lanham Act standing since Frisch’s Restaurants.

Lexmark urges us to follow one of the narrower approaches adopted by our sister

circuits. The Seventh, Ninth, and Tenth use a categorical test, permitting Lanham Act

suits only by an actual competitor making an unfair-competition claim. L.S. Heath &

Son, Inc. v. AT & T Info. Sys., Inc., 9 F.3d 561, 575 (7th Cir. 1993); Waits v. Frito-Lay,

Inc., 978 F.2d 1093, 1108-09 (9th Cir. 1992), cert. denied, 506 U.S. 1080 (1993);

Stanfield v. Osborne Indus., Inc., 52 F.3d 867, 873 (10th Cir.), cert. denied, 516 U.S. 920

(1995). These circuits, however, have distinguished the standing inquiry between claims

of false association under 15 U.S.C. § 1125(a)(1)(A) and false advertising under
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 26

10Even if we were to adopt the AGC factors, Static Control’s claim would not necessarily fail.

Although we have determined that Static Control failed to satisfy the AGC factors regarding its antitrust

allegations, this does not necessarily mean Lanham Act standing would be lacking. Not all of Lexmark’s

§ 1125(a)(1)(B) and do not require direct competition for claims of false association.

See e.g., Waits, 978 F.2d at 1108-09. Static Control’s claim is for false advertising and

would fail under this stricter standard, because Static Control and Lexmark are not actual

competitors.

The Third, Fifth, Eighth, and Eleventh Circuits all reference antitrust standing

or the AGC factors in deciding Lanham Act standing. Conte Bros. Auto., Inc. v. Quaker

State-Slick 50, Inc., 165 F.3d 221, 233-34 (3d Cir. 1998) (Alito, J., authoring); Procter

& Gamble Co. v Amway Corp., 242 F.3d 539, 562-63 (5th Cir.), cert. denied, 534 U.S.

945 (2001); Gilbert/Robinson, Inc. v. Carrie Beverage-Missouri, Inc., 989 F.2d 985,

990-91 (8th Cir.), cert. denied, 510 U.S. 928 (1993); Phoenix of Broward, Inc. v.

McDonald’s Corp., 489 F.3d 1156, 1162-64 (11th Cir. 2007), cert. denied, 552 U.S.

1275 (2008). The Third Circuit nominally uses a “reasonable interest” approach, but

applies it by looking to the five AGC factors. Conte Bros., 165 F.3d at 233-34. The

Third Circuit has also rejected any distinction in standing between the two types of

Lanham Act claims. Id. at 232. The Second Circuit’s more recent cases reject the Third

Circuit’s conflation of the reasonable-interest test with the AGC factors as

“unnecessarily complicat[ing] the inquiry,” Famous Horse, 624 F.3d at 115 n.3, setting

its approach apart. Therefore, Lexmark’s statement that the reasonable interest test and

the AGC test are not “conceptually different,” Second Appellee Br. at 60, is not correct.

Although the claimant in Frisch’s Restaurants brought a claim under 15 U.S.C.

§ 1125(a)(1)(A) for false association of trademark, not under § 1125(a)(1)(B) for false

advertising, we agree with the Third Circuit’s reasoned analysis rejecting a distinction

between these two types of claims for purposes of standing. Conte Bros., 165 F.3d at

232-33. Because we have already addressed the appropriate level of standing for claims

brought under 15 U.S.C. § 1125(a), even if we were to prefer the approach taken by our

sister circuits, we cannot overturn a prior published decision of this court absent

inconsistent Supreme Court precedent or an en banc reversal.10 Geiger v. Tower Auto.,
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 27

conduct supposedly in violation of the Lanham Act is the same as the conduct supposedly violating the

Sherman Act. In particular, Static Control alleges that Lexmark violated the Lanham Act when Lexmark

falsely advertised that Static Control infringed Lexmark’s patents. Because this was not part of Static

Control’s antitrust allegations, the district court at a minimum should have applied the AGC factors to

Static Control’s allegations of false advertising directly targeting Static Control (not just the Prebate

program) and its injuries in conducting the five-factor analysis.

11The district court also dismissed the state-law civil-conspiracy claim for lack of standing;

however, Static Control has not raised this issue on appeal. Static Control mentioned in a footnote in its

opening brief that the district court also erred in dismissing its state-law civil-conspiracy claim. First

Appellant Br. at 56 n.14. Lexmark then pointed out the waiver, Second Appellee Br. at 62, and Static

Control did not dispute the waiver or make any arguments on either waiver or the civil-conspiracy claim

in its Third Brief.

579 F.3d 614, 622 (6th Cir. 2009). Static Control has therefore sufficiently alleged a

Lanham Act claim. Static Control alleged a cognizable interest in its business reputation

and sales to remanufacturers and sufficiently alleged that these interests were harmed by

Lexmark’s statements to the remanufacturers that Static Control was engaging in illegal

conduct. This is sufficient to state a claim under the Lanham Act. We therefore

REVERSE the district court’s dismissal of this claim and REMAND with instructions

to reinstate the Lanham Act claim.

