Is HP Finally Just Targeting Ink Counterfeiters, and Not Legit Refillers?
from the about-time dept
HP has stepped up its efforts to crack down on printer ink counterfeiters -- and with good reason. While the company plays up that it's helping consumers by getting shoddy products off the market, it's more about protecting its business. In the past, HP's put pressure on retailers not to carry cheaper alternatives to its expensive replacement ink cartridges, and it's tried to use patent suits to shut down cartridge refillers. But with sales down across the board, HP is moving to try and recoup some of the $1 billion analysts allege it loses to fake ink every year. BusinessWeek says "For years, HP could afford to ignore the problem," because of booming sales. But apparently, it couldn't afford to try and use patent lawsuits, pressure on retailers and other shady tactics to try and crowd lower-priced alternative products out of the market. It's perfectly fine for HP to go after counterfeiters selling inferior products under its name, trying to defraud consumers. But let's hope that's all it's now doing, and it's given up on trying to force legitimate alternative products out of the market.
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Filed Under: counterfeit, ink
Companies: hp
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Because they are recouping their costs on the ink cartridges, they sell them for a price that's somewhat above marginal cost. Since the alternative manufacturers aren't taking a loss on the printers (they likely don't sell printers at all), they can sell the ink for closer to marginal cost and still turn a tidy profit.
This is the same business model you see with many products. The "base unit" (e.g., a razor, a cell-phone, a game console) is sold at a loss, but the company makes a profit on the accessories (blades, a long-term commitment/plan, or games). In order for this to work, of course, the "base unit" provider has to have control of the market for the accessories - otherwise companies like the third-party ink-cartridge makers will always be able to sell accessories cheaper, because they don't have to recoup the losses on the base unit.
Whatever you think about the loss-leader model, consumers seem to love it. They don't want to pay $500 for an Xbox 360 and they don't want to pay $160 for a barebones cell-phone. They want to pay more like $229 and $49. In the case of cell phones, you generally have the option of buying the unlocked version of a phone - if you're willing to pay the premium.
I personally am a big believer that businesses should be allowed to choose and execute their own business model. I know that this position puts me in the minority here at Techdirt, where the prevailing opinion seems to be that no business model deserves protection from anything, be it legitimate competitors, gray-area third parties, or outright tortfeasors.
It's not like nobody understands how HP makes money. You can go to Office Depot and look at the cartridge prices: the cartridges are on sale right next to the printers. If you don't want to participate in a loss-leader business model, don't buy HP inkjet printers. Don't buy cell-phones at a discount with a plan, just buy the unlocked version.
If some vendor thinks they can do better by not using a loss-leader model, then they are more than welcome to try. There is no legitimate reason why they would be prohibited from doing so.
If, however, we take away the ability of vendors to protect their accessory markets in the loss-leader model, then consumers will ultimately be left with one choice: something like a $200 printer with $30 ink cartridges, instead of that AND the choice of, say a $80 printer with $40 cartridges.
If you don't like the loss-leader model, just say so. Don't attack HP for trying to execute it or obtain the protections necessary to sustain it, just say that ultimately you don't think that loss-leader models deserve protection and that consumers shouldn't have that choice.
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While HP has every right to try and control their business model, they need to do it themselves. They do not have the right to pressure other legitimate competition out of business.
There are many ways to do this. One in particular is the use of coded chips on the cartridges themselves, and has been used for many years.
You yourself use the example of carrier locked cell phones to recoup subsidies with subscription contracts. You should however also take not that it has been ruled that it is perfectly legal for a consumer to remove the subsidy lock from a locked phone and take it to whatever carrier he or she wishes. And by the same token HP should not be allowed to remove competition by forcing re-fillers out of business.
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If I, as a consumer, want to buy a discounted printer and then buy cheap generic ink, that's my choice.
What HP would love to have, and hopefully they won't get, is laws that make it illegal for people to make, buy and sell cheaper ink.
The reason HP use the loss-leader business model is they know full well if they put their printer prices up their competitors would not and they would end up with no one buying their overpriced ink OR their overpriced printers.
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Most refillers use inferior products to support their business models as well. For my Canon color printer, I have to use Canon cartridges, otherwise the colors just don't come out as nice.
