The Toner Wars

Lexmark sets off a tempest in the toner cartridge business; what does it mean to you?

Late last year, printer giant Lexmark International set off legal fireworks. The Lexington, Kentucky-based company accused BY: Static Control Components (SCC) of violating the Digital Millennium Copyright Act (DMCA) of 1998. In a complaint filed in federal court, Lexmark argued that SCC created a microchip that infringed on Lexmark’s copyrighted technology. But in a letter posted on SCC’s Website, company CEO and founder Ed Swartz maintains that, “Static Control engaged in legitimate reverse engineering that is expressly permissible under both the Copyright Act and the DMCA.” Lexmark’s microchip, known as the “killer chip,” prevented remanufacturers from making compatible cartridges.

Although the complaint singled out SCC, the lawsuit underscores the heated rivalry between the original equipment manufacturers (OEMs) and companies like SCC, a major supplier of parts for remanufactured printer toner cartridges.

Despite consumer bias against used products, the remanufacturers, a group made up of about 5,000 large and small operations nationwide, have been gaining ground. As an industry, remanufacturers now account for nearly 16.6% of sales in an estimated $40 billion worldwide market.

“No one makes any money selling printers,” says Jim Forrest, an industry analyst for the Newtonville, Massachusetts-based company Lyra Research. “The real money comes from selling cartridges.”

In February, a judge granted Lexmark, the second largest printing company in the world, a preliminary injunction forcing SCC to temporarily halt sales of its “Smartek” chip. This chip enabled remanufactured printer toner cartridges to communicate with brands of Lexmark printers. A day later, citing unfair trade practices, SCC struck back and named both Lexmark and Dallas Semiconductor Corp., the maker of Lexmark’s chip, in a $100 million antitrust lawsuit.

It may be another 18 months before the drama unfolds in court, but so far DPI International, the Carson, California-based digital imaging supply company, has survived the injunction against SCC. Reginald L. Dunham, CEO and chairman, says the company saw almost $3 million in sales last year. But as Dunham, a member of the National Minority Supplier Development Council explains, projected profits for the company are down more than 10%.

“If the remanufacturers don’t find a way to reposition themselves, or if Lexmark is allowed to eliminate competition by not allowing us to use a compatible chip, then … there goes our American Dream.”

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