VI. STATE-LAW COUNTERCLAIMS

The district court dismissed Static Control’s counterclaims for unfair competition

and false advertising under North Carolina law for lack of standing. Static Control

appeals and agrees that substantively the state law claims all “substantially mirror” the

federal claims. First Appellant Br. at 54.11

The parties dispute whether standing under the North Carolina Unfair Deceptive

Trade Practices Act (“NCUDTPA”), N.C. Gen. Stat. §§ 75-1, et seq., which is the statelaw equivalent of the Sherman, Clayton, and Lanham Acts, is identical to the standing

requirements of the federal acts. The district court held that North Carolina had not yet

decided the question, and applying “North Carolina’s general rule that federal case law

is persuasive and instructive in construing North Carolina’s own antitrust statutes,” the

district court dismissed the state-law counterclaims “for the same reasons that it

dismissed [Static Control’s] federal claims above.” R. 392 (D. Ct. Order 9/28/06 at 16).

Static Control disagrees that the North Carolina standard is the same.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 28

North Carolina has held that the AGC factors “do not apply in determining which

indirect purchasers have standing to sue under the North Carolina antitrust statutes.”

Teague v. Bayer AG, 671 S.E.2d 550, 557 (N.C. Ct. App. 2009). Static Control is a

supplier rather than an indirect purchaser, but Static Control argues that Teague supports

the general proposition that North Carolina antitrust standing diverges from federal

antitrust standing. Although ruling before Teague came down, the district court rejected

the relevance of a similar case upon which Teague relied—Hyde v. Abbott Labs., Inc.,

473 S.E.2d 680, 681-82 (N.C. Ct. App.), rev. denied, 344 N.C. 734 (1996)—precisely

because the present case did not involve an indirect purchaser. Teague does not state,

as Static Control suggests, that antitrust standing under North Carolina law is generally

more flexible than the equivalent federal law. We must therefore closely examine North

Carolina’s departure from federal law on the question of standing for indirect purchasers

to determine whether North Carolina would similarly depart on the question of standing

for suppliers.

In deciding to reject the federal test for standing for indirect purchasers, the

North Carolina Court of Appeals examined the standing landscape when the North

Carolina statute governing standing, N.C. Gen. Stat. §§ 75-16, was most recently

substantively amended in 1969. Hyde, 473 S.E.2d at 684-85 (citing Ill. Brick Co. v.

Illinois, 431 U.S. 720 (1977), and Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392

U.S. 481 (1968)). Because the amendments expanded the class of persons who could

recover under the Act to all consumers, and indirect purchasers were frequently

consumers, the court found it “unlikely” that the legislature intended to exclude indirect

purchasers as a class. Id. at 684. Although acknowledging federal law as “persuasive

authority” in interpreting North Carolina antitrust provisions, id. at 685, the court

observed that most federal circuits permitted suit by indirect purchasers in 1969 when

the amendments were passed. The Supreme Court’s decision in Illinois Brick that

indirect purchasers lacked standing to bring antitrust claims was not issued until 1977.

Id. at 683.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 29

Applying the same considerations to the circumstances at hand, we believe North

Carolina would grant standing to suppliers such as Static Control. Prior to 1969, the law,

at least in the Sixth Circuit, was that suppliers like Static Control lacked standing.

See Volasco Prods. Co. v. Lloyd A. Fry Roofing Co., 308 F.2d 383, 395 (6th Cir. 1962)

(“It is well established in the law that a supplier is too remote and too far removed from

the direct injury to recover damages resulting from violation of the anti-trust laws

directed against the supplier’s customer.”), cert. denied, 372 U.S. 907 (1963). However,

the Fourth Circuit had declined to say that no supplier could bring a claim and followed

what was previously known as the “target area” test for antitrust standing. S.C. Milk

Council of Milk Producers, Inc. v. Newton, 360 F.2d 414, 418 (4th Cir.), cert. denied,

385 U.S. 934 (1966). The “target area” test gave antitrust standing to anyone who was

within the zone of economic harm caused by the anticompetitive conduct whose harm

was proximately caused by such conduct. Id.

In ruling that indirect purchasers were not subject to the AGC factors, the court

in Teague emphasized the differences between cases involving indirect purchasers and

those, such as AGC itself, that did not. Teague, 671 S.E.2d at 556 (rejecting analogies

to AGC and other state cases applying AGC factors to state-law claims because they did

not involve indirect purchasers). However, the Hyde court independently rejected many

of the concerns identified in Illinois Brick (and later repeated in AGC) as simply

inapplicable to state-law antitrust statutes. Hyde, 473 S.E.2d at 687-88 (addressing

issues of multiple liability, incentives to sue, and complexity of damages). Because the

state of the law in 1969 in the Fourth Circuit appears more consistent with North

Carolina’s reasoning in Hyde than the Sixth Circuit’s position on supplier standing in

1969, we conclude that North Carolina would not apply the AGC factors to cases like

this one. As a result, Static Control’s counterclaims under state law were incorrectly

dismissed for lack of standing. We REVERSE and REMAND for further proceedings

on these claims.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 30

12Static Control is right that if a district court erroneously dismisses a legal claim otherwise

entitled to a jury determination, any subsequent findings of fact by the judge must be vacated and the claim

relitigated before a jury. Lytle v. Household Mfg., Inc., 494 U.S. 545, 552-53 (1990). That procedural

posture, however, is not present in this case. Nonetheless, when a party has the right to a jury

determination on an issue under the Seventh Amendment, there is ample precedent that an advisory jury

does not satisfy that requirement. See Parklane Hosiery Co. v. Shore, 439 U.S. 322, 337 n. 24 (1979)

(“[A]n advisory jury . . . would not in any event have been a Seventh Amendment jury.”).

