Posted on: Tuesday, February 4, 2003

Printer company sues maker of refills

By Paul Nowell
Associated Press

SANFORD, N.C. — The endless e-mail and fax pitches for replacement printer cartridges point to a desktop printing reality — profits reside in the ink.

Now a North Carolina firm that makes the replacements finds itself in the copyright crosshairs of printer giant Lexmark International Inc. in a legal tussle over ink cartridges.

In a federal lawsuit, Lexmark claims Static Control Components, based in Sanford, N.C., violated the 1998 Digital Millennium Copyright Act to swipe a large chunk of its aftermarket printer supply sales.

The conflict arises from the way the computer printer business operates. Because printers are relatively inexpensive to buy, manufacturers make most of their income selling the replacement ink or toner cartridges — just as razor blades bring in more money than the shavers for which they're made.

Consumer demand led to the creation of a new industry — companies such as Static Control that collect discarded cartridges, refill them and sell them at steep discounts.

Lexmark, one of the top U.S. manufacturers of computer printers, tried to fight its new rivals by installing tiny computer chips. They cause Lexmark printers to malfunction if the replacement cartridge isn't made by Lexmark, which is based in Lexington, Ky.

In response, Static Control designed its own "Smartek" chip that enables its replacement cartridges to work in the Lexmark printers.

That led to the Dec. 30 lawsuit, in which Lexmark alleges Static Control's microchip includes copies of its copyrighted software in violation of the 1998 copyright law. The claim is scheduled for a hearing Friday in federal court in Lexington.

Lexmark spokesman Tim King would not comment, citing the pending litigation. In a recent news release, Lexmark accused Static Control of profiting from Lexmark's investment.

"Lexmark spends hundreds of millions of dollars annually on research and development, and the company intends to vigorously protect its intellectual property rights," the Jan. 9 statement said.

Static Control founder Ed Swartz contends Lexmark attacked his company as part of its strategy to grab a larger slice of the lucrative printer supply market — a strategy that he says hurts consumers and the environment.

Static Control, which employs 1,200 people in several plants in Sanford, produces ink cartridges for a variety of printers, including ones made by Hewlett-Packard and Xerox.

Static Control was founded in 1986. The company's name comes from another of its businesses — bags that protect electronic equipment from static electricity.

Static Control commands about half the U.S. replacement ink cartridge market, Swartz said — giving Lexmark an ample target.

If Lexmark wins the case, Swartz said consumers could face sharp price increases for replacement cartridges.

On another front, environmentalists contend that cartridge remanufacturing helps reduce the amount of oil used for such printing, while curbing the number of spent cartridges tossed into landfills.