At the close of day on the last Friday of June, the U.S. International Trade Commission (ITC) announced it had issued a general exclusion order (GEO) that could profoundly impact the market for certain toner cartridges in the U.S. Just after issuing the GEO, the ITC released a two-page letter to U.S. Customs and Border Protection (CBP) informing the agency of the GEO and the next day, the CBP was expected to begin limiting the importation of products that infringe the two patents noted below.
The order will prohibit the importation of products that infringe two key Canon patents, U.S. patent numbers 5,903,803 (’803) and 6,128,454 (‘454). The patents cover the design of gears used on most of the OEM’s toner cartridges. Before being fully implemented, the GEO, which was issued on June 28, must first undergo a review by the president of the United State’s trade representative, but the order is expected to sail through the review process and go into effect within 60 days of the date of issue.
The two patents at the center of the matter relate to gears that feature a “twisted prism” shaped protrusion, which couples with the drive engine inside the printer or MFP. The gear is mounted on the end of a shaft and rotates the OPC drum during the imaging process. Its unique design allows the cartridge to be easily inserted into or removed from a printer. It also helps synchronize the rotation of the drum with the drive motor and prevents the drum from slipping.
The commission investigated some 34 firms that market third-party supplies for Canon or HP printers to determine if the respondents had infringed the ‘454 or ‘803 patents. Canon ultimately proved its case and within 10 months, all of the companies involved either settled or defaulted in the matter. By the end of 2012, the investigation concluded. On March 1, the ITC administrative law judge overseeing the case issued an initial determination indicating that a GEO should be issued and issued a 132-page finding asserting a widespread pattern of infringement. The judge felt the order was warranted to remedy the unfair competitive practices embraced by numerous third-party supplies vendors importing into the United States. Within weeks of the release of the judge’s finding, the commission agreed with the determination and in June issued the GEO.
Because the ‘454 and ‘803 patents cover the design of gears used on a wide assortment of SKUs, the GEO has the potential to impact the availability of toner cartridges for the largest population of single- and multifunction printers in the U.S. Canon’s patented gears are used on virtually all the replacement toner cartridges the firm markets for its own branded equipment as well as for machines that Hewlett-Packard sells under the LaserJet brand, which represents nearly half of the installed base of printers and MFPs in the U.S. Canon supplies HP with the print engines for the LaserJet line along with the black and color cartridges the machines employ.
The industry has fully expected that the ITC would issue the GEO. To avoid any supply chain problems, third-party supplies vendors have been reportedly building large caches of products that might not be allowed into the country if a GEO was issued. Moreover, just after the ITC initiated its investigation, various third-party supplies vendors began asserting that they had products that did not infringe the ‘454 or ‘803 patents so they can continue to be imported. Some foreign companies have petitioned the ITC to allow their products to enter the U.S. because they are not supposed to infringe.
The first claim I was aware of came last spring, when Static Control Components released a video featuring its founder and CEO, Ed Swartz, promoting the firm’s new, patented gears. Mr. Swartz said Static Control invested heavily to bring to market new gears that do not infringe any OEM patents. The Static Control gears are marketed as being “fully functional” and free of any risk of infringing Canon’s intellectual property. Mr. Swartz explained, “Our gear designs have no twists, and no slants, and this is critical to eliminating the potential to infringe Canon’s gear patents.” He said that Static Control began working on its gear over six years ago and invested thousands of engineering hours and millions of dollars. According to Mr. Swartz, the firm filed for its own patents in 2007 and received its first patent for the drive gear in October 2010 and a second patent was issued in December 2011.