VII. IMPACT OF JURY VERDICT ON REMAND

Because we have reinstated some of Lexmark’s counterclaims, Static Control

requests that we instruct the district court on remand to treat retroactively the advisory

jury’s findings that Lexmark misused its patents as binding jury findings. Lexmark

unsurprisingly objects to this. The Seventh Amendment provides that “no fact tried by

a jury, shall be otherwise reexamined in any Court of the United States.” U.S. CONST.

amend. VII. Static Control claims that presenting the reinstated antitrust claims now to

a binding jury would violate this prohibition because these issues were already presented

once to a jury, albeit an advisory one. Because those claims must be decided by a jury

if reinstated, Static Control suggests that the only remedy to this problem is retroactively

to call the advisory jury’s findings of fact binding, as opposed to proceeding with a new

trial before a new, binding jury.12

The differences between the defense of patent misuse and affirmative state-law

antitrust claims or a Lanham Act claim notwithstanding, we decline to deem an advisory

jury’s findings binding retroactively. See Hildebrand v. Bd. of Trs. of Mich. State Univ.,

607 F.2d 705, 710 (6th Cir. 1979) (“To convert a trial from a jury trial to a bench trial

(or vice-versa) in the middle of the proceedings is to interfere with counsel’s

presentation of their case and, quite possibly, to prejudice one side or the other.”);

Fischer Imaging Corp. v. Gen. Elec. Co., 187 F.3d 1165, 1174 (10th Cir. 1999)

(rejecting argument by claimant that advisory jury’s verdict should retroactively become

binding); Pradier v. Elespuru, 641 F.2d 808, 811 (9th Cir. 1981) (noting significant

tactical differences in litigating before an advisory jury). Although here the tactical

differences are minimal given that the change to an advisory jury occurred when the

district court gave the final jury instructions, we decline to speculate as to whether the

change in the jury’s instruction altered the jury’s analysis of the issue Static Control now
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 31

seeks to treat as binding. Cf. Romano v. Oklahoma, 512 U.S. 1, 8-9 (1994) (holding that

court may not “mislead the jury as to its role in the sentencing process in a way that

allows the jury to feel less responsible than it should for the sentencing decision.”)

(internal quotation marks omitted). We therefore decline Static Control’s request.

VIII. LEXMARK’S PATENT COUNTERCLAIMS

Lexmark counterclaimed in the 04 Action that Static Control induced the

remanufacturers to infringe several patents relating to Lexmark’s toner cartridges. At

trial, the jury determined that Lexmark had failed to meet its burden of showing direct

infringement by Static Control’s customers as a class and its burden of showing Static

Control induced infringement by the three named remanufacturers already held to be

direct infringers. Following the trial, Lexmark renewed a motion for judgment as a

matter of law and filed a motion for a new trial on whether the jury’s verdict was

unreasonable in light of the evidence of direct infringement by the class, which the

district court denied. Lexmark also sought a new trial on the issue of inducement after

the district court excluded questions at trial relating to the procurement of opinion-ofcounsel letters, which the district court also denied. Lexmark appeals these rulings, and

we affirm. Lexmark also appeals an earlier ruling by the district court on summary

judgment that Lexmark’s design patents were invalid as a matter of law, which we also

affirm.

A. Standards of Review

We review de novo a district court’s decision to deny a motion for a judgment

as a matter of law under Federal Rule of Civil Procedure 50. Mike’s Train House, Inc.

v. Lionel, L.L.C., 472 F.3d 398, 405 (6th Cir. 2006). A renewed motion for a judgment

as a matter of law following an adverse jury verdict “may only be granted if, when

viewing the evidence in a light most favorable to the non-moving party, giving that party

the benefit of all reasonable inferences . . . reasonable minds could come to but one

conclusion in favor of the moving party.” Barnes v. City of Cincinnati, 401 F.3d 729,

736 (6th Cir.), cert. denied, 546 U.S. 1003 (2005). Judgment as a matter of law is
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 32

appropriate only where there is no “legally sufficient evidentiary basis” for a reasonable

jury “to find for the [non-moving] party on that issue.” Fed. R. Civ. P. 50(a)(1). We

will not substitute our interpretation of the evidence for the jury’s, even if we would

have reached a different conclusion. Barnes, 401 F.3d at 738.

We review for abuse of discretion a district court’s decision to deny a motion for

a new trial under Federal Rule of Civil Procedure 59. Mike’s Train House, 472 F.3d at

405. A new trial is warranted after a jury verdict “for any reason for which a new trial

has heretofore been granted in an action at law in federal court.” Fed. R. Civ. P. 59(a).

We have previously held that a new trial is appropriate when the jury reaches a

“seriously erroneous result as evidenced by (1) the verdict being against the [clear]

weight of the evidence; (2) the damages being excessive; or (3) the trial being unfair to

the moving party in some fashion, i.e., the proceedings being influenced by prejudice or

bias.” Mike’s Train House, 472 F.3d at 405 (internal quotation marks and alterations

omitted) (quoting Holmes v. City of Massillon, 78 F.3d 1041, 1045-46 (6th Cir.), cert.

denied, 519 U.S. 935 (1996)); see also Barnes v. Owens-Corning Fiberglas Corp., 201

F.3d 815, 820 (6th Cir. 2000) (new trial appropriate only if “verdict is against the clear

weight of the evidence”). Lexmark’s argument relies on the first and third of these

potential errors.

We review de novo a district court’s grant of summary judgment. Int’l Union v.

