After Canon's announcement on March 2, 2018, that it had filed a complaint with the United States International Trade Commission alleging patent infringement by 49 manufacturers, distributors, and resellers on specific laser cartridges used in certain Canon and Hewlett Packard printers, there has been a flurry of activity.
Much of this activity appears to have been initiated by those with the most to lose should Canon fail to prevail in this latest round of litigation. David Gibbons of Recycling Times Media interviews Ian Elliott to capture his thoughts on the immediate impact in the marketplace and potential outcomes for the ongoing saga.
- You are asking some interesting questions about the recent spate of litigation in the US between Canon and the Aftermarket. Of course, Canon is protecting its intellectual property rights, but the motivation would be its market share. Is that right?
Well, David, yes, I think so! Unless it's eventually determined otherwise, Canon has valid US patents and believes those patents are being infringed. A patent provides the patentee (along with any of its licensed partners) with a government-granted monopoly for the term of the patent. So … yes, this battle is about market share, and Canon is entitled to fight that battle.
- Now you are not a patent lawyer or any lawyer, so why the keen interest in this subject?
David, as you know, we're in the consolidation phase of a mature business. I am deeply interested in how the developments in this final phase will likely affect the remaining players. It is possible, although probably unlikely, that this round of litigation may turn out to be a defining moment in terms of the battle between new-build and remanufactured, and then ultimately in terms of the subsequent fight for market share between the OEMs and the Aftermarket.
- The fight over what has become known as the Canon dongle gear suits is about the OPC drum in the cartridge and the metal gear attached to it that engages with the printer to allow it to turn the drum. But in fact, the Aftermarket designed a new bag for use in third-party printer supplies that would not infringe. The equipment ceases to "dongle." So, who invented the dongle gears that don't dongle? The Aftermarket or Canon, given they now hold very new patents indicating even the dongle gear does not dongle to infringe?
It does seem ironic that the ‘278 patent, which was at the heart of the 2014 ‘918 ITC investigation, should have spawned 15+ new patents, nine of which are now asserted against the respondents and which Canon claims protect the technology the aftermarket respondents themselves appear to have introduced to resolve the 2014 dispute.
However, at this stage, no one knows whether the new Canon patents are infringed or valid. Hopefully, this is what the ITC investigation will resolve.
- The word "clone" is bandied around to refer to a copycat aftermarket cartridge. Can you explain why you don't think this term is accurate?
The term "clone" is frequently bandied around as a label appearing to discredit any product that isn't OEM or isn't remanufactured, but this is wrong because it is only an appropriate label for cartridges that are identical copies of the OEM cartridges.
The aftermarket cartridges utilizing the various gear designs Canon is now complaining about are not direct copies (i.e., clones) of Canon's current cartridges.
However, while they may not be clones, this does not mean they may not infringe specific claims in certain Canon patents. This is what the ITC investigation will be trying to determine.
- You are also concerned about the cost of litigation. Why is that?
The manufacturer must accrue for the costs of potential litigation into the cost of its products.
Although manufacturer indemnifications may protect customers from the bulk of the ITC and district court litigation costs, there are many hidden costs, including damage to their brands and loss of management time to the distractions of litigation. The expenses accrued to fight battles in the ITC and district courts should instead be invested in improved attempts to break the cycle of litigation.
This may require additional efforts in terms of filing for more patents and filing patents designed for the future, just as Canon has done with its continuation and divisional patent strategies.
- The Aftermarket can be divided into two sectors. Firstly, there are the remanufactured products where the core is collected and re-used. The other industry could be called new-built compatibles, and this is where every component in the cartridge is a new component, including the core. Is this correct?
Yes, I would agree this is an accurate definition of remanufactured versus new-build; this is the crux of the matter. The "new-build" business model has an inherent advantage over remanufactured. They cost less to make; there are virtually no constraints on supply (such as core availability), and, many would argue, they are higher quality because they're manufactured from all-new parts.
In combination, this represents a severe threat to the legacy remanufacturers of aftermarket cartridges and, in the longer term, could also be a more significant threat to the OEMs than remanufactured cartridges have ever been. In short, David, new-build cartridges represent a disruptive threat to the established order.
- In this new round of legal battles, it seems that the new-built compatible sector is the one that the OEM is hammering, in this case, Canon. Previously, remanufactured products have been the sector that was considered to be infringing in some way. Is this a case where Canon sends a message that remanufactured products are acceptable, but new-builds are not?
Of course, we don't know what Canon is thinking and what their endgame is apart from knowing they must believe they're entitled (by way of their government-granted monopoly) to a 100% share of the market they've protected with their patents.
It seems logical that new-build cartridges represent a more significant threat to OEM market share than remanufactured cartridges. If this is how Canon views the market, then it's not surprising its current focus is on the most significant threat.
However, I don't think this should necessarily be taken as an indication that Canon believes remanufactured products are okay. As we all know, remanufactured cartridges have also been the subject of litigation during the last 20 years, and there's no guarantee they wouldn't be again in the future.
- What are the likely scenarios from here on? Will this see the end of new-built compatibles?
As you know, David, I think in black-and-white terms about how future events and potential outcomes may develop.
- From an economic perspective - new-build costs less than remanufactured; therefore, new-build wins.
- From a legal perspective, the investigation will determine whether the patents are infringed or not infringed or whether the patents are valid.
From an economic perspective, regardless of whether new-builds are lower cost than remanufactured cartridges, many other factors that prevent new-builds from gaining a more substantial presence in the marketplace come into play. It's not just about price.
From a legal perspective, it would be nice to think the ITC investigation will follow a clear and logical path – a group of top-notch lawyers and experts presenting their case for Canon, a comparable group presenting their case for the Aftermarket, and the very best qualified minds at the ITC listening to their arguments and deciding the correct legal and technical outcome.
However, although I'm not a legal expert, I suspect the outcome may be a bit more chaotic. My gut tells me there's likely to be a compelling argument that some of Canon's patents are infringed. But conversely, there's also expected to be a persuasive argument that Canon's patents are not valid.
Whether the proceedings run their entire course with Canon willing to risk a potential invalidity finding that results in a loss of their patents or simply withdraw them from the investigation to prevent this, only time will tell.