Ink-Jet cartridge combat - Nu-Kote Holding - Company Business and Marketing

Home Office Computing, Dec, 1997 by Dan Cray

Customers at a Los Angeles Office Depot were surprised recently when they got some free advice from one of the clerks. "Doris buy your ink-jet cartridge refills if you don't have to," he said. "Those high prices are going to drop like flies any day now."

That's the feeling throughout the office supply industry in the wake of several recent court decisions that appear to have opened the market to purveyors of less-expensive cartridges.

Seiko Epson America filed a copyright-infringement suit against Dallas-based Nu-Kote Holding, which makes Seiko-compatible printer cartridges. But in August a federal judge in Los Angeles found in favor of Nu-Kote, overturning Seiko's patent and opening the door for other knockoff-cartridge companies. Seiko is appealing the decision.

Earlier in the summer, another major ruling was handed down by a federal judge in San Jose, California, who ordered Hewlett-Packard to discontinue using labels that deceive consumers into thinking non-HP cartridges are incompatible with HP printers. That case also involved Nu-Kote, which filed the injunction request. "We're batting a thousand," says Ronald Katz, a San Francisco attorney representing Nu-Kote. "If we're successful in the appeals, prices drop immediately."

If so, that would indeed mean a big change for the $4 billion cartridge market. According to Dataquest, a research firm in San Jose, California, more than 120 million cartridges will be sold this year, with the brand-name refills retailing between $20 and $35 apiece depending upon whether they contain black or color ink. Cartridges made by Nu-Kote and other companies, including Hitachi's Data products unit and Turbon International of Germany, cost only half as much.

With more than 40 million ink-jet printers in use domestically, most consuming at least three cartridges annually, the big manufacturers may soon have to reduce cartridge prices in order to stay competitive.

Or maybe not. At press time, the struggling Nu-Kote, which was $45 million in the red last year, was working to appeal a contempt of court ruling for selling its cartridges during the litigation with Seiko. If the appeal fails, the company, which Katz already says is "fighting for its life," could lose millions and third-party suppliers could lose their legal champion. In addition, analysts say there has been little indication of cartridge price erosion, with major manufacturers still waiting to see whether Seiko ultimately prevails on its patent fight during the appeals process.

"It's kind of like the blade in the razor," says Robert Fennell, director of the printer group at Dataquest. "These companies invested a lot in this technology, so they want returns on their investments."