In general, nothing makes a company become quiet faster than being named a defendant in a lawsuit. But the hue and cry over Canon’s recent monochrome toner cartridge litigation in the United States is almost unprecedented, with OEM partners Canon and HP using the litigation to try to strike fear in the hearts of channel players, and remanufacturers seizing on the fact that most of the accused cartridges are new-build products to promote their remanufactured cartridges as the non-infringing, safer alternative to new-build, compatible cartridges. In such a loud environment, saying nothing can risk alienating current and potential customers. Thus, one company named in the litigation, large online reseller LD Products, is speaking out. We recently had the opportunity to hear from Christian Pepper, president of LD Products’ Channel Partner Division, about the litigation, how LD Products is responding, its view of Canon’s strategy, and the redesigned products LD will soon be bringing to market.

LD Products’ headquarters in Long Beach, CA

For more information on Canon’s monochrome toner cartridge litigation, see “Canon Causes Another Cataclysm: OEM Sues Numerous Aftermarket Firms for Patent Infringement.” To follow our ongoing coverage of the litigation, bookmark our tag for the ITC investigation number: 337-TA-1106.

LD Says It Is Speaking up to Counter Misleading Messaging

Christian Pepper, president of LD Products’ Channel Partner Division

Mr. Pepper admits that when a company is involved in litigation, that company typically won’t comment out of caution—nobody wants an attorney to end up twisting your own words against you in a deposition or hearing. But LD Products has made the decision to comment on the Canon litigation in order to respond to what it terms some “ugly, negative propaganda” put out by remanufacturers and some of their channel partners.

Mr. Pepper says that unfortunately customers are hearing only one message—that new-build cartridges are all infringing and remanufactured cartridges are all safe and non-infringing—and certain dealers and resellers are “swallowing that message hook, line, and sinker.” LD Products wants to combat what it sees as misleading information put out by these competitors.

Mr. Pepper says LD wishes to remain above the fray and avoid naming the companies it believes are putting out misleading messages about the Canon litigation. But it doesn’t take a rocket scientist to figure out that one of the companies LD is referring to is Clover Imaging Group (CIG). While the Canon litigation has been a headache for many, CIG has seized upon the news as a great opportunity to promote that it was not named in the litigation (see “Clover Quick to React to Canon’s Toner Cartridge Lawsuits”) and its view that the only non-infringing non-OEM alternatives for the particular cartridge models that are the subject of the suit are remanufactured cartridges that reuse the original dongle gear (see “Clover Issues Warning Regarding Cartridges That Infringe Canon Dongle Gear Patents”). The firm recently issued a white paper entitled “Risk and Reward in the World of Printing,” in which, much as the title suggests, Clover firmly placed new-builds in the “risky” category compared to its more “rewarding” remanufactured cartridges. CIG’s most eye-catching marketing piece at ITEX was an enormous image of a lifeboat in storm-tossed seas, the waters churning with actual copies of Canon’s lawsuits, and the declaration, “SEEK SAFETY NOW. THE WORST IS YET TO COME.” CIG set up this huge display directly across from the booth belonging to Ninestar, one of the manufacturers named in the Canon litigation. Now that is some expert-level trolling. So is CIG using this opportunity to make hay while the sun shines, try to win back business from new-builds, and taunt the competition a little bit while doing so? Absolutely.

The eye-capturing image on the back of CIG’s booth at ITEX is shown at left; its proximity to Ninestar’s booth is shown at right.

But CIG is not alone. While Canon has publicized news of the litigation, so too has HP, which has reached out to industry media such as Actionable Intelligence in support of the litigation (see “HP Issues Statement Regarding Canon’s Patent-Infringement Lawsuits” and “HP Comments on the Consent Judgments and Injunctions Recently Awarded to Canon”). HP has also reached out to its channel partners, sending them letters about the Canon litigation stating, “If you are selling New Build Compatible toner cartridges, you may be at risk for IP infringement.” HP’s letter to partners warns, “HP takes partners’ violation of intellectual property rights very seriously and will take it into consideration when assessing eligibility for certain Partner Programs and, ultimately, in our decisions as to the partners with which we choose to do business.”