We won't get laws that make it illegal to make cheaper ink, you just can't put it in a cartridge and claim it to be HP ink. In the same manner that razor blade designs are unique (you can't move blades from one company to another company's handle),the inkjet people work in the same manner, having specific designs that are copyright.
You enjoyed the cheap printer price. Heck, technically, they are using Mike's perfect business model. Why not support them?
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I don't think that's true. I think people here just think it is wrong for companies push for laws to hold up their business models. I think the big issue is HP is trying to shut down people that were trying to undercut their business model. This is just the market at work. I agree with the rest of what you say.
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Whatever you think about the loss-leader model, consumers seem to love it.
You should read some of the comment threads we've had in the past about the cost of printer ink. Many, many, many consumes absolutely hate the concept. Kodak is tapping into that now with a new printer that's a bit more expensive, but with cheaper ink. I'm not convinced it will work, but it certainly got a ton of positive reviews when it came out.
I personally am a big believer that businesses should be allowed to choose and execute their own business model. I know that this position puts me in the minority here at Techdirt
WHAT?!? I'm not sure you've read anything here at Techdirt. We absolutely believe that every business should be allowed to choose and execute their own business model. What we DON'T believe is that said business model should be propped up by gov't protections or some sort of block against competitors.
Do you?
where the prevailing opinion seems to be that no business model deserves protection from anything, be it legitimate competitors, gray-area third parties, or outright tortfeasors.
Did you even read this post? Clearly you have not. The post itself says that HP is doing the RIGHT THING is trying to stop counterfeiters.
It's not like nobody understands how HP makes money. You can go to Office Depot and look at the cartridge prices: the cartridges are on sale right next to the printers. If you don't want to participate in a loss-leader business model, don't buy HP inkjet printers. Don't buy cell-phones at a discount with a plan, just buy the unlocked version.
Again, I'm wondering if you've ever bothered to read the posts here. We've gone into great detail explaining the business model. And the business model, by itself, is fine. But having a business model and then getting gov't protections to block consumer rights are two separate issues.
And the comparison to a mobile phone is not apt. In that case, people are signing a contract. There is no contract with a printer -- though, that could make for an interesting business model idea.
If, however, we take away the ability of vendors to protect their accessory markets in the loss-leader model, then consumers will ultimately be left with one choice: something like a $200 printer with $30 ink cartridges, instead of that AND the choice of, say a $80 printer with $40 cartridges.
You make a lot of assumptions there. But the thing you leave out is if you BUY a product, you have the right to do what you want with it: including tinkering with it, and putting in other cartridges. This has happened for years, and it hasn't put the printer companies out of business yet.
If you don't like the loss-leader model, just say so. Don't attack HP for trying to execute it or obtain the protections necessary to sustain it, just say that ultimately you don't think that loss-leader models deserve protection and that consumers shouldn't have that choice.
Actually, we love loss leader business models, and say so frequently (again, I'm left wondering how much of the site you've read). But there's a vast difference in having a loss leader business model, and taking away consumer rights to protect that business model. Please don't confuse the two.
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This is not surprising at this site. However, the volume of razor, cellphone, and printer sales based on the concept indicates that at least as many consumers are very happy with the concept. In fact, I'd wager that given a completely open option (as with cellphones, where you can buy the exact same product at a higher price, but unlocked) many more consumers still seem to choose the loss-leader model.
And the comparison to a mobile phone is not apt. In that case, people are signing a contract. There is no contract with a printer -- though, that could make for an interesting business model idea.
And maybe we will see that. Of course, do you really think such a contract would be practically enforceable given the workings of our current legal system? Let's say you sign a contract that says you will only put HP ink in your HP printer. How are you going to enforce that, legally? The answer is: you probably aren't.
Did you even read this post? Clearly you have not. The post itself says that HP is doing the RIGHT THING is trying to stop counterfeiters.
I clearly did read the post. I don't understand why counterfeiters are not OK, but people like music infringers are just a market force to be dealt with. I also think HP is doing the right thing in trying to protect a legitimate business model against third parties who are taking advantage of HP's loss-leader model.
What we DON'T believe is that said business model should be propped up by gov't protections or some sort of block against competitors.
