Judge hears arguments in Lexmark printer suit

A district court judge in Kentucky heard legal arguments Friday in a case involving Lexmark International Inc. that observers said could stifle the market for low-cost, refurbished printer cartridges.

The hearing was to determine whether Lexmark is entitled to a temporary injunction preventing a third-party manufacturer, Static Control Components Inc. (SCC), from shipping computer chips that are used to make clones of toner cartridges for two of Lexmark’s laser printers.

“As we expected, the judge took the information under advisement and said he’d take a few weeks to decide,” said Tricia Judge, executive director of the International Imaging Technology Council, a trade association representing SCC and others opposed to Lexmark in the case.

Officials at Lexington, Kentucky-based Lexmark couldn’t be reached late Friday to comment on the outcome of the hearing.

SCC, in Sanford, South Carolina, makes chips and other components that are used to make refurbished, or “remanufactured” printer cartridges, which are sold to customers at prices typically 30 percent lower than those offered by the major printer vendors. The industry accounts for roughly a quarter of all printer cartridges sold, according to analyst estimates.

Printer makers, who make much of their profits from cartridges and other printing supplies, view the market with some trepidation. They argue that their printers work best with their own cartridges, and in some cases offer incentives to customers to use their own supplies. But for the most part the vendors have permitted remanufacturers to ply their trade.

Last year Lexmark began using a computer chip with some toner cartridges that uses software programs to communicate with its printers. Without the software, for which Lexmark filed copyrights, its printers won’t function. In the remanufacturing industry the chip is known as a “killer chip,” because it prevents remanufacturers from making compatible cartridges.

SCC figured out a way to mimic the software program and began selling chips that allow cartridges to be made for Lexmark’s printers. In so doing, according to Lexmark’s lawsuit, SCC violated terms of the 1998 Digital Millennium Copyright Act. The act made it illegal to circumvent a protection technology in order to gain access to a “protected work” inside.

Lexmark filed its suit in December, in the U.S. District Court, Eastern District of Kentucky, arguing that SCC’s chips contain “unauthorized copies” of its software programs. It wants the court to prevent SCC from selling the components in question.

The significance of the case goes beyond Lexmark and has the potential to affect the whole market for remanufactured cartridges, said Jim Forrest, managing editor of The Hard Copy Supplies Journal, a monthly newsletter that tracks the printing industry

“It’s an important case. The final outcome when it goes to trial could impact the whole industry,” he said.

If Lexmark is successful in using the DMCA to protect its cartridge business, other printer makers are likely to follow suit, Forrest said. That could deal a severe blow to the market for remanufactured cartridges, depriving businesses of the option of buying cheap cartridges from third-party vendors.

The International Imaging Technology Council, which represents the remanufacturing industry, considers the lawsuit “a potential industry killer.”

Hewlett-Packard Co., the world’s biggest printer maker, called reporters this week to explain its position on the matter. Using the DMCA to prevent vendors from remanufacturing printer cartridges is “going too far,” said Pradeep Jotwani, vice president of HP’s Imaging and Printing Group.

“I don’t have any similar suits in place and I don’t have any plans to do so,” he said, noting that the DMCA was intended primarily to protect unauthorized copying of artistic works such as music and images.

“To be a long-term player in this industry you have to do what customers want, and customers want choice in terms of what they buy, where they buy it and when they buy it,” he said.

However, observers were skeptical of HP’s claim that it won’t use the DMCA to protect its cartridge business. If Lexmark is successful in its suit, HP would likely reverse its position and follow a similar path, using either the DMCA or some other applicable law, said Peter Grant, a principal analyst at Garner Inc. who follows the printing industry.

Forrest of the Hard Copy Supplies Journal agreed.

“I would think if I were in Pradeep’s shoes (and Lexmark were to win its case against SCC), I’d be thinking seriously about adopting Lexmark’s killer chips,” he said.

Lyra Research Inc., in Newtonville, Massachusetts, which publishes Hard Copy Supplies Journal, conducted a survey recently of 300 companies with more than 100 employees. It found that 40 percent of the businesses contacted said they use remanufactured cartridges, Forrest said.