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Going to the brink over ink

Printer giants are battling to blot out recycler inroads into cartridge market

By Associated Press

Last Updated: May 5, 2002

New York - Brian Evans thought he'd gotten a good deal on a Canon inkjet printer - until it ran out of ink.

"I paid 80 bucks for the printer, and the ink was 52 bucks," Evans said, pausing on his way out of a Manhattan office supply store.

"It's incredible," said Evans, a 33-year-old bank employee, holding aloft a plastic bag with his latest purchase - another ink cartridge.

Companies like Lexmark, Hewlett-Packard, Canon and Epson have coupled low-priced inkjet and laser printers to high-priced disposable ink cartridges for years.

But that business model sprung a leak.

Wily entrepreneurs started refilling and rebuilding toner and ink cartridges and selling them for about half the price - building a $3 billion yearly business that has carved away an 11% chunk of the lucrative refill market.

The printer giants are battling back, using clever techniques aimed at clawing back market share. They also are facing something of a backlash - legislation in some states that's designed to protect the refillers.

One method employed by the printer giants is a so-called "killer" computer chip installed on ink cartridges that makes it tough for the cartridges to be refilled. Some chips warn refill users that the cartridge is "invalid." Sometimes they even disable the printer.

Another means of protecting refills is a "prebate" agreement that Lexmark uses to sell discounted refills. In return, the buyer promises to return the cartridge to Lexmark for remanufacturing and not to sell it to anyone else.

John Jackson, sales manager at TonerPlus, an Austin, Texas, re-manufacturer that buys and fills empties, says it seems to him the printer industry is trying to corner the market.

Printer companies say neither effort is aimed at thwarting re-manufacturers.

"We're really giving customers a benefit they didn't have before," said Epson marketing manager Rajeev Mishra, whose company has installed smart chips on many replacement cartridges. Mishra says it's done so customers can track ink use and other printing statistics.

HP and Lexmark declined telephone interviews, opting to answer questions through e-mail and declining to address many of the complaints. Neither company had much to say about the price differential between printers and ink.

A Lexmark Z22 color inkjet printer was selling on OfficeMax.com recently for $49.98 while its replacement ink cartridges cost $32.97 for black and $37.87 for color. Meanwhile, remanufactured cartridges for the Lexmark Z22 were selling on InkSell.com for $19.95.

Asked about their rationale for selling printers at a low cost and ink at a high one, Lexmark's Tim King said the company's pricing was calibrated to "provide customers with compelling value in both hardware and supplies."

HP's Bob Major wrote that the company's pricing was "very competitive based on cost per page."

Lexmark's use of chips and legal agreements "is intended to enforce the customer's agreement to return the cartridge to Lexmark for remanufacturing so they don't wind up in landfills," King wrote.

To Gerald Chamales, chairman of Carson, Calif.-based Rhinotek Computer Products, it sounds more like a way to protect "the ultimate cash cow."

"There's only one reason. It's to prevent erosion of their market share," said Chamales, whose customers for re-manufactured cartridges include Wal-Mart and the White House.

Government is doing more than just buying refills from independents.

Legislation promoting or requiring the purchase of re-manufactured cartridges has been adopted or proposed in North Carolina, Wisconsin, New Hampshire and other states. The European Union has a measure pending.

Lexmark says it, too, recycles recovered cartridges.

But the printer company's hardball moves have kept its cartridges out of the hands of re-manufacturers, who have been able to duplicate the Lexmark chip and resell some Lexmark cartridges, said Jim Forrest, managing editor of the Hard Copy Supplies Journal, which covers the printing supply industry.