In June of last year, Union Technology International (MCO) Co. Ltd. (UTec), master distributor of Print-Rite products, sent out an email newsletter saying that it was using a “non-twisted” gear design on its OPC drums and in its toner cartridges for Canon and HP laser devices. The design was promoted as not encroaching on any of Canon’s IP. UTec said it had a full range of patented gears along with OPC drums fitted with these non-infringing gears. According to UTec, remanufactured cartridges featuring these gears would be available for immediate shipment. The firm indicated that its non-infringing solution was “produced with German technology” presumably from AEG. Print-Rite acquired a major controlling stake in the German drum manufacturer in 2009, which is why I suspect UTec’s non-infringing gears were developed for Print-Rite at AEG.
Concerned that a broad GEO may bar non-infringing as well as infringing gears from entering the U.S. market, Fuji Electric formally filed comments with the ITC prior to the GEO claiming its gears have a unique design that do not violate Canon’s patents. After the GEO was announced, Fuji Electric’s rival, Mitsubishi Kagaku Imaging Corporation, which also does business as Future Graphics, issued an email to its customers saying on July 3 that it has a patent pending design that does not infringe Canon’s two patents. The firm claims, “Our patent pending TRUE HEX gear design is not subject to the Canon patents under the issued GEO, as our TRUE HEX gear design is not twisted. Nor was the TRUE HEX gear design accused of infringement in the U.S. ITC action.”
The Chinese third-party supplies vendor Ninestar and its affiliates in the Seine group of companies shared Fuji Electric’s concerns about a broad GEO. The companies petitioned the commission to ensure that their products were not affected by the GEO. Prior to Canon’s ITC investigation, Ninestar and Seine settled an infringement case with Canon related to the ‘454 and ‘805 patent. In view of the previous settlement, Ninestar told the commission, “Seine and its cartridge products should be carved out from any general exclusion order that might issue.”
Ninestar and Seine opined that the ITC had limited GEOs with exemptions in the past by listing that the GEO does not apply to products imported and manufactured abroad by various entities, and the pair contended that their products should be exempted in this way. The companies pointed out that Canon would have rights and remedies under its settlement if Canon believed the Ninestar entities violate the earlier agreement. Ninestar argued that treating its products the same as those from any source “undermine[s] the value of the settlement between Canon and Seine.”
It is not clear if the ITC responded to Ninestar and Seine but in the days just after the GEO was issued, Ninestar issued a statement to its U.S. customers saying that products featuring its non-twist gear will not be affected by the GEO. One of Ninestar’s fiercest competitors released a similar statement via email before the GEO was issued. The email, from Arnald Ho, managing director of UTec and founder and chairman of Print-Rite, said that the firm’s U.S. lawyer, who is “a specialist in ITC and Customs cases” has “confirmed” that the company’s products will not be affected by Canon’s GEO. UTec vowed that because its products do not infringe, they will be readily available to customers even regardless of the GEO. A confident Mr. Ho said, “We will continue to import our products to the U.S. market and you can rest assured of the continuous supply of quality and safe products from UTec.”
The Dust Must Settle
While the GEO should be in place by the end of the summer, I think its effects will not be fully felt until the end of the year. As I noted, many companies have stuffed their warehouses to avoid any shortages. And it is doubtful the U.S. Customs will be up to speed on what it needs to look out for until we are well into the second half of the year.
As far as all the non-infringing products are concerned, there are many questions that are yet to be answered. Will the ITC side with the various offshore firms and grant exemptions to the GEO? Canon has said nothing publically so far about the claims of the various third-party firms. Is the OEM examining all the various “no-twist” designs and could more lawsuits be forthcoming? And, do these non-infringing designs actually work? I understand that Canon uses as many as twenty different gears covered by the ‘454 or ‘803 patents. Some of these gears are designed for cartridges with light toner loads, while other are more heavy-duty for use in cartridges that deliver thousands of pages. Do the various third party vendors have all the gears required for the various applications?
I expect that we will be hearing a lot about the GEO on Canon’s gears throughout the rest of the year. Any company that sells non-OEM cartridges for Canon and HP machines has to be extremely wary of various competing claims. Know your suppliers, understand the issues, and stay abreast of the latest news.