2011 Supply Market Battle Ground Recap: Clones, Patents and Color All Come On Strong The battle for market domination between the OEMs and the aftermarket rages on into its third decade. Cracking the color cartridge marketplace has shown to be a technical nightmare for the aftermarket, and it is now finally entering that marketplace with quality and zeal. A Case Study in Color Cartridges At La Recharge in Quebec, innovation in color cartridge remanufacturing landed the company $30,000, highly-sought business awards, and a mountain of media exposure that no amount of money could buy. First, La Recharge entered the Elan contest, which recognizes outstanding young members of the business community. The company that wins demonstrates that it has the best potential for growth because of its innovative business plan and the quality of the products it offers to its customers. The final night of the contest, the five finalists were chosen, and the contest was broadly covered by local media. When La Recharge won the contest, it gained a financial prize along with exposure of its products to an entire town. La Recharge also entered the 2011 IWEB Innovator of the Year Competition that is organized by the Chamber of Commerce for the Province of Quebec in Canada. This competition is held to highlight the most successful businesses in both the large and small cities throughout Quebec.  Of the thousands of businesses that qualify for this competition each year, only a few make it to the final round. La Recharge has been in business for many years and this was their first entry into this very prestigious and highly-competitive contest.  After many interviews and visits by the Chamber of Commerce Committee Member judges, La Recharge was selected as one of finalists. In the final competition, they were asked to set up a booth demonstrating what they do and how they have become successful.  They set up HP2600 and HP CP1518 color printers.  They displayed components to show all the parts they replace in their cartridges.  They had sets of their “Privileged Cartridges” and sets of OEM cartridges.  The judges evaluated prints from both printers and were astonished by the quality of the La Recharge cartridges as compared to the OEMs. The Judges had previously no idea what was involved in remanufacturing laser cartridges.  They were doubly impressed that a local company could transform a used cartridge headed to the local landfill into a cartridge that produced high-quality prints. La Recharge was awarded 1st place as the “Innovator of the Year” for 2011.  This also included more financial prizes and more media exposure. The owners of La Recharge, Martin Delarosbil and Isabelle Smith, were obviously elated with the outcome of the contests. “It’s wonderful to make it to the final five companies, but to win was so gratifying,” said Smith. “We studied the color process and determined the best way to assure quality was to replace all the components,” said Delarosbil.  “We worked closely with our supplier Static Control Components because quality was a key criterion for winning. And as a result, we impressed the judges.” This achievement has opened the flood gates to local companies wanting to do business with them and really bolstered their confidence in what they sell.  In fact they will be opening their 4th facility early next year. La Recharge is at the forefront of the industry for several smart reasons. First, they worked to develop high-quality products, and customers remain loyal to producers of quality products. Second, they chose to produce and promote color cartridges. The aftermarket has a staggeringly low proportion of the color cartridge marketplace. La Recharge has now positioned itself to be one of the first sources for aftermarket color cartridges in Canada, and it garnered free publicity to put that message out to the consumers. While monochrome cartridge sales are flat, color printer and cartridge sales are booming. The aftermarket will only continue to be successful when it commands a large percentage of this important market. Battle over the Clones: Epson, HP, Canon, Lexmark and Samsung go on the Offensive New-molded cartridges, or “clones,” are increasingly becoming a threat to the North American marketplace. And since they are priced predatorily, they are even more of a threat. The aftermarket could do little about the threat, because clones probably violate patents, but that intellectual property belongs to the OEMs, and it is theirs to defend. Luckily, they have done just that. Back in 2006, Epson filed an action alleging patent infringement in federal court and with the International Trade Commission against producers and distributors of some ink jet products. So far, Epson has prevailed quite mightily. The 24 companies targeted in ITC action will be saddled with US ITC fines up to $11 million per respondent and massive civil liability. It has also scored general and limited exclusion orders, which will keep the ink jet products out of the country. Hewlett-Packard followed Epson’s lead in September 2009. It filed a complaint with the International Trade Commission against 11 ink jet manufacturers and distributors. The respondents are seven Asian and four U.S. companies. At issue are four patents pertaining to HP’s ink jet technology that HP claims have been infringed. HP is seeking an investigation, and if the outcome leads to a determination of infringement, it seeks general or limited exclusion orders, as well as cease and desist