We have heard that S.P. Richards, which sells the Elite Image line of remanufactured cartridges, which are made by CIG, also sent information to customers about the litigation, including a flyer dubbing clone cartridges “costly alternatives that carry a lot of risk” and a set of FAQs on the Canon litigation. In the FAQs, S.P. Richards states:

New build compatible manufacturers thought they were safe when they redesigned their products after the first round of dongle gear litigation, but Canon played the long game and over the last 2-3 years obtained the new patents currently being asserted, which specifically target the redesigns. This case perfectly highlights why remanufactured cartridges are the safe aftermarket alternative. Once an OEM cartridge is first sold, all present and future OEM patent rights in that cartridge are exhausted. Unlike compatible cartridges that are continuously at risk of infringing newly obtained OEM patents, remanufactured cartridges are forever protected by the right of repair.

Mr. Pepper says that in LD Products’ view messages that imply all remanufactured cartridges are non-infringing and all new-build cartridges infringe are hogwash. He notes that remanufacturers were named as defendants in Canon’s previous twisted prism and dongle gear litigation, and indeed some of the accused cartridges in the current case are remanufactured cartridges using new gears—a topic we also addressed in a post shortly after Canon filed suit at the end of February (see “Are Remanufacturers Safe from the Claws of Canon’s New Litigation?”).

LD Products, says Mr. Pepper, sells both remanufactured cartridges and new-build compatible cartridges, and its goal is to get out the message that remanufactured cartridges versus new-builds is “not a monolithic subject.” The fact that Canon has filed suit over a dozen or so SKUs “does not mean that all the thousands of other new-build cartridge SKUs are infringing and evil,” says Mr. Pepper. Certain makers and sellers of remanufactured cartridges, he states, are using the Canon litigation to “stretch the truth.”

What Is LD Doing Differently This Time Around?

Canon is suing LD Products over a handful of products, including its CF226X cartridge, which uses a “Type B” gear; its CE255A cartridge, which uses a “Type E” gear; and its CE505A toner cartridge, which uses a “Type G” gear. (Canon’s complaint identified several different types of gears that allegedly infringe.) According to the ITC complaint, some of the accused cartridges with the Type E gear are made by Print-Rite, while some of the accused cartridges using a Type B gear are made by Aster and some of those using a Type G gear are made by Ninestar.

LD Products officially answered Canon’s ITC complaint on April 20 (see “Bluedog Settles with Canon, Several Respondents Answer Canon’s ITC Complaint”); the district court complaint against the firm is currently stayed. Mr. Pepper emphasizes that none of the accused cartridges from LD are those sold under LD’s new Gold Line, a line of high-quality, new-build cartridges aimed at dealers (see “LD Products to Court Dealers and Resellers with New-Build Cartridges”).

Mr. Pepper says that LD Products is being fully indemnified in Canon’s litigation by its cartridge manufacturers. The same was true when LD was named as a defendant/respondent in Canon’s original dongle gear litigation in 2014. He emphasizes how important indemnification agreements are. LD, he asserts, never had to pay a dime in any of the previous OEM lawsuits in which it has been named because of the indemnification agreements the firm had in place. But LD Products has learned from its past experiences and is doing things differently this time around.

Mr. Pepper says, “We are participating fully in this, not just letting it fall through to the manufacturer. We are participating because we want to make sure we have a seat at the table and are a party to the direction the case takes. If we didn’t participate, we are at the mercy of whatever the manufacturer agrees.” The goal, Mr. Pepper says, is ultimately ensure that however the litigation is resolved, that resolution is in LD’s best interest—that a fair compromise is reached and that LD is “at least slightly happy.” LD Products does not want to simply leave things up to the manufacturer and hopes to ensure that Canon is “not just handed a win.”