Cummins, Inc., 434 F.3d 478, 483 (6th Cir. 2006). The moving party is entitled to

summary judgment when there is no genuine issue of material fact and the issue may be

resolved as a matter of law. Fed. R. Civ. P. 56(a). The evidence on summary judgment

must be construed in the light most favorable to the non-moving party. Matsushita,

475 U.S. at 587. When genuine issues of material fact remain, the proper course of

action is to submit such questions to the finder of fact.

B. Evidence of Direct Infringement by Static Control’s Customers as a Class

Lexmark argues on appeal that the evidence established as a matter of law that

Static Control’s customers as a class directly infringed Lexmark’s patents. Lexmark

seeks to overturn the jury’s verdict to the contrary. To establish a claim for patent
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 33

inducement under 35 U.S.C. § 271(b), Lexmark bore the burden of showing by a

preponderance of the evidence that (1) Static Control’s customers directly infringed

Lexmark’s patents; (2) Static Control took active steps that induced the customers’

infringement; (3) Static Control intended the customers to take the infringing acts; and

(4) Static Control knew or willfully disregarded the risk that those actions by its

customers would constitute direct infringement. See Global-Tech Appliances, Inc. v.

SEB S.A., 131 S. Ct. 2060, 2065-67 (2011). Patent infringement by a third-party is

therefore a necessary predicate to inducement to infringe.

A plaintiff can establish the first element of inducement to infringe either by

demonstrating “specific instances of direct infringement or a finding that the accused

products necessarily infringe.” Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301,

1322 (Fed. Cir. 2009), cert. denied, 130 S. Ct. 3324 (2010); see also Dynacore Holdings

Corp. v. U.S. Philips Corp., 363 F.3d 1263, 1275-76 (Fed. Cir. 2004) (citing Sony Corp.

of Am. v. Universal City Studios, Inc., 464 U.S. 417, 441 (1984)); 5DONALD S.CHISUM,

CHISUM ON PATENTS § 17.04[1] (2011). When the plaintiff can show only individual

instances of direct infringement, the plaintiff may recover only for the damages from

those individual acts. Dynacore, 363 F.3d at 1274. If the plaintiff can show an entire

class of customers necessarily infringed, damages can be sought more broadly across the

entire class. Id.

Direct patent infringement occurs under 35 U.S.C. § 271(a) when someone

“(1) without authority (2) makes, uses, offers to sell, sells, or imports (3) the patented

invention (4) within the United States, its territories, or its possessions (5) during the

term of the patent.” HERBERT F.SCHWARTZ &ROBERT J.GOLDMAN, PATENT LAW AND

PRACTICE 163-64 (6th ed. 2008); see also Global-Tech, 131 S. Ct. at 2065 n.2 (“Direct

infringement has long been understood to require no more than the unauthorized use of

a patented invention.”). Determining whether someone is making, using, or selling a

patented invention “requires a finding that the patent claim covers the alleged infringer’s

product or process,” Markman v. Westview Instruments, Inc., 517 U.S. 370, 374 (1996)

(internal quotation marks omitted). The determination that a patent’s claims cover a
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 34

specific device is often referred to as “literal infringement.” SCHWARTZ, supra, at 174.

Literal infringement alone is not enough to support a claim for inducement, because the

predicate to inducement is a violation of 35 U.S.C. § 271(a), which requires more than

that the accused devices literally infringe. For example, a party could not be liable for

inducing infringement if an accused device literally infringed a patent claim but the

literal infringer had authority to use the patent or a patent had otherwise expired, thereby

defeating a determination of direct patent infringement. See, e.g., Aro Mfg. Co. v.

Convertible Top Replacement Co., 377 U.S. 476, 483 (1964) (sustaining claim for

contributory infringement upon determining that user of patented item lacked

authorization, thereby directly infringing).

An accused device will necessarily infringe, permitting a finding of direct

infringement by a class of customers and an inference that the inducer intended the

infringement, if the “customers can only use the [defendant’s] products in an infringing

way.” Symantec Corp. v. Computer Assocs. Int’l, Inc., 522 F.3d 1279, 1293 (Fed. Cir.

2008) (reversing summary judgment on inducement because plaintiff did not need to

show specific instances of direct infringement when defendants’ product could not be

used in a non-infringing way); see also Metro-Goldwyn-Mayer Studios Inc. v. Grokster,

Ltd., 545 U.S. 913, 932 (2005) (“[W]here an article is good for nothing else but

infringement, there is no injustice in presuming or imputing an intent to infringe.”)

(internal quotation marks and citation omitted). When an accused device could be used

in either an infringing or a non-infringing way, a claim of direct infringement based on

necessary infringement fails and cannot sustain an inducement claim. ACCO Brands,

Inc. v. ABA Locks Mfr. Co., 501 F.3d 1307, 1313-14 (Fed. Cir. 2007) (reversing jury

verdict of inducement to infringe patented method because no evidence of direct

infringement and accused product could be used in either an infringing or a noninfringing way); CHISUM, supra, § 17.04[1].