Do you?
To a limited extent, yes. If HP wants to sell printers and retain the exclusive right to make and sell cartridges for them, they should be able to do that. It's a legitimate business model, and the benefit to the consumer is that the consumer has the choice of getting the printer for a deep discount.
If consumers don't like this, then they can buy from another vendor who doesn't retain that right.
But the thing you leave out is if you BUY a product, you have the right to do what you want with it: including tinkering with it, and putting in other cartridges. This has happened for years, and it hasn't put the printer companies out of business yet.
The legal right, or the moral right, or the natural right? I probably don't have the legal right to put a mod chip in my Xbox, I probably don't have the legal right to circumvent the Macrovision device in my DVD player...
Look, if you want to buy a printer where more than one vendor sells the cartridges, then buy one where the printer company charges you full boat up front for it. But why should you get to buy a printer at a loss and then buy your cartridges from someone else, who didn't have to absorb that loss?
To head off the inevitable retort that I think that consumers should be FORCED to buy a certain number of cartridges: a loss-leader model still involves an increased risk that you would not buy enough cartridges to cover the loss on the printer, and so I don't think you should be FORCED to buy enough cartridges to cover the cost. But if you buy into a particular bargain (cheap printer, more expensive inks) instead of another (expensive printer, cheaper/more variety in inks) then stick with it.
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Yeah, many consumers prefer a cheaper printer and more expensive ink. But many would prefer cheaper ink from somebody other than HP. Why should HP have any right to determine what you can do with your printer after they sell it to you? If you buy a car from, say, Ford...does Ford get to tell you who can ride in the car with you? Does Ford get to tell you what music you can play in it, or where you can drive it, or what kind of tires you have to use?
If HP is unable to offer printers at current prices with cheaper ink on the market, then they would be forced to raise them or to cut their costs of doing business. If they raised their prices, then consumers could either purchase their printers at a higher price or purchase another at a lower price. If you think for a second that giving HP control over how you can use your printer after sale is somehow beneficial to consumers, you are horribly wrong.
And maybe we will see that. Of course, do you really think such a contract would be practically enforceable given the workings of our current legal system? Let's say you sign a contract that says you will only put HP ink in your HP printer. How are you going to enforce that, legally? The answer is: you probably aren't.
What does the enforceability have to do with anything? Mike was pointing out the disjointedness of your parallel. I suppose if HP wanted to do it that way, they could package in a year or two's worth of ink supply upfront with the printer purchase.
I clearly did read the post. I don't understand why counterfeiters are not OK, but people like music infringers are just a market force to be dealt with. I also think HP is doing the right thing in trying to protect a legitimate business model against third parties who are taking advantage of HP's loss-leader model.
....
To a limited extent, yes. If HP wants to sell printers and retain the exclusive right to make and sell cartridges for them, they should be able to do that. It's a legitimate business model, and the benefit to the consumer is that the consumer has the choice of getting the printer for a deep discount.
If consumers don't like this, then they can buy from another vendor who doesn't retain that right.
Counterfeiters are illegitimately selling a product under a brand that somebody else owns. "People like music infringers" are not selling anything and are merely using the content that they have already purchased and owned.
And businesses fighting for market share is the entire point of the free market! If Taco Bell decides to offer their tacos at $10 a pop, should the government decree that no other business may offer tacos to protect Taco Bell from competition? Those offering tacos under Taco Bell's name are "counterfeiters" as we all denounce, but other taco vendors are merely competitors that keep prices low for consumers. Why does HP get a monopoly on printer ink? If consumers want to use cheaper ink from another vendor, good for them. If HP doesn't like that...they don't have to sell their printers.
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Because HP offers you the printer at a loss. If Ford offers you a $5000 discount on your car in exchange for being able to tell you who can ride in it, or what kind of music you can play, or where you can drive it, or what kind of tires you have to use, then you have a nice Hobson's choice in front of you: take it or leave it. But it's cheating to accept such a deal and then renege.
Why does HP get a monopoly on printer ink? If consumers want to use cheaper ink from another vendor, good for them. If HP doesn't like that...they don't have to sell their printers.