Going after Canon’s Patents

Mr. Pepper says that LD Products is coordinating its defense with Ninestar and Print-Rite. In its answer to the ITC complaint, LD asserts a number of affirmative defenses. For more on these, see “Bluedog Settles with Canon, Several Respondents Answer Canon’s ITC Complaint.”

But in plain English, Mr. Pepper says that the heart of LD’s defense is going to be to question the scope and validity of the Canon patents. He says, “We think they [Canon] have overreached.”

The nine patents that Canon is asserting, U.S. patents: 9,746,826 (the ‘826 patent), 9,836,021 (the ‘021 patent), 9,841,727 (the ‘727 patent), 9,841,728 (the ‘728 patent), 9,841,729 (the ‘729 patent), 9,857,764 (the '764 patent), 9,857,765 (the ‘765 patent), 9,869,960 (the ‘960 patent), 9,874,846 (the ‘846 patent), are all newer patents, issued in 2017 and 2018. All nine patents are related to some previous Canon patents, including U.S. patents 8,280,278 (the '278 patent), 8,630,564 (the '564 patent), and 9,678,471 (the ‘471 patent). While the original dongle gear patents were issued from 2012 to 2014, they claim a priority date, or effective filing date, of 2006. The ‘278 and ‘564 patents are two of the five patents on which Canon was awarded a general exclusion order (GEO) in 2015 in the first dongle gear investigation (see “ITC Awards Canon GEO in Dongle Gear Investigation”).

Essentially, what Canon has done is study the aftermarket solutions brought to market in the wake of Canon’s 2015 dongle gear GEO and obtain patents that attempt to make the “non-infringing” design workarounds to the dongle gear that aftermarket manufacturers had developed and brought to market infringing. Compared with the original dongle gear designs (see “A Look at the Dongle Gears Central to Canon’s Latest Patent-Infringement Suits”), Canon’s newer gear patents attempt to cover movement from the dongle gear or coupling toward and away from the OPC drum, or what Mr. Pepper calls a “plunging-type” gear design, embodied in previous third-party alternatives to Canon’s dongle gear design.

It seems that LD Products and others will be arguing that when Canon filed for the original dongle gear patents all the way back in 2006 and in the dongle gear patents issued in 2012 to 2014, it did not anticipate the aftermarket’s plunger-type gear solutions. “It is not there in the original patent,” says Mr. Pepper. “They are relying on some very vague language.” He explains, “We feel they [Canon] buffaloed the patent office into giving them these patents. It was a one-sided argument between Canon and the UPSTO.”

“Now,” says Mr. Pepper, “the defendants get a voice and a chance to make their counterarguments. Did Canon contemplate the plunger design that they got their continuation patents on or not?” He says, “We think Canon had the benefit of hindsight and is now trying to assert ownership on a plunging design that Canon is not even using in its products, and they are now trying to say they own that design somehow.”

Mr. Pepper says all the companies that have been quick to default in the ITC proceedings and/or settle with Canon and agree to consent judgments in district court are “responding exactly the way that Canon hopes they would” and that this a “bad strategy.” (For the latest table tracking such defaults and settlements, see “Do It Wiser Settles with Canon in District Court, V4Ink Defaults in ITC Investigation.”) These companies, says Mr. Pepper are “giving themselves a bad name and giving others bad names” by sending the message that “one lawsuit on a handful of products means that everything new-build is bad.” He adds, “It says to customers that you do not stand behind your product.” Still, he says he understands why companies are defaulting and settling—litigation is time-consuming and expensive, and resellers know redesigned cartridges are in the works and that they can just pivot to selling the design-around cartridges.

New Products in the Works

Some of LD Products’ new Gold line toner cartridges. LD notes that none of its LD Gold line cartridges were accused of infringing in the Canon lawsuit.

