Counterfeit Cartridges: Opportunity or Civil War For The

Aftermarket Industry

December 6th, 2012

Who we are…

Ian Elliott, President,

Print-Rite N.A. Inc.,

• Extensive domestic and

international industry

experience

• CEO at a reverse logistics &

asset value preservation

company

• Executive level

management for Business

Development, Strategy,

Business Planning, New

Product Development

and Sales Strategy

Print-Rite North America

• Wide range of imaging

products (over

2,500 SKUs) from a world-

class manufacturer

• Technology innovations

while focusing on

intellectual property rights

• 30 year history in the

imaging industry with a

strong capital structure

• 2,000 patents issued or

applied for globally within

the printer consumables

arena

BEFORE WE GET STARTED…

We strongly recommend you attempt to

broaden your intellectual property

knowledge if you plan to continue

operating in the

aftermarket

imaging Industry.

Counterfeit cartridges = civil war

Why should the current fervor over

intellectual property, patents,

International Trade Commission

actions and counterfeit cartridges be a

concern to you today?

You have two possible approaches:

Ignore

Ignoring the legal issues does not mitigate your

responsibility to your company and your customers.

Become informed

The link between intellectual

property and imaging supplies is

becoming more important every day.

The temptation to adopt an “ignore”

strategy C

urr

en

t m

arke

t co

nd

itio

ns Flat economy

Declining printer consumables demand

Weak business outlook

Declining revenue and profits

Core constraints and inconsistent supply

Salv

atio

n

Compatible cartridges

No supply constraints

Blind drop-ship

Low cost – restore revenue growth and

How did we get here?

• Flat sales of imaging supplies combined with a decrease in HP market share, has led HP/Canon to become increasingly protective of their “revenue pie”

• Our industry has seen this previously with Epson on inkjet patents, Lexmark on cartridge chips and prebate programs, and now Canon (HP) on drum gears

• When sales flatten or decrease, as they are with Canon (HP), the strategy changes from growing revenue to maximizing profits.

– Translation: HP didn’t care so much about the aftermarket when revenue was increasing. Today the aftermarket share is a primary focus.

What is the “civil war” we refer to?

• In our opinion – Canon’s two gear patents are

the tip of the iceberg

• It’s not just HP anymore: the aftermarket is now

offering compatibles for Xerox, Brother, Dell,

Samsung, OKI, etc.

• HP compatibles – why doesn’t Canon act?

– We know counterfeits are taking market share,

but from whom: the OEM or the remanufacturer?

– Resale of counterfeits: the OEMs are watching

our industry destroy itself

• New litigation is only a matter of time

CONCLUSION #1

• The aftermarket continues to face a

relentless battle with the OEMs

• There is an aftermarket segment that is

adopting an “ignore” strategy through sale

of counterfeit cartridges. This is directly

weakening the aftermarket industry

• The aftermarket is at war with itself

Toner decisions: the past

• Traditionally, you’ve made your toner vendor

decisions based upon the BIG 3:

Quality Price Availability

Toner decisions: new considerations

• If you want consistency and continuity for your

laser toner supplies, beyond the BIG 3, you must

now consider:

Intellectual Property

Technical Manufacturing

Process

Market Dynamics

Logistics

Toner decisions: the present

• The BIG 3 considerations still ring true today, but

your evaluation needs to be deeper with your

toner vendor

• New market factors and a changing legal

landscape affect the aftermarket supplies

strategy and game plan

It’s time for an aftermarket deep dive

Remanufactured Vs.

Compatible

&

Intellectual Property 101

Remanufactured vs. compatible 101

• We refer to remanufactured products as

compatible products to our customers, yet, in the

industry, we know there is a difference

Remanufacturing: starts with an

empty core

Compatibles: 100% new - built

new from the ground up

Remanufactured vs. compatible

• Why has our industry had such a

low “compatible” adoption rate

while other industries have wide

adoption?

• The business case: Resellers

need to embrace compatibles to

increase revenue and profit

• However, the reality (as some

know full well) manufacturing a

legitimate compatible is not easy

– engineering and IP/patent issues

– Capital expenditures

– Research & Development

Remanufactured vs. Compatible

Why so much fuss about a little drum

gear?

• The current battlefield of IP has surrounded “twisted gears”

– 59 of 64 complaints since 2009 Canon has made for

patent infringement have involved twisted gears

– 40 of the 59 have been settled with admissions of guilt

& validity

• Why has Canon focused on these patents? You’d need to ask

Canon, but…

– The patents are VERY strong; have survived USPO

reexamination & litigation

– Building cases for infringement is expensive for Canon to

do

• Stand out efforts have been made by a few aftermarket

manufacturers to invent their own gear technology

CONCLUSION #2

• In the case of the twisted gear patents,

partners that are “IP informed” will protect

their customers from legal expenses and

potential business disruptions.

Business issues that have resulted

in IP related issues for our industry

IP ISSUES

HPs loss of market share

Core constraint Larger

manufacturers = better resources

MPS

CONCLUSION #3

• OEMs defend against compatibles with IP.

• When only remanufacturing (repair!) was a

concern, OEMs used marketing and

technological barriers as the primary

defense.

Good news… and, bad news

The good news:

• The aftermarket has

expanded. You now

have options beyond

remanufactured HP

products. In most

cases your margin

improves when you

provide aftermarket in

place of OEM.

The bad news:

• Not all manufacturers

providing aftermarket

compatibles may be

respecting third party

IP. Those who may

not be, may not know

or may not be telling

you they are cutting

corners.

Now you know and (hopefully!) you

care, what next?

• The first and most important step is to become

informed. I hope this material presented today is

a significant step on that path

• The next step is to have a serious conversation

about IP and potential legal issues with your

current vendor

Questions for your vendor

• Are you (or any of your third party suppliers) currently in any IP related litigation?

• Do you have a contract/provisions that indemnify us in the event of any IP lawsuit brought against you?

• Will you pay legal costs if a lawsuit should arise?

• What is your IP strategy?

• Do you have any patents? – Have you applied for any patents?

• Do you have a documented and organized process to review current IP?

CONCLUSION #4

• If your current vendor cannot answer these

questions directly, it is likely that their

strategy is “ignore”.

• For all the reasons we have discussed today,

this is dangerous for your business.

Print-Rite N.A. Inc., www.printritena.com

ianelliott@printritena.com @PrintRiteNA

Like what you heard? Look for our blog: The

Aftermarket Informant here:

http://www.printritena.com/categories/the-

aftermarket-informant