orders. On the same day, HP filed a civil suit for patent infringement in a U.S. District Court in California against the same 11 companies. The suit seeks a finding of patent validity, patent infringement, injunctive relief and damages for infringement, including treble (triple) damages for willful infringement. In May, HP added additional defendants and causes of action to its patent-protection party. Only ink jet cartridges are the subject of these actions, leaving aftermarket members wondering when HP might take action against the toner cartridge clone producers. The patents for electrophotographic technology are actually Canon’s, and licensed to HP. On June 29, 2010, the industry got its answer. Canon filed a lawsuit in New York against 20 defendants for infringement of two patents. Canon has filed a complaint with the U.S. ITC as well, seeking to block the importation of the cartridges. At issue is “a projection at the end of the drum that enables a …detachable coupling” between the cartridge and the printer. Canon’s lawsuit mentions both the cartridge and the drums inside. In May, Canon filed a complaint with the Korean Trade Commission against five Korean drum manufacturers for patent infringement. A large percentage of drums come from Korea. This raises concerns about replacement parts and their costs. And recently Samsung filed against TNIRP over chips: the infringement relates to the newly released CLP-310 and CLP-315 Samsung toner chips, as TNIRP is the only company it is aware of that currently supplies them. In August 2010, Lexmark International filed a patent infringement complaint with the United States ITC against 24 companies engaged in the manufacture, importation and sale of replacement Lexmark cartridges. The complaint alleges that these replacement cartridges infringe at least 15 U.S. patents owned by Lexmark. Lexmark is requesting that the ITC issue a general exclusion order banning the importation and sale of patent infringing laser cartridges by any entity. In addition to the ITC complaint, Lexmark has also filed a related patent infringement complaint in the U.S. District Court for the Southern District of Ohio against the same defendants. The District Court complaint contains allegations similar to those in the ITC complaint and seeks injunctive relief, monetary damages and attorneys’ fees. As this wealth of litigation plays out, the aftermarket will acquire valuable information as to what constitutes infringement of these popular cartridges. And, hopefully, protection from the insidious patent-infringing clones. So far in 2011, the litigation has been going decidedly in the favor of the OEMs. The Int’l ITC also voiced its concern about the clones. On July 7 2010, and upon invitation, the Int’l ITC filed a report with the U.S. I.T.C., entitled the Effect of Infringement of Intellectual Property Rights in China on the Toner and Inkjet Cartridge Remanufacturing Industry. In the report, the Int’l ITC pointed out the damaging effects to the imaging aftermarket caused by this unfair competition. The report specifically targeted the “new, compatible” cartridges that may violate the OEMs’ intellectual property, specifically its patents. “The aftermarket is in particular danger because of these products,” the report reads. “Remanufacturers must wait until the OEMs decide to take action, and the OEMs have not undertaken these actions swiftly. This is understandable as the offending Chinese companies take no risk of being punished in their own country.” The Int’l ITC filed the report after receiving a request and discussing the investigation with employees at the U.S. ITC, who were enthusiastic to learn more about our industry. The report also addressed the rights of OEMs and those of legitimate Chinese remanufacturers. “The Int’l ITC and its members respect the legitimate intellectual property rights of the OEMs. The Int’l ITC also has legitimate members that remanufacture in China, so not all Chinese producers are committing these violations.” The report also identified internet sales as an easy channel for the sale of these products, “as unscrupulous companies can easily and readily sell the offending cartridges anonymously and without concern for repercussions. Often our members have customers who direct them to such pages showing deeply discounted cartridges and are asked to match the price.” The Int’l ITC is also working with the Imaging Supplies Coalition to attack the problem. The ISC is a non-profit association of OEMs that exists to combat illegal counterfeits and their brethren. They seek information from our members about the following types of cartridges: About those new clones. The following cartridges are the target of the joint ISC and Int’l ITC investigation: • A new cartridge “clone” being sold as a new OEM cartridge • A remanufactured cartridge sold as a new OEM cartridge • A new OEM empty cartridge • A clone sold as a remanufactured cartridge • A cartridge that has “trade dress” issues, such as a cartridge that has been made to look like a new OEM. So 2011 was a year of some aggressive legal action in which, ironically, the aftermarket stood to benefit. The future promises more interesting litigation, and most stand to benefit legitimate members of the remanufacturing aftermarket. So between general exclusion orders against the clones and profitable increases in color remanufacturing, 2012 could be a banner year. Tricia Judge is the Executive Director of International Imaging Technology Council.