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 user 2009-06-02 at 12:15:41 pm Views: 52
  • #22064
    HP Gets Tough on Ink Counterfeiters
    With ink profits drying up, the tech giant is making anti-piracy efforts a top priority
    in 2007, the owner of a North Carolina company that resells
    Hewlett-Packard (HPQ) printer supplies says her firm’s phones were
    ringing non-stop. Customers were irate about defective HP ink
    cartridges purchased from her firm. Several big corporate customers
    told her they spent days cleaning up leaky ink. The buyer for one local
    municipality was so furious about damage to the city’s printers that he
    canceled his contract.

    She began to worry: Perhaps the $40,000
    in ink cartridges her company had purchased at a 10% discount from an
    Internet supplier were fakes. When she called HP, the company advised
    her to check security seals on the boxes containing the ink. They were
    identical to other packaging in her warehouse. Then one of HP’s ink
    detectives knocked on her door. Part of a little-known group that roves
    the globe to track down counterfeits, the man confirmed her fears. “We
    were duped,” says the woman, who asked not to be identified for fear of
    losing other customers. “We found out the hard way that counterfeiters
    are putting more into making the boxes than they are into the actual

    Combating counterfeit ink has become a major priority
    for HP CEO Mark V. Hurd. Analysts estimate the Palo Alto (Calif.)-based
    company’s imaging and printing group lost more than $1 billion in
    revenue to illegal counterfeits last year. And the company is concerned
    that shoddy products will do even more damage to its reputation.
    “Counterfeit cartridges hurt HP’s business,” says Hurd. “More
    importantly, they hurt our customers, who are not getting what they
    think they are paying for.”

    The revenue drain comes as HP’s
    printing business, once so lucrative it delivered nearly 60% of the
    company’s operating profit, has fallen on hard times. Sales have
    tumbled 21% this year, to $11.9 billion, while profits have slumped. At
    the same time, HP is struggling with the recession in its other
    businesses, and its stock is off 5% this year.

    HP isn’t alone in
    losing out to counterfeit ink. The entire industry missed out on an
    estimated $3 billion in sales last year to counterfeits, according to
    market researcher IDC. Counterfeit ink has become a growth business in
    part because of printer makers’ business model. HP and other
    manufacturers sell printers on the cheap and make virtually all their
    profits on ink and other supplies. But many customers wince at the cost
    of replacement ink, which can sell for the equivalent of $8,000 a
    gallon. Some consciously take their chances on lower-cost counterfeits,
    since quality can be decent. Others buy counterfeit ink without knowing
    it.The Internet has made it easier for people around the world to buy
    and sell illicit products of all types. The International Chamber of
    Commerce estimates counterfeiting cost businesses about $600 billion in
    2007, or roughly 6% of global trade. Some 10% of tech products sold
    globally are counterfeit, according to a study by KPMG and the tech
    trade group Alliance for Gray Market and Counterfeit Abatement.
    “Counterfeiting is one of the most significant threats to the free
    market,” wrote KPMG partner Richard Girgenti in the study.For years, HP
    could afford to ignore the problem. The worldwide ink market grew from
    $11 billion a decade ago to about $45 billion last year. And the profit
    margins on replacement ink ran as high as 60%. Counterfeits were an
    annoying problem, but HP spent more energy trying to thwart companies
    that made legal, low-cost alternative inks that were compatible with
    its printers. Counterfeit ink was so low a priority that earlier in the
    decade HP dropped out of the Imaging Supplies Coalition, the industry
    trade group that publicizes the issue and counts Canon , Xerox , and
    Toshiba  as members.

    Times have changed,
    however, and HP rejoined the group in March. As financial firms go bust
    and thousands of workers lose their jobs, people are printing fewer
    pages—and using less ink. IDC predicts the number of printed pages will
    decline for the first time this year, to 1.47 trillion pages, from 1.5
    trillion in 2008. At the same time, counterfeiting has grown to the
    point that one in 20 ink cartridges sitting on store shelves globally
    is suspected of being fake. Now HP, Samsung, and others are hiring
    teams of private investigators and setting up forensic labs around the
    world to analyze suspect ink and packaging. They take their findings to
    law enforcement to help nab big distributors of counterfeit ink
    supplies. “Stemming the flow of counterfeits has become an absolute
    priority,” says IDC analyst Jake Wang.

    In the North Carolina
    case, HP’s Anti-Counterfeiting Force swung into action. Peter Hunt, the
    group’s Singapore-based director, dispatched one of his 12
    investigators to examine pallets of ink in the reseller’s warehouse.
    Then they worked with North Carolina authorities to set up a sting
    operation. Within weeks, a local man was charged with selling
    counterfeit HP, Samsung, and Canon toner and ink cartridges via his Web
    site. Some $60,000 in fake goods was seized. HP traced the origin of
    the ink to China, where it believes 80% of counterfeit ink originates.
    “The marching orders from the highest levels are this: Protect our
    brand and the enormous amount of R&D that has gone into creating
    our products,” Hunt says.

    HP scored its biggest antipiracy
    success in May 2007 in Foshan City, China. After tracking illicit
    supplies for more than six months, the company worked with Chinese
    police to raid 14 warehouses, seizing $88 million in equipment,
    supplies, and packaging materials from a variety of manufacturers. Two
    men were convicted this year and sent to jail.Ink counterfeiters have
    developed techniques to throw off investigators. One approach: They
    sell supplies only slightly below the usual cost, unlike knockoffs of,
    say, Rolex watches. The North Carolina reseller says that’s why she
    wasn’t concerned. “Who would think they’d be selling ink for a 500%
    markup?” she asks.