*NEWS*THE CARTRIDGE WARS (READ)

Rubbing Ink Into The Wound
For
the Epsons and Hewlett-Packards of the world, the so-called aftermarket
of replacement ink (and paper and other supplies) represents a shiny,
happy profit center. Total inkjet cartridge shipments will reach 1.5
billion units worldwide in 2006, including 514 million in North
America, according to Lyra Research. At an average of $20 a pop, that’s
a whopping 32 billion-dollar market.Until recently, manufacturers like
HP, Canon, and Epson have held an iron-fisted monopoly on ink
replacement, leaving consumers with little choice but to pay premium
prices for the privilege of printing.According to Mike Duffett,
director of CIG printer marketing for Canon USA, the high prices are
justified by the costs of research and development. “We spend a
significant portion of our overall dollars — over 10% of our revenue
— on R&D,” he explains. “It is very important to us that we give
consumers the best possible photos under a variety of conditions for a
very long time.”

Looking For Alternatives
But
where there’s a profit, there’s somebody to try to grab a piece of it.
In years past, a minority of consumers dead set on avoiding outrageous
prices resorted to desperate measures, including purchasing third-party
cartridges from online vendors. Another resource was the purchase and
use of hypodermic-style needles to draw and inject ink into empty
first-party cartridges.Many of these alternatives were so technically
difficult, inefficient, or defective that, with some notable
exceptions, they remained under the radar of printer manufacturers.
However, the last five years have seen the emergence of more mainstream
third-party ink resellers such as Cartridge World and Rhinotek. By
offering generic ink replacement at prices that cost as little as 30%
of brand-name supplies, these third-party ink resellers have generated
mass appeal with consumers who are sick of paying exorbitant prices for
ink. Recognizing this, even major retailers like Staples and even
Walgreens have begun to offer third-party ink as a more affordable
replacement option.Cartridge World is the best example of how
third-party resellers have profited handsomely off the growing demand
for lower-priced ink. Launched in 1999 in Australia, Cartridge World
offers ink cartridge refills at significant discounts over first-party
printer manufacturers. Over the past five years, the brand has
blossomed to the point where it accounts for over 50% of the entire ink
refill market. In 2004, the franchise was so strong in North America
that it opened an average of one franchise a day for the entire
year.This slice of the inkjet pie has experienced stellar growth over
the last five years. According to Lyra Research, third-party ink will
account for 31% of worldwide ink sales in 2006, with the North American
market accounting for 8% to 10% of worldwide third-party sales.By way
of comparison, estimated growth of the entire market of third-party and
first-party sales is pegged at about 7% a year for the next three
years. The third-party market, however, is expected to grow at double
this rate over the same time period. Hello, Lawsuit.Not surprisingly,
printer manufacturers have aggressively protected their perceived right
to be the exclusive purveyors of ink refills. A quick Google search on
printer ink lawsuits will turn up hundreds of results. So how in the
world have these resellers been able to even get into the market at
all?The most common method has been to avoid reverse engineering ink
cartridges in favor of simply refilling original ink cartridges with
generic ink and reselling or trading the refilled cartridges. But
although the Cartridge Worlds and Rhinoteks have been able to gain a
critical toe-hold in the market, numerous lawsuits have been filed by
the major printer manufacturers in repeated attempts to protect
copyrights. .    

Price Comparison
In
the last 12 months alone, Epson has sued ink manufacturer Madea for
patent infringement and, in a separate lawsuit, has gone after 27
companies—mostly Chinese manufacturers plus distributors. In October
2005, HP filed a public complaint stating that Cartridge World’s ink
utilizes a proprietary, HP-patented chemical formula found in its
Vivera inks. HP also asserted in June, 2006, that generic inks sold by
Walgreens and Office Max infringed upon proprietary patents.It’s
relatively easy for companies like Canon to identify patent
infringements at the chemical and mechanical level, says Forrest.
“There are some pretty complicated proprietary chemicals that the
first-party manufacturers have developed,” he explains, “such as
formulas that prevent inter-color bleed and chemicals that allow the
ink to quickly dry so it doesn’t smear. It’s fairly easy for
manufacturers like Canon and Epson to get the ink into their labs and
test it to make sure there’s no patent infringement.”The law is clear:
So long as no patent infringement exists, third-party resellers are
free to manufacture and move as much ink as they want. However,
considering that the Canons, Epsons, and HPs of the world each have
thousands of patents around formulas, cartridge designs, and print
heads, this is easier said than done.But based on the popularity and
success of other generic markets — such as pharmaceuticals — there
should be no doubt that inexpensive ink is here to stay. As long as
third-party ink manufacturers don’t infringe upon the printer
manufacturers’ proprietary patents, they are free from legal
concern.Great For The ConsumerWhen questioned, both Canon and Xerox go
out of their way to express respect for the third-party resellers. “As
long as our patents aren’t being infringed upon,” states Duffett, “it’s
great for the consumer.”John Laing, Xerox’ senior vice president for
the company’s Supplies Delivery Unit, echoes this sentiment. “Xerox
takes no issue with third parties that are able to manufacture quality
ink and toner that work seamlessly with our product line and don’t
infringe on our intellectual property,” he says. That’s not surprising.
In an ironic twist, Xerox itself participates in third-party sales,
developing toner cartridges for HP devices as part of its “It’s
Compatible” line.It’s also interesting to note that first-party
manufacturers seem to be simply warning off companies when they
perceive patent infringements rather than going straight to litigation.
One explanation is that chain retailers like Staples are beginning to
sell third-party ink alongside authentic products and printers. Printer
companies seem more reluctant to take full-scale legal action if it
could potentially affect their retail partners.But that doesn’t mean
that they won’t head for the courtroom if necessary. And since
third-party resellers such as Cartridge World and Staples often don’t
manufacturer their own ink — instead they buy it from other
manufacturers — there is now such a pervasive paranoia of lawsuits and
litigation that, according to Forrest, “All of the ink manufacturers
tell me that their customers are asking to be indemnified [against
legal action].” Quality Concerns There’s another reason to oppose
aftermarket ink, says John Laing, Xerox Supplies Delivery Unit vice
president. “Third-party ink and toner may not stack up to the original
vendor-developed products in terms of quality. Inferior supplies can
result in copy and print quality issues, downtime, service issues and
general poor printer or MFP performance,” he says.That’s a valid
concern in some cases, but third-party inks and cartridges are adequate
for most printing application, explains Forrest. “When I get asked
about the quality levels of third-party inks, I tell people that 95% of
what I print ends up in the waste basket anyway.”
But it’s a
different story for photographs. “They’re typically fine, but a lot of
times they won’t last as long,” he admits. “I have a window that faces
the sun. Every now I’ll print something with third-party ink and place
it in the sun. Some of this aftermarket stuff is faded in two
days.”Interestingly, when you begin to compare ink costs with regards
to “real” photo processing, cost turns out to be a wash. Processed
photos range from 30 to 70 cents per print, while inkjet photographs
tend to range from 25 to 50 cents using first-party ink.