GRRN's WasteMaker #1/Lexmark

WASTEMAKER AWARD NO. 1 - LEXMARK
Just the Facts

      In September 1998, the GrassRoots Recycling Network gave Lexmark International, Inc., a WasteMaker Award for its single use printer cartridge.

THE ISSUE

      Lexmark International, Inc., introduced a "Prebate" marketing program for its Optra S printer cartridges in May 1997. The Prebate program, detailed below, prohibits the cartridge user from sending the cartridge to a remanufacturer once its first useful life is complete. The customer is instructed to either send the cartridge back to Lexmark or throw it away.

      Not only is this program an attempt to eliminate competition from cartridge remanufacturers, it is also a disincentive to recycle. Since its introduction, the Lexmark Prebate program has created a classic "David and Goliath" battle, with small scale printer cartridge remanufacturers fighting a multinational company to ensure that they can compete in markets for all printer cartridges.

THE INDUSTRY UNDERMINED AND ITS IMPACTS

      The printer cartridge remanufacturing industry is made up of more than 6,000 primarily small businesses with an average of six employees each. Nationally, the industry employs more than 30,000 people, creating entry level jobs with technical advancement and training opportunities.

      This year, more than 240 million laser and ink jet printer cartridges will be discarded. If placed end to end, the ink jet cartridges alone thrown away last year would stretch from New York to Los Angeles and back again.

      About 30 percent of all printer cartridges are recharged annually. Every cartridge remanufactured saves about 2.5 pounds of plastic from being wasted, and conserves the equivalent of three quarts of oil. As a whole, every year the industry diverts more than 35,000 tons of waste and conserves nearly twice as much oil as was spilled into Prince William Sound by the Exxon Valdez.

TROUBLING PRECEDENT

      While Lexmark is only one company, and their Prebate program is only for their line of cartridges, if left to stand, the Prebate program sets a dangerous precedent. Programs like this could literally starve the cartridge remanufacturing industry of its customer base both for supply and demand of used cartridges. Already, Hewlett Packard has introduced a similar, although not quite as restrictive, program for its 2000C ink jet printer.

      Alarmed by the precedent that Lexmark may set, New York State Assemblyman Joe Morelle introduced legislation (AB 10868 and SB 7562) that would not allow a manufacturer to restrict the recycling or remanufacturing of a product and still sell products to the state. The bills also provide a purchasing preference for recycled or remanufactured products. Federal environmental procurement guidelines already provide a preference for remanufactured printer cartridges.

THE PROBLEM PROGRAM - RECYCLE AND WE'LL SEE YOU IN COURT!

      Once a customer has purchased an Optra S printer, it has two options for purchasing a printer cartridge: 1) purchase a regular cartridge that can be remanufactured for $288; or 2) purchase a "Prebate" cartridge for $30 less, or $258. According to Lexmark, under the "Prebate" scenario the cartridge is not actually sold, but rather "leased" to the customer for a single use. Once the cartridge has been used, the customer is directed to either send it back to Lexmark or throw it away.

      About 30 percent of the Prebate cartridges have been returned to Lexmark, where some of the components have been recycled. The other 70 percent have been wasted.

      The licensing agreement says: "IMPORTANT! READ BEFORE OPENING. Opening this package or using the cartridge inside confirms your acceptance to the following license agreement. License Agreement: Patented cartridge inside sold subject to Single Use Only restriction. It is a violation of this agreement and/or it is unlawful to resell, reuse, refill or remanufacture. If you don't agree, return unopened package to point of purchase."

      Upon the Prebate program's introduction, Lexmark sent certified letters to every cartridge remanufacturer in the US, making clear its intention to sue any company or individual caught remanufacturing a Prebate Optra S cartridge.

      In theory, a customer who wants to purchase a remanufacturable Optra S cartridge can still do so, since Lexmark insists that it offers a remanufacturable cartridge, albeit at an increased price. In practice, however, it is difficult if not unworkable. While the company still produces remanufacturable cartridges for the Optra S printer, it no longer distributes all models through traditional channels.