Prior to the jury’s verdict, the district court granted summary judgment to

Lexmark on whether the three named remanufacturers—Wazana, NER, and

Pendl—directly infringed Lexmark’s nine valid mechanical patents. R. 1245 (D. Ct.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 35

Order 5/31/07) (holding direct infringement); R. 1008 (D. Ct. Order 4/24/07 at 48-49)

(holding mechanical patents valid). Lexmark had therefore established the necessary

predicate to inducement, but could recover only for those three remanufacturers’

infringement unless Lexmark could demonstrate that all of Static Control’s customers

as a class necessarily infringed. The question of direct infringement by Static Control’s

customers as a class was submitted to the jury, which held that Lexmark had failed to

meet its burden. R. 1366 (Special Verdict Form at 1). The district court denied

Lexmark’s renewed motion for a judgment as a matter of law and also Lexmark’s motion

for a new trial on this issue, finding that the evidence in support of Lexmark did not

compel a different result. The district court upheld the jury’s verdict because “[t]hough

Lexmark presented evidence of infringement by Static Control’s customers, that

evidence was not so overwhelming that reasonable people could come to but one

conclusion.” R. 1430 (D. Ct. Order 10/03/08 at 9).

Lexmark argues that the district court erroneously conflated the directinfringement inquiry, which Lexmark must establish, with the affirmative defense of

patent exhaustion, which Static Control must establish. Lexmark offered as

circumstantial evidence of infringement by the class the testimony of an expert

establishing that the toner cartridges remanufactured by Wazana, NER, and Pendl all

literally infringed the claims present in the nine mechanical patents. Although Lexmark

offered no testimony regarding specific cartridges from other remanufacturers, Static

Control has not argued or even suggested that the unidentified remanufacturers’

cartridges did not literally infringe at least some of the more than one hundred patent

claims that cover the original cartridges. Instead, Static Control argues that Lexmark

confuses literal infringement with direct infringement, and, as the district court held,

some of the toner cartridges could not sustain a claim for direct infringement because

they were sold domestically first, thereby exhausting Lexmark’s patent rights. Third

Appellant Br. at 40-41. Lexmark has conceded that its patent rights were exhausted in

the non-Prebate cartridges sold first in the United States and certain cartridges sold to

IBM customers.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 36

13The jury instructions later also define exhaustion as Static Control’s burden, using the exact

same categories of cartridges the jury was previously instructed did not “directly infringe.” R. 1365

(Jury Instructions at 25-26).

Part of the problem here is that the jury instructions never defined what it means

for a party to “directly infringe” a patent. Lexmark maintains that when the jury was

asked to decide whether Static Control’s customers as a class “directly infringed,” the

question must have related solely to whether the remanufactured toner cartridges as a

class literally infringed, because Static Control’s sole arguments against direct

infringement related to patent exhaustion, which was delineated as a separate question

on the jury’s special-verdict form. R. 1366 (Special Verdict Form at 1, 4). Lexmark is

theoretically correct—exhaustion of a patentee’s rights is a defense to direct

infringement and is not the same as establishing a non-infringing use of a patented

device, which would defeat a finding that Static Control’s customers necessarily

infringed the patents. However, this distinction was never clearly made to the jury.

Lexmark’s claim fails upon closer examination of the jury’s instructions. The

jury instructions explicitly suggested that patent exhaustion would defeat a finding of

“direct” infringement, as opposed to operating only as a defense following a showing of

direct infringement:

I instruct you that there are at least two kinds of uses of microchips made

by Static Control that are lawful and do not directly infringe any

Lexmark patent. . . . The first non-infringing use of Static Control’s

microchips is in the remanufacture of Non-Prebate Lexmark cartridges

that were first sold by Lexmark in the United States. Static Control has

no liability for active inducement of infringement when its microchips

are used in those cartridges because those cartridges may be lawfully

remanufactured by anyone without directly infringing any patent rights

of Lexmark.

R. 1365 (Jury Instructions at 18) (emphasis added). The district court then gave the

same instruction with respect to the IBM cartridges. Although Lexmark is correct that

exhaustion should be an affirmative defense,13 at no point did Lexmark object to the

district court’s statement that exhausted cartridges could not “directly infringe”

Lexmark’s patents. See R. 1119 (Lexmark’s Objections to Proposed Jury Instructions);
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 37

R. 1171 (Jury Instructions Hr’g Tr.); R. 1361 (Joint Proposed Corrections to Final

Instructions).

Jurors are presumed to be “diligent in following the precise instructions given to

them.” United States v. Tosh, 330 F.3d 836, 842 (6th Cir. 2003). The evidence

presented by Lexmark was not so strong as to prevent a reasonable juror from

concluding that some members of the class remanufactured cartridges in a non-infringing

manner, as defined by the district court. With two categories of cartridges that

categorically did not “directly infringe,” according to the jury instructions, the jury

reasonably could have concluded Lexmark had not met its burden of showing that the

remanufacturers as a class “necessarily infringed” Lexmark’s patents by remanufacturing

exhausted cartridges. See ACCO Brands, 501 F.3d at 1313 (“Because the accused

device can be used at any given time in a noninfringing manner, the accused device does

not necessarily infringe the [plaintiff’s] patent.”). Nor was Lexmark’s circumstantial

evidence of literal infringement sufficient to compel a conclusion that all of Static

Control’s customers literally infringed, even if this were an appropriate inquiry.

Lexmark’s own expert, Dr. Reinholtz, stated that he examined remanufactured cartridges

from only the three named companies and did not know if other companies’

remanufactured cartridges literally infringed. R. 1216 (Trial Tr. 5/25/07 at 42-43).

Although this may have been sufficient circumstantial evidence to sustain a jury verdict

of infringement, the evidence certainly does not compel one. As a result, Lexmark was

not entitled to judgment as a matter of law or a new trial on the issue of whether Static

Control’s customers directly infringed as a class. Barnes, 401 F. 3d at 736 (holding

post-trial judgment as a matter of law improper unless “reasonable minds could come

to but one conclusion in favor of the moving party”); Owens-Corning, 201 F.3d at 821

(holding new trial improper “if a reasonable juror could have reached the challenged

verdict”).