HP does not have a monopoly on printer ink, and if there were legal protections for their business model, they still would not have a monopoly on printer ink. They would have exclusive rights to sell printer ink for HP printers. If you don't like this, go buy a printer from a company that does not reserve the right. There is nothing preventing such a company from competing with HP. If you think that companies should still be able to compete with HP just on the ink cartridges, then let them buy a mechanical license and compete fairly on issues of cost, longevity, prettier packaging, or whatever.
If Taco Bell decides to offer their tacos at $10 a pop, should the government decree that no other business may offer tacos to protect Taco Bell from competition? Those offering tacos under Taco Bell's name are "counterfeiters" as we all denounce, but other taco vendors are merely competitors that keep prices low for consumers.
Taco Bell has no loss-leader arrangement or natural bundling in their taco business model, and as such strikes no similar bargain with consumers with respect to tacos.
Instead of looking at the tacos, let's look at another product. When you buy a soft drink at Taco Bell, you don't get a soft drink, you get a cup. The soft drink machine is right there for your use. Why should you have to pay $1.59 for a cup, when you can get them for a nickel each at the supermarket and then go fill those up at Taco Bell anytime you're thirsty?
Likewise, why should your $1.59 cup (if you're dumb enough to spend that much on a cup) "expire" the minute you leave the restaurant: shouldn't you be able to take that cup to any other fast food restaurant and get soda from their machine? I mean it's not like you signed a contract or anything that said what you could or couldn't do with your cup, and damned if we're going to start protecting their business model with changes to the law.
I guess Taco Bell better start thinking of a better business model for selling sodas.
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Uh, that's only a deal if it's in the contract. It is NOT when you buy a printer. The fact that the company chose a risky business model is their problem. It should not be protected by law.
If you think that companies should still be able to compete with HP just on the ink cartridges, then let them buy a mechanical license and compete fairly on issues of cost, longevity, prettier packaging, or whatever.
Wait, you're honestly suggesting that companies should need a license to compete?
As for your taco bell example, the original commenter got the analogy right, and you made up a totally different situation. The soda machine is in their store and controlled by them, so that's fine.
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Because Taco Bell owns both the soda machine and the store in which the soda machine is located, and as such has the legal right to say when you are allowed to use their property. In this case, they can bar you from using their soda machine unless you've bought a cup from them.
Do you understand why your analogy is inapplicable here? Probably not, since you apparently didn't understand Ryan's original Taco Bell example. The problem is *not* HP telling you what you can do with HP's property. If you went into an HP office building and tried to use *their* printer, they'd be perfectly within their rights to escort you from the premises.
The problem is that HP is trying to dictate what you can do with *your* property (the printer you bought), without any formal contract dictating terms which you have voluntarily agreed to. Further, HP is trying to shut down legitimate competition for no reason other than that it threatens them. As that's precisely what competition is *for*, and the competition is otherwise perfectly legal, this is a bad move by HP.
I mean, seriously, why is it that anytime someone doesn't understand a story about bad business models, they end up using analogies where the customer is instead actually *stealing* from a company, as in directly walking into a place of business and taking things without permission? Ownership really isn't that hard a concept, people. We really *can* tell when you're bullshitting by moving from a situation where someone *claims* there's theft to a situation where there really is theft, and we're not convinced.
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You're skipping over an important aspect of the business model: how is HP retaining that exclusive right? If it's by the design of their printers and/or cartridges, great. If it's by government mandate or legal bullying, not so great.
If consumers don't like this, then they can buy from another vendor who doesn't retain that right.
Or they can buy anything they want from anyone they want.
The legal right, or the moral right, or the natural right?
All of the above, ideally. Certainly the last two.
I probably don't have the legal right to put a mod chip in my Xbox,
Pretty sure that's not true. MS just doesn't have the legal obligation to let you use XBox Live if you do so.
I probably don't have the legal right to circumvent the Macrovision device in my DVD player...
Before the DMCA you did.
Look, if you want to buy a printer where more than one vendor sells the cartridges, then buy one where the printer company charges you full boat up front for it.
Thankfully, I can buy a printer from anyone I want, for whatever reason I want, without knowing anything about their business model.
But why should you get to buy a printer at a loss and then buy your cartridges from someone else, who didn't have to absorb that loss?