      Practically speaking, this means that a customer must order its cartridge directly from Lexmark, as opposed to buying through a local office supply store. That is, if the customer is even aware that the remanufacturable alternative exists. The Prebate marketing program downplays the alternative to such an extent that it is not at all clear that a remanufacturable cartridge is available.

      Clearly, Lexmark is moving aggressively to restrict others from competing for the Optra S cartridge business. According to a recent article by Tricia Judge of Recharger Magazine, "Lexmark may be trying to take market share away from the remanufacturing industry by combining its patent, licensing agreement, and 'discounted' pricing structure to create a product that cannot be remanufactured, at least not without inviting a lawsuit."

THE LEGAL ISSUES

      Lexmark's Prebate program raises several significant legal concerns. The validity of their contractual approach itself is questionable. Can a product like a cartridge be licensed? Generally, licenses are applicable only to items like computer software and other "intellectual property", and not physical property. Physical property, like a cartridge, once sold, usually belongs to the buyer. And, can a cartridge remanufacturer be held to a contract which it was not a party to, or a remanufacturer be sued because his customer broke its agreement with Lexmark?

      "Aside from standing on contractually weak ground, the Prebate program is so anticompetitive that, in my opinion, a court would rule that it violates the antitrust laws," wrote Ronald S. Katz, an antitrust/intellectual property partner at the international law firm Coudert Brothers. Customers with Lexmark printers must buy compatible cartridges. If Lexmark restricts the availability of remanufacturable cartridges, customers are forced to purchase their cartridges from Lexmark . Therefore, the Prebate program could be deemed a monopoly by the courts.

      For those reasons, Ralph Nader's Government Purchasing Project (GPP) recently asked the US Federal Trade Commission to investigate Lexmark's Prebate program on antitrust grounds. In an April 1998, letter to the FTC, GPP said, "the single use license terms are a transparent attempt to reduce competition from toner cartridge remanufacturers." GPP also cites truth-in-advertising law violations because the company advertises the Prebate cartridge as a cost saving option for customers. It only saves them money when compared to other new cartridges, not when compared to remanufactured cartridges.

      There is legal precedent for the remanufacturers position in cases involving IBM, Hewlett Packard and other large companies. Still, can the "mom and pop" businesses that make up the cartridge remanufacturing industry afford to defend themselves against an attack from the multinational Lexmark? Probably not, and they shouldn't have to.

WHAT ABOUT QUALITY AND VALUE?

      Lexmark has advertised the Prebate cartridge as providing "... greater yield, greater savings, better price performance ...," and has made statements as to the problems caused by "third party remanufactured cartridges."

      According to Recharger Magazine, on a cost-per-page basis, remanufactured printer cartridges provide a savings of more than 80 percent. The magazine estimates that a remanufactured cartridge will cost the consumer 0.8 cents per printed page, while the Prebate cartridge will cost 1.5 cents per page.

      In any industry, and particularly the recycling and remanufacturing industry, quality control is a critical issue. In its negative claims against remanufactured cartridges, Lexmark cites a study it retained the National Software Testing Laboratory to conduct comparing new and remanufactured cartridges. Members of the industry question these tests on two fronts. First, Lexmark itself admits that it did not test a complete range of remanufactured cartridges. Second, it used a laboratory that is not the industry's primary quality tester. Did Lexmark search out a lab that would provide the results it wanted?

      Earlier this year in testimony before the New York State legislature, Lexmark admitted that they themselves remanufacture cartridges for limited and secret customers. If Lexmark truly believes its own rhetoric that remanufactured cartridges are of poor quality, why would they choose to produce them?

FOR MORE LEXMARK INFORMATION CONTACT:

ERS Immaging Supplies, Inc., http://www.ers-imaging.com
This web site has many articles and resources on the Lexmark issue. It also has a model letter to elected officials, complete with lists of officials by state and a mail merge to produce a letter on-line.
Tricia Judge, Executive Editor, Recharger Magazine, 4218 West Charleston Blvd., Las Vegas, NV 81902; Tel: (702) 438-5557; E-mail: tricia@rechargermag.com
Todd Paglia, Government Purchasing Project, PO Box 19367, Washington, DC 20036; Tel: (202) 387-8030; E-mail: tpaglia@essential.org; Web Site: http://www.gpp.org

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