C. Excluded Evidence Relating to Intent to Induce Infringement

Lexmark claims that it was entitled to a new trial on the issue of inducement of

the three direct infringers because the district court erroneously excluded certain
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 38

14Lexmark suggests on appeal that the entirety of the jury’s verdict on inducement was

“unreasonable and against the weight of the evidence.” Second Appellee Br. at 32. This argument,

however, is briefed in the context of the excluded opinion-of-counsel letter and only further elaborated

upon in Reply. Despite Lexmark’s apparent waiver of this issue, the merits of the sufficiency-of-theevidence argument is discussed herein due to its relevance to the opinion-of-counsel issue.

15Static Control’s general counsel had previously obtained a legal opinion letter regarding the

illegality of Lexmark’s Prebate program under principles of property and contract law. Static Control

provided this letter to its customers as assurance that “Prebate does not create any legal barrier to the

purchase and reuse by others of ‘prebate’ cartridges.” J.A. at 1280 (Letter from Static Control). The letter

from counsel stated that it “does not deal with the application of either patent law or antitrust law” to

Lexmark’s Prebate program. However, despite this assertion, the letter includes a short paragraph stating

that counsel “see[s] nothing in either area of [patent or antitrust] law that would raise any questions about

my conclusion [and] there are doctrines in both areas of law that might well prevent the successful

adoption by any manufacturer” of a program to prevent reuse of toner cartridges. Id. at 1286.

questions relating to opinion-of-counsel letters at trial, rendering the proceedings unfair.

We review for abuse of discretion.14

At trial, Lexmark was not allowed to ask Static Control’s CEO explicitly whether

Static Control had ever obtained a legal opinion regarding potential patent or antitrust

violat ions. R. 1269 (Trial Tr. at 108-09). Static Control objected to the presentation of

evidence relating to Static Control’s failure to obtain advice of counsel, even though

Static Control had made available to third parties advice of counsel on the issue of

whether Prebate violated contract law.15 R. 1269 (Trial Tr. 06/04/07 at 108-09). The

district court agreed and instructed the witness not to answer. Lexmark claims that it

was “manifestly unfair” to permit the CEO to testify regarding the procurement of

exculpatory advice from counsel but not permit Lexmark “to identify failures to procure

such advice as circumstantial evidence of intent to infringe.” Second Appellee Br. at 34

(quoting Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683, 699 (Fed. Cir. 2008)).

Lexmark’s argument on appeal relies heavily on Broadcom, 543 F.3d 683, a

Federal Circuit case issued after trial but before the district court ruled on Lexmark’s

motion. Broadcom held that “[i]t would be manifestly unfair to allow

opinion-of-counsel evidence to serve an exculpatory function . . . and yet not permit

patentees to identify failures to procure such advice as circumstantial evidence of intent

to infringe.” Broadcom, 543 F.3d at 699. Although Broadcom appears to support

Lexmark’s position, the district court ruled against Lexmark, see R. 1521 (D. Ct. Op. &

Order at 16-19), after reading Broadcom in the context of the Federal Circuit’s prior
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 39

ruling in Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp., 383 F.3d

1337 (Fed. Cir. 2004) (en banc), which held that it would be “inappropriate to draw a[n]

. . . adverse inference from failure to consult counsel” when an accused infringer was

under no obligation in the first place to obtain advice of counsel on whether it was

infringing. Id. at 1345.

We need not decide whether a party’s failure to obtain an opinion-of-counsel

letter may ever constitute circumstantial evidence of the requisite intent to induce

infringement. Even if we assume that this evidence was wrongly excluded, the best-case

scenario for Lexmark—a negative answer to the forbidden question—would not have

changed the jury’s verdict on this issue.

Lexmark bore the burden of establishing by a preponderance of the evidence that

Static Control had the requisite intent to induce infringement. The Supreme Court has

recently clarified that this means that the alleged inducer must intend the customers to

take the acts that ultimately constituted infringement and the inducer must know or

willfully disregard the risk that those actions by its customers would constitute direct

infringement. See Global-Tech, 131 S. Ct. at 2065. By way of analogy, the Supreme

Court compared a used-car salesman who encouraged a customer to buy a car that later

turned out to be damaged to a used-car salesman who encouraged a customer to buy a

car knowing it was damaged; we fault the latter more than the former.

Lexmark correctly explains that “advertising infringing uses, instructing how to

engage in infringing uses, demonstrating infringing uses, and recommending infringing

uses is strong evidence of specific intent to cause the actions that constitute direct

infringement.” Second Appellee Br. at 31 (citing Grokster, 545 U.S. at 936). But, given

the jury instructions that delineated certain cartridges as non-infringing, Lexmark’s

evidence needed to show that Static Control advertised, instructed, or otherwise

recommended the remanufacture of infringing cartridges, which at the time of trial were

the Prebate cartridges and the cartridges first sold outside the United States. Lexmark’s

proof, however, is not compelling enough for us to find that the district court abused its

discretion in upholding the jury verdict.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 40

16North Carolina passed a law in October 2003 that Static Control believed made Prebate

restrictions unenforceable in North Carolina. The jury was instructed that these cartridges could not

infringe. R. 1365 (Jury Instructions at 19).

