Recharger Magazine

General Exclusion Order Makes Epson’s ITC Suit High Stakes

• By Charles Brewer
• Feb 01, 2007

The lawsuits that Epson filed in February 2006 have already had an impact on the digital imaging supplies industry. The suits have sparked whole new categories of aftermarket products such as “noninfringing cartridges” and “IP-free SKUs.” While these immediate changes are important, the longer-term implications of Epson’s complaints may be even more profound. Ultimately, the Epson suits have the potential to prevent firms from importing any Epson compatibles into the United States, whether they infringe the OEM’s patents or not.

The complaint that Epson filed with the U.S. International Trade Commission (ITC) requested a general exclusion order, among other remedies. If granted, the order could severely limit the flow of Epson compatibles into U.S. markets.

Peg O’Laughlin, an ITC public affairs officer, explains that unlike a limited exclusion order, which can be used to restrict the importation of products from a defined source, a general exclusion order can end virtually all importation of a product regardless of its origin. “A general exclusion order directs the U.S. Customs Service to exclude all infringing articles, without regard to source,” she said.

For the many companies that have built a significant portion of their business on imported Epson compatibles, the fact that Epson is seeking an general exclusion order must be disquieting, to say the least.

General exclusion justified

Alf Anderson, Epson general counsel, says that a general exclusion order is necessary because Epson’s previous legal actions have resulted in few lasting changes in the supplies industry. “Past federal court rulings didn’t provide the change in actions we would have liked to see,” he claims.

We suspect that the ruling to which Anderson refers is the one resulting from the lawsuit that Epson filed against Multi Union Trading Company in April 2001. Epson prevailed in that action, which led to the Hong Kong-based firm pulling most of its Print-Rite-branded Epson-compatible products from the North American market. While the suit removed the Print-Rite products, numerous other infringing Epson compatibles have surfaced since that time. Anderson suggests that past lawsuits have really had little lasting impact on limiting products that violate Epson’s intellectual property.

Anderson implies that if even a high-visibility case such as the Multi Union action brought little relief, more stringent measures are needed to rectify the situation. He suggests that the aftermarket as a whole has proven it is more than willing to ignore Epson’s intellectual property and that the general exclusion order is the appropriate remedy because there is no way for Epson to identify all infringing firms. “It’s a way of establishing fair competition,” Anderson maintains. “The general exclusion order can go beyond just those companies named in the complaint.”

Edward O’Connor of the O’Connor, Christensen, and McLaughlin trial division of the Eclipse Group, an intellectual-property law firm, feels that the general exclusion order is overkill. According to O’Connor, under a general exclusion order, aftermarket manufacturers will have the burden of proving that their products do not infringe before their products can be imported and sold in the United States. “It’s just too broad to be fair,” O’Connor insists. “It has to be more strictly defined to make it reasonable.” He believes that the onus of proving a product infringes should rightly be placed on the intellectual-property holder.
O’Laughlin says that the evidentiary hearing in Epson’s ITC complaint is scheduled to begin in mid-January. “The target date for the judge’s ID [initial determination] in this case is March 23, 2007, and the target date for final Commission action is June 25, 2007,” she added.

O’Laughlin explains that once the so-called ID has been rendered, it is usually reviewed by ITC commissioners, who may or may not modify the determination. “If the Commission chooses not to review the ID, then it becomes the Commission’s determination.” ITC determinations may be appealed to the court of appeals for the federal circuit, she said.

Early effects

Even without the general exclusion order, Epson has succeeded in limiting the number of infringing Epson compatibles available in the U.S. market. The OEM has settled several pending suits with some of the larger third-party firms in the region, which have admitted to violating Epson patents. While the terms of the settlements do not require the aftermarket supplies vendors to discontinue sales immediately, these companies have agreed to stop selling their current portfolios of Epson compatibles after existing inventories are exhausted because these SKUs breach the OEM’s patents. Some of these firms told us that they remain interested in marketing noninfringing Epson compatibles, but we suspect that most of the companies that settled with Epson will not sell compatibles for the OEM’s printers in the short term.

By successfully protecting its intellectual property, Epson has also affected one of North America’s largest distribution channels for aftermarket supplies. French third-party supplies vendor Armor and its German manufacturing subsidiary Artech have settled with Epson, denying Staples its long-established source for Staples-branded compatible Epson products in the United States.

We wonder what the future holds for Staples as an aftermarket supplies vendor. The rumor persists that Staples and HP have reached a deal that will result in the office superstore eliminating its Staples-branded remanufactured cartridges for HP printers. Although Armor General Manager Hubert de Boisredon contends that his firm will continue to supply Staples with Canon compatibles, we wonder how viable the office superstore’s branded ink line can be without HP or Epson SKUs. Staples declined to discuss the settlement or its aftermarket supplies business with us.

Of course, not all makers of Epson compatibles are exiting the market because of the OEM’s lawsuits. Along with firms such as Ninestar and Dataproducts, which appear to be contesting the suits, a number of other third-party vendors market Epson compatibles, and we suspect they are doing a thriving business.

You can be confident that other OEMs have taken note of Epson’s initial string of successes. One third-party ink cartridge vendor told us that OEMs will now feel emboldened to become more litigious. A new round of OEM lawsuits is not a sure bet but not a risky one, either. Printer makers have learned how to protect their patents and are now more likely to turn to the courts to find relief from violators. Third-party supplies vendors should see Epson’s lawsuits as a wake-up call that OEMs will aggressively defend their intellectual property, so, from this time forward, patents matter. And they matter a lot.

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This article was excerpted from the December 2006 issue of The Hard Copy Supplies Journal newsletter. The Journal provides in-depth coverage of the supplies market, giving aftermarket vendors the information they need to make better business decisions. Call Sandy Tobin at 617-454-2612 to subscribe, or visit www.lyra.com.

This article originally appeared in the February 2007 issue of Recharger.