Because the US employs a more-or-less free market economy. Nobody can prevent me from buying something from one of their competitors. And that is a good thing. If HP cannot compete using their chosen business model, they need to find a new one. It's not up to me to do what they tell me in order to support their business.
To head off the inevitable retort that I think that consumers should be FORCED to buy a certain number of cartridges: a loss-leader model still involves an increased risk that you would not buy enough cartridges to cover the loss on the printer, and so I don't think you should be FORCED to buy enough cartridges to cover the cost. But if you buy into a particular bargain (cheap printer, more expensive inks) instead of another (expensive printer, cheaper/more variety in inks) then stick with it.
That is fine as advice from you. But I have a problem with it if it's the government telling me I HAVE to stick with it. If that were to happen, I hope nearly everyone would go to some other vendor not using the poison pill loss leader model, thereby telling HP to just stick it.
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As a wise commenter on Slashdot said some time ago -
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Welcome to "mountain out of mole hill, Mike style"
You make it sound like the members of the house and senate passed the "HP can only sell ink for HP printers" law, that they specifically passed protectionist legislation for only HP, and that the government intentionally protected HP.
HP has a right to, as their business model, to create printers that use certain types of cartridges, and that do not work without proper supplies. It is the same manner as making a razor that only uses certain types of razor blades (design). If the consumer is not happy with this arrangement, they can buy a different printer. There is no monopoly or restrictive business practices on making printers or selling ink.
It is no more complicated than "if you don't like it, shop somewhere else". How hard is that?
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Yup, and nobody is disputing that. Additionally, if a competitor sells a cheaper ink cartridge that will work in an HP printer, a consumer has the right, as a discretionary buyer, to buy that one instead. HP is attempting to utilize the government to prevent that second right, and that is what we are condemning.
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I said no such thing, and even trying to interpret that way is ridiculous.
However, they DID pass the DMCA which has been used to prevent competition in this manner (though, thankfully the courts have started striking down such abuses).
HP has a right to, as their business model, to create printers that use certain types of cartridges, and that do not work without proper supplies. It is the same manner as making a razor that only uses certain types of razor blades (design). If the consumer is not happy with this arrangement, they can buy a different printer. There is no monopoly or restrictive business practices on making printers or selling ink.
Indeed. That's also why it's perfectly legal for someone to make cartridges or blades that work in those printers or razors and for people to buy them. That's the free market at work.
The problem was that the company had been trying to abuse IP laws to stop that LEGAL and FAIR competition.
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Legal? In a gray area, especially if someone like HP has a design patent or some kind of DRM-equivalent on their devices.
Fair? I don't think so. If someone decides on a loss leader model, and another company takes advantage by selling the accessories without absorbing the loss, that's not really fair, that's just taking advantage. What would be fair is if the third-party accessory vendors bought a license to sell accessories from the base-unit vendor (HP in this case) so they would have to compete fairly: on quality, for example, or on price from a common baseline.
If you don't like this, then just admit that you don't think the "free market" (we have a mixed market, of course, but whatever) will support loss-leader models in the long run, and therefore they're just a bad business model.
I think that by not protecting these legitimate business models you're ultimately reducing consumer choice and discouraging innovation and variety in business models, but that's your prerogative. I understand that it's more important for you that the consumer have every possible opportunity to have their cake and eat it too.
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What they're doing NOW is competing fairly. I can't think of any reason why HP's competitors should have to pay HP for the privilege of competing with them. What you're asking for is unfair control of the market by HP.
If you don't like this, then just admit that you don't think the "free market" (we have a mixed market, of course, but whatever) will support loss-leader models in the long run, and therefore they're just a bad business model.
That is quite possible, but the more important point is that if it is a bad business model, it should be allowed to fail! Instead your solution is to prop up this economically inefficient business model with government support (because without government interference HP can't prevent these other companies from competing with them). Terrible idea! If the competitors have violated patents, or stolen trade secrets, fine, pursue legal action on those bases. But if not, let the market sort it out.
I think that by not protecting these legitimate business models you're ultimately reducing consumer choice and discouraging innovation and variety in business models,
I think by protecting unprofitable business models, you're introducing economic inefficiency, which reduces the total wealth of the economy. You're discouraging innovation and competition in business models, and instead encouraging companies to go with the government-backed model, even though the market may have demonstrated that it's not the best one.