Lexmark argues that it presented specific evidence demonstrating that Static

Control encouraged and instructed remanufacturers to remanufacture Prebate cartridges

and cartridges first sold overseas, the two categories not deemed “non-infringing” at

trial. But the testimony primarily indicated that Static Control encouraged and instructed

its customers to remanufacture cartridges generally and such instructions did not

distinguish between foreign or domestic-sold cartridges or Prebate cartridges. See, e.g.,

R. 1242 (Trial Tr. 5/30/07 at 37-38) (testimony from Static Control that instructions

would enable remanufacture of cartridges, including Prebate); id. at 121-22 (testimony

from NER that Static Control did not differentiate between Prebate and non-Prebate at

tradeshows). However, Static Control offered testimony that its instructions contained

explicit warnings not to use the Static Control chips on Prebate cartridges unless they

were first sold in North Carolina after October 1, 2003,16 and not for resale in the United

States. See, e.g., J.A. at 657 (Instructions for Replacement Chip). And employees of

Static Control were under strict instructions to repeat those conditions to any customer

who called to inquire about the microchips. R. 1285 (Trial Tr. 6/6/07 at 88-89).

Although Lexmark offered testimony that there was simply no way for a remanufacturer

to distinguish between a foreign-sold cartridge and a United States cartridge just by

looking at the cartridge, id. at 155, Static Control offered testimony that the

remanufacturers could determine origin by inquiring at the time of acquisition, id. at 88.

The jury was best situated to weigh the competing evidence and determine whether

Static Control had the requisite intent to induce the infringing acts. The evidence offered

by Lexmark may have been sufficient to sustain a jury finding of inducement; however,

this evidence certainly does not compel such a finding when the jury has rejected it.

The excluded question during Static Control’s CEO’s testimony does not change

this calculus. Lexmark inflates the significance of the exclusion. Static Control’s CEO

was asked if he “ever had an outside patent attorney . . . give you advice on the issue of

single-use patent licenses,” to which the CEO responded in the negative. R. 1269
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 41

(Trial Tr. 6/4/07 at 94). He was then asked explicitly whether he sought out legal

counsel relating to Prebate, and the CEO answered affirmatively that he “sought advice

about prebate cartridges that had been either put into the landfill or were on the way to

the landfill.” Id. at 95. When asked if that was all he sought advice on, he

unequivocally said “Yes.” Id. It was only when counsel later asked specifically whether

Static Control sought advice relating to patent or antitrust law that Static Control

objected and the district court instructed the witness not to answer. Id. 108-09. And

despite this exclusion in the CEO’s testimony, Static Control’s general counsel was

asked about and specifically discussed concerns over patent-law issues, including

whether or not Static Control’s actions could constitute inducement to infringe. R. 1242

(Trial Tr. 5/30/07 at 249-50, 263-65, 272-73).

Lexmark bore the burden of establishing Static Control’s knowledge or willful

blindness to the underlying infringing acts. Based on the related evidence already on the

record, we cannot conclude that the jury would have reached a different conclusion had

the jury been told that Static Control failed to obtain an opinion-of-counsel letter

specifically on issues of patent law. The exclusion of this potential evidence was

harmless in light of the other elements that Lexmark failed to establish by a

preponderance of the evidence. See Bridgeport Music, Inc. v. Justin Combs Publ’g,

507 F.3d 470, 481 (6th Cir. 2007), cert. denied, 555 U.S. 818 (2008).

D. Exhaustion of Prebate Cartridges

Lexmark also challenges the district court’s post-trial ruling holding that

Lexmark’s sale of Prebate cartridges exhausted its patent rights in their cartridges. The

relief Lexmark seeks on this issue, however, is unclear. Whether the Prebate agreement

prevented the exhaustion of Lexmark’s patent rights as a matter of law does not change

the outcome of the jury trial, because at the time of trial the district court had ruled

favorably to Lexmark that Prebate cartridges prevented exhaustion. R. 1008 (D. Ct.

Order 4/24/07). Thus, unlike the non-Prebate cartridges sold in the United States and

the IBM cartridges, the jury was never instructed that Prebate cartridges could not serve

the basis for direct infringement by Static Control’s customers as a class. Nor does the
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 42

question of exhaustion bear in any way on the jury’s verdict that Static Control did not

induce the direct infringement by Wazana, Pendl, and NER. We therefore decline to

resolve this extremely complex and unsettled question, because it would have no

relevance to the outcome of this appeal.

E. Design-Patent Invalidity

The district court held on summary judgment that two of Lexmark’s design

patents relating to the appearance of its toner cartridges—D399,249 and

D458,300—were invalid. R. 1008 (D. Ct. Order 4/24/07). Patent invalidity is a defense

to a claim for patent infringement. 35 U.S.C. § 282. As a result of this ruling, the issue

of whether any party directly infringed Lexmark’s design patents or induced someone

else to infringe was never decided. Lexmark appeals, and we affirm.

All patents are presumed valid, and the burden of overcoming this presumption

rests on the party seeking invalidity. 35 U.S.C. § 282; Campbell v. Spectrum Automation

Co., 513 F.2d 932, 935-36 (6th Cir. 1975). Invalidity must be established by clear and

convincing evidence. Microsoft Corp. v. i4i Ltd. P’ship, 131 S. Ct. 2238, 2243 (2011).