And that brings us to the topic of redesigned cartridges. Along with getting out the message that the Canon litigation affects only a small subset of its products and that it plans to fight Canon’s patent-infringement claims, LD Products wants to get out another message as well: it will soon have newly redesigned non-OEM toner cartridges for the affected HP/Canon toner cartridge models.

Mr. Pepper says LD had a redesigned cartridge by the middle of April and has been testing it ever since. He declares that the redesigned cartridge never jams and its performance is “absolutely perfect.” The patent-pending design is being manufactured now, and SKUs will roll out over the next several months. He says he expects the first of the redesigned cartridges will hit the market in August. This is significant, Mr. Pepper says, because Canon’s ITC investigation won’t be finally adjudicated until July 2019. Whatever happens in this matter, LD says it will have new, non-infringing products in its lineup.

But how does LD Products know these new products don’t infringe, we wondered. After all, when Print-Rite was rolling out its PR-2 gear, Ninestar its BlueDrive gear, and Aster its GearTek gear, all these firms declared their solutions to be non-infringing and got their design-arounds cleared for importation by U.S. Customs. Now those are the very products that Canon is claiming infringe its newer patents. What’s to keep Canon from filing another continuation patent and claiming infringement once again after resellers like LD and manufacturers like Print-Rite, Ninestar, and Aster inevitably bring newly redesigned solutions to market?

Mr. Pepper says, however, “Lawsuits are part of doing business, especially in this industry, and nothing for customers to be afraid of. New build manufacturers, remanufacturers, and the OEMs themselves have all faced patent-infringement lawsuits in the past, and all have survived.” LD Products also notes that the most recent Canon lawsuits affect both new-build manufacturers and remanufacturers that use modified gears on their cartridges. “Even remanufacturers who use OEM gears are not necessarily safe,” says Mr. Pepper. Canon has taken the position that the right of repair does not include the right to put a new drum into a remanufactured cartridge with an OEM gear, and thus far, Canon has not backed off from that position despite a U.S. Customs ruling to the contrary.

Mr. Pepper says that the way the cartridge has been redesigned is really smart and “stops Canon from following the same strategy of the continuation patent.” According to Mr. Pepper, the redesign shows one of the advantages new-build cartridges have over remanufactured cartridges. With cartridges employing Canon’s dongle gear mechanism, you need a gear with movement in it to easily insert and remove the cartridge from the printer and synchronize and secure the drum with the printer during the imaging process. But with Canon getting continuation patents on the types of movement possible, a new design was needed. Some remanufacturers, Mr. Pepper says, avoid infringing by harvesting and using the original OEM gear, but he says he has heard that some remanufacturers are experiencing both supply constraints and yield issues related to the dongle gear cartridges. Mr. Pepper says, “The irony is that when you can redesign the shell of the cartridge, you can put technology in that moves in a way that doesn’t have to be centered around the gear.”

Mr. Pepper says the redesigned cartridges actually use a regular, spindle-rotating gear. He explains that in Canon’s design, the toner cartridge needs to get to the right side of the printer to mate with the drive gears. On the OEM design, the dongle gear makes the connection. Mr. Pepper says, “The dongle gear is spring loaded and pivots. The plunger design works in a very different way; the plunger springs out and drives it.” A key difference with the redesigned products is there is no spring-loaded gear mechanism whatsoever—just a fixed gear that can only rotate. To get that gear in place, Mr. Pepper explains that the new cartridge design has a mechanism built into the shell of the cartridge that helps to push the fixed gear into place inside the cartridge. This is an entirely different approach than employed in the OEM cartridge. Mr. Pepper states, “All their [Canon’s] designs are around spring-loaded dongle gears. It is the new-build shell that enables us to get around these patents.”