I don't know if you're going to read this, but... can you explain why you think this is a good idea? I still don't get it.
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Can you name a consumer-level inkjet printer that doesn't take $30-60 refills? Theoretically they could make a more expensive printer that simply has clear, refillable tanks for the ink rather than expensive cartridges. When a tank is empty you just refill it. Do they make an inkjet printer like that for any price?
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Off the top of my head? I'm not sure. If not, and you believe that you can actually get people to buy printers in this setup, that sounds like a hell of a business opportunity for you. Unless, of course, consumers wouldn't actually buy printers in this arrangement, at which point it's just the fair market at work: consumers, given the option, decided on cheap printers and expensive ink.
Are you insinuating that the printer manufacturers are colluding? That's probably illegal, and there are legal remedies for that. If you have some evidence of this, you could consider filing a lawsuit.
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Wouldn't buy their stuff if my life depending on it.
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In some industries, the answer is generally yes. In the aforementioned razor blade industry, people don't really *care* about their blades, so the purposeful incompatibility of the connectors is enough to keep people loyal. In the aforementioned video game industry, the systems can employ strong enough DRM (generally requiring one to actually open up the system and physically install something to get around it) to again generally keep people loyal.
But in the printer industry? The cost of ink is high enough to care about, but it's difficult to justify putting DRM on an ink cartridge. The idea just *sounds* ridiculous. The other strategy - suing the pants off of ink refillers - is similarly ridiculous-sounding, and makes the company look like a jackass to boot.
I think the core problem here is that the printer manufacturers realized one of the big benefits of a loss-leader strategy - once the consumer has bought enough repeatable items to 'make up' the debt from the original sale, they'll continue to buy at the inflated price - and have tried to capitalize on it for it's worth. Printers are substantially cheaper than they should be, and ink cartridges are substantially more expensive than they should be, to the point where color printer ink is one of the most expensive consumer-grade products on the entire planet now. There have literally been cases where buying a *new printer* (which comes prefilled with a supply of ink) was cheaper than just buying ink refills for the existing printer. The printer is essentially a very wasteful wrapper for value-priced ink! (To be specific, I've seen printers sell for $99 while their ink sells for $40 a cartridge, which is $160 for a full fill-up.)
The situation is *so* ridiculous that the price savings achievable by buying ink near the marginal cost from refillers is actually *worth* the hassle of getting around whatever roadblocks the printer manufacturers have put up.
So, yes, there's nothing wrong with a loss-leader business model. But you have to realize that it is an inherently risky strategy, and may very well backfire on you when others legitimately and legally compete with you, and don't have the original item hanging around their neck to force them to overprice the repeatable item.
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Typo
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Drawing parallels
Or from http://www.microscope.co.uk/welcome/news/reseller-news/uk-piracy-losses-hit-hightest-level-ever/
"The cost of software piracy in the UK has risen to its highest level at £1.49bn last year with over a quarter of all products in the market now being illegal."
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How is this different than...
We are starting to see more and more examples, especially in IT related arenas, where it has become acceptable to block owners of their devices from using either parts or accessories or applications from alternative/non-approved sources. Sad to me....
Freedom
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General response
Although we believe (and studies have shown) that our customers are guaranteed the best experience when they purchase Original HP supplies, the company does not prevent customers from remanufacturing or refilling cartridges, and does not object to the lawful sale of these legitimate refilled cartridges. All we ask is that our intellectual property rights and patents are respected.
HP is committed to protecting customers from inferior products sold under our name because we want our customers to get what they expect - high quality prints - every time they hit print. By preventing the illegal sales of counterfeit goods and offering a range of HP cartridges to fit different printing needs (starting as low as $9.99) we are helping to ensure our customers get the best experience and most value out of their HP printers.
Like to know more about printing? Follow me on http://twitter.com/thom_socal_HP
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hp
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HP should not come after us
Well, if they don't, we'll be happy to provide them cheaper and yet quality alternative hp ink and toners.
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Starting business
And inform the buyers that they are not buying an hp or canon is that legal???
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