Patent validity is a question of law. Schnadig Corp. v. Gaines Mfg. Co., 494 F.2d 383,

387-88 (6th Cir. 1974). However, where legal analysis rests on factual findings, we will

not reverse such findings absent clear error. Id. at 388.

Design patents are issued to whoever “invents any new, original and ornamental

design for an article of manufacture.” 35 U.S.C. § 171; Schnadig, 494 F.2d at 387 (“To

be patentable a design must be new, original, ornamental and nonobvious.”). A design

patent is not ornamental if the design serves only functional purposes. In other words,

“[a] design patent cannot be obtained to protect a mechanical function or cover an article

whose configuration affects its utility alone.” Kwik-Site Corp. v. Clear View Mfg. Co.,

758 F.2d 167, 171 (6th Cir. 1985) (internal quotation marks and emphasis omitted)

(holding design patent for rifle scope mount invalid because configuration served solely

functional purposes); Fuji Kogyo Co. v. Pacific Bay Int’l, Inc., 461 F.3d 675, 683

(6th Cir. 2006) (“[I]f the particular design is essential to the use of the article, it can not

be the subject of a design patent.”) (internal quotation marks omitted), cert. denied,
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 43

549 U.S. 1252 (2007). An article is less likely to be ornamental if it is not observed, and

the Federal Circuit looks not just to whether the article is ever seen but whether the

appearance of the article may become a “matter of concern” at any point during the

article’s “normal and intended use.” In re Webb, 916 F.2d 1553, 1558 (Fed. Cir. 1990)

(holding design of hip implants could be patented because even though not seen during

normal use the “design[ was] clearly intended to be noticed during the process of sale.”).

The district court held that Lexmark’s design patents were invalid because the

design of Lexmark’s toner cartridges was primarily functional and “the appearance of

Lexmark’s printer cartridges in question are [sic] of no matter of concern during those

cartridges’ entire existence.” R. 1008 (D. Ct. Order 4/24/07 at 10-11). The design of

the cartridges was primarily functional because the design of the printer dictated the

exact design of the cartridge. Id. at 13-14 (citing Best Lock Corp. v. Ilco Unican Corp.,

94 F.3d 1563, 1566 (Fed. Cir. 1996) (holding design of key not patentable because

dictated by function, i.e., the design of the corresponding lock)). And even though the

cartridges may be seen at some point during their lifetime, at no point was their

appearance a matter of concern to the end-user. Id. at 11 (citing In re Stevens, 173 F.2d

1015, 1019-20 (C.C.P.A. 1949)).

Lexmark claims that the district court improperly shifted the burden of proof onto

Lexmark to show validity and improperly credited disputed issues of fact in Static

Control’s favor. Lexmark does not dispute the general proposition that to establish

invalidity, the infringer must show “that consumers do not consider [the patented design]

to be significant.” Second Appellee Br. at 36 (quoting Int’l Seaway Trading Corp. v.

Walgreens Corp., 589 F.3d 1233, 1242 (Fed. Cir. 2009)). Lexmark objects to the lack

of survey evidence showing consumers do not consider Lexmark’s cartridge appearance

to be a matter of concern and argues that the district court ignored the presence of

photographs of the cartridges on the website where the cartridges were sold and on the

cartridge boxes. Lexmark argues that this determination is an issue of fact subject to

genuine dispute and therefore inappropriate on summary judgment.
Nos. 09-6287/6288/6449 Static Control v. Lexmark Int’l Page 44

17Lexmark relies heavily on the district court’s statement that “Lexmark fail[ed] to set forth any

evidence,” R. 1008 (D. Ct. Order 4/24/07 at 15). The district court recited at length Static Control’s burden

and applied it to the facts. Id. at 9-15. The district court appears to have been emphasizing that Lexmark’s

suggestion that there were open issues of fact was unsupported by any actual evidence.

The district court applied the correct standard and evaluated the undisputed facts

offered by Static Control establishing that the design of the cartridges was functional and

not ornamental.17 The toner cartridges are visible to users at some points, but are

generally hidden from view inside the printer. Their design is dictated solely by the

printer with which they are compatible. Lexmark itself explained that the advertisements

containing photographs were primarily to assist the customer in selecting the cartridge

that was compatible with the printer they owned. R. 506 (Lexmark’s Opp. to Summ. J.

at 10). The cartridges’ appearance had no other role in the purchaser’s decision of which

cartridge to purchase. “[T]he purpose of the statute is to give encouragement to the

decorative arts. It contemplates not so much utility as appearance.” Cavu Clothes, Inc.

v. Squires, Inc., 184 F.2d 30, 32 (6th Cir. 1950) (citing Gorham Mfg. Co. v. White, 81

U.S. 511, 524 (1871)).

On appeal, Lexmark does not attempt to dispute any of these material facts,

arguing instead that Static Control should have presented more evidence, such as

consumer surveys, and suggesting that the presence of photographs of the product should

be enough to create a dispute over whether appearance matters. Second Appellee Br. at

36-37. Although we make all inferences in favor of Lexmark on this issue, Static

Control has demonstrated by undisputed clear and convincing evidence that the design

patents were invalid. Lexmark has not pointed to any genuine fact disputes that would

undermine this conclusion. We therefore AFFIRM the district court’s holding that

Lexmark’s design patents are invalid.

IX. CONCLUSION

For the aforementioned reasons, we AFFIRM the district court on all claims

except the dismissal of some of Static Control’s counterclaims under the Lanham Act

and North Carolina state law, which we REVERSE and REMAND for further

proceedings consistent with this opinion.