When asked if customers who may have been scared off from new-builds by the Canon litigation and messaging about the dangers of new-build cartridges will return to purchase the redesigned new-builds and whether customers may have lingering concerns about new-builds infringing, Mr. Pepper says, “There’s always a risk of that. Canon is a patent machine, and it is very hard to keep up. But our thoughts are they can’t patent the shell of the cartridge—there’s too much prior art around that.”

That said, Actionable Intelligence has seen prior lawsuits, although not from Canon, about certain features of the shell of the cartridge, such as in Epson’s inkjet cartridge litigation that resulted in the firm getting its first GEO in 2007 and the subsequent district court litigation.

But Mr. Pepper positions the OEM and aftermarket supplies industry as a game of “cat and mouse.” He says, “Not to say they [Canon] won’t think about it [patenting elements of the cartridge shell], but new-build manufacturers will just redesign the shell a different way. They can’t patent it to a point where it can’t be redesigned in a different way.”

What Does the Future Hold?

One concern of many in the industry is that the litigation that Canon filed at the end of February was centered solely on monochrome toner cartridges and that Canon may have plans to file new litigation over color toner cartridges employing dongle gear designs. We have already seen Canon file two such lawsuits: one against Kostland and one against Ink Technologies Printer Supplies (see “Canon Sues Kostland over Infringement of JetIntelligence Patent” and “Canon Files New Lawsuit against Ink Technologies Printer Supplies”).

When asked if LD is at all concerned that Canon may file new litigation, including lawsuits over patents on color toner cartridges, Mr. Pepper tells us that LD Products does not currently offer the cartridge models that were the subject of the Kostland and Ink Technologies lawsuits. When LD does bring to market these cartridges, Mr. Pepper says his firm will have done its due diligence and will launch products that do not infringe these patents, using the same improvements LD’s manufacturer has employed on the redesigned monochrome toner cartridges. Like others, however, Mr. Pepper expects that the aftermarket supplies industry will see another wave of litigation from Canon. He says, “We expect another round of litigation. Once Canon thinks the PR aspects have worn off [from the monochrome litigation], then they will probably launch a color series of lawsuits.”

LD Products and certain other defendants have indicated that they are determined to fight Canon’s patent-infringement claims and put a stop to Canon’s patent continuation strategy. But we heard similar vows to fight in 2012, during Canon’s twisted prism toner cartridge litigation, and in 2014, during the first dongle gear litigation. And in the end, all the parties named in these legal actions either defaulted or settled with Canon. We asked Mr. Pepper if things were really different this time and if so why? Will LD and others fight to the end?

Mr. Pepper says candidly that he’s not sure if LD and others will defend themselves through the ITC hearing or will settle before then. While he would like to see someone take this all the way to the end, much as Impression Products did in its fight against Lexmark, he says that LD Products ultimately may decide that a settlement is in its best interest. “The lawyers encourage settlement,” he says. “But it matters whenyou settle.” Mr. Pepper explains, “If you settle immediately and agree to a consent order, that’s folks just giving up. There’s a difference between giving up and defending, engaging, arbitering, and working out something that is equitable. That’s why we are participating. We want to make sure that if a settlement is reached, it is a true compromise.”

Mr. Pepper says that from LD Products’ point of view, while Canon has attempted to recover market share by waging a “PR battle,” LD Products is confident that “over time we will win the war.” He says, “Things aren’t as clear-cut as they used to be,” referring to the view of patent holders as “good” and new-build makers as “evil infringers.” Today, he says most new-build manufacturers take affirmative steps to avoid infringing other companies’ patents. “This litigation proves this,” he says. “They couldn’t sue us [over the dongle gear redesigns] on their original patents. They needed new patents to sue us. Canon is using the patent system as a commercial weapon to try to win back market share. That is not what the system was designed for—that’s not protecting innovation. That’s using hindsight to reach back and claim infringement against innovation.”

While the courts will decide whether that practice is fair, so, too, is building new-build cartridges, claims Mr. Pepper. “If this plays out how I think it will,” he says, “customers will become more confident in new-build.”