According to the American Bar Association, at the end of 2012 there were 1,345,205 licensed attorneys who can legally practice in the United States. That is approximately one available licensed lawyer for every 232 people in the U.S., or .43% of the total population that knows how to sue your company. With this lawyer to potential customer ratio in mind, we can understand the supply and demand for litigation in American business.
As the global market place becomes integrated, businesses are becoming more aggressive in protecting their products and customer base. The fear of the competition being able to infiltrate your customer’s buying realm adds to the paranoia increasing the need to protect and differentiate the products and services being offered by each company.
If you make, buy, or sell compatible aftermarket products, there is a 85% chance someone you did business with has sued, been sued, or threatened to be sued.
The Webster’s New College Dictionary defines:
Patent: As a grant made by a government to an inventor assuring the sole right to make, use and sell the invention for a certain amount of time.
Indemnify: 1. To protect against damage, loss or injury; insure. 2. To make compensation to/for damage.
Intellectual Properties (IP): A product of the intellect that has commercial value, including copyrighted property such as a literary works, ideational property, such as patents.
Patent, Indemnify and IP are terms you should understand and clarify with your non-OEM supply vendors. Will your vendor provide you with a written document, signed by an appropriate officer of their company, which will indemnify (protect against damage, loss or injury) you and your company from any legal cost in the case of future legal involvement due to the purchase and use of a remanufactured product?
Requiring your seller, distributor or remanufacturer of aftermarket supplies to indemnify your company (and employees) is worth considering. As dealers transition into the use and reselling of remanufactured, non-OEM supplies and parts in their MPS and CPC programs, understanding the US patent laws and Intellectual Property rights of the patent holder will help you make appropriate business decisions.
In the late 20th century, OEMs used marketing and technology barriers as their primary defense against the remanufacturing and sale of aftermarket, compatible non-OEM supplies. As the remanufacturing processes in the U.S. and Asia began to mature and actually start to seriously affect the profit margins of the OEM’s aftermarket sales, the OEMs are now very aggressive in protecting their Intellectual Properties through litigation, cease and desist letters, and monetary settlements.
Buyer, seller, and distributor beware. Every link of the chain from manufacturer to user must be aware of potential litigation due to their connection with an illegally made laser toner cartridge or other part or supply item that is used in their printer, MFP or copier.
Items to consider before selecting a vendor of non-OEM supplies:
Are they (or any of their 3rd party suppliers) currently in any IP related litigations?
Do you have a contract/provision that indemnifies the buyer/user in the event of any IP lawsuits brought against you?
Will the seller pay all legal costs if a lawsuit should arise?
Does the seller / manufacturer have (or applied for) any patents?
Does the seller/ manufacturer have a documented and organized process to review current IP of all non-OEM products being sold?
Is their company a current member of the I-ITC? (International Imaging Technology Council)
It is the responsibility of everyone involved with the aftermarket to take control of the legal realities of your business. Once you have asked the questions, ask for tangible proof of the answers. Ignorance of or ignoring the realities of today’s business climate is no longer an appropriate business practice. Once you have the answers, you can make a more educated decision if the vendor’s products provide appropriate value.
When dealing with non-OEMs supplies in North America, the chance of receiving a cease and desist letter, or other threats of litigation, escalates in direct ratio to the net worth of the company. When watching reports of newly sued businesses, it is common to find a list of multiple companies being sued by one manufacturer. In most cases, the list will include remanufactures, distributors and resellers. Normally, however, the list will only include companies that have a legitimate net worth, excellent business insurance or wealthy owners.
It does not make financial business sense for the patent holder to threaten to sue a small, insolvent, or under-insured company. In these cases, a cease and desist letter usually causes a small company to immediately stop the harmful practices. If the under-funded company ignores a cease and desist letter, a business decision must be made to determine if the offender’s minuscule portion of their market being affected is worth further action. The cost of receiving a court judgment against a company that will just ignore any monetary settlement claims or immediately file bankruptcy is of little practical value.
I know individuals who manipulate their ownership of patents and software licenses for profit. They are able to generate most of their yearly income by settling multiple small accusations of patent infringement or licensing matters with multiple manufacturers, remanufacturers, distributors and resellers before formal legal proceedings are filed. Receiving $5,000 to $25,000 per settlement quickly escalated into a prosperous side business. Those companies being faced with an unknown cost for litigation, management irritation, and distraction of facing a legal entanglement prefer to quickly settle the potential legal issue.
Business owners and enterprise level decision makers understand a quick and quiet settlement is more cost effective than using their in-house legal staff or having to hire outside counsel. Additionally the day-to-day diversion of valuable staff time to deal with pre-trial posturing, discovery, depositions, trial, and appeal adds to the costs. Any company that has gone through the drawn out process of a lengthy court proceeding learns the value of a quick settlement. Writing a five or six figure check is usually less costly than proving your innocence or being found guilty.
Today, many lawsuits within the imaging industry are settled or discharged with the reference without prejudice. This is the legal terminology of saying, “we will leave you alone for now, but if you misbehave again we can immediately reopen this case and you may have to pay for your current and past sins. The next time you infringe upon our patent or license, we will go after you to the full extent of the law. You have been warned.”
A natural extension of all these legal maneuverings means we are all paying the price of the USA’s very litigious climate. Every lawsuit dealing with the imaging industry is paid for by the end-users of the products. Ultimately the end-user pays more, the middle man earns less and the OEM digs in a little deeper to protect the exclusivity of their products.
Ask your current and potential vendors of non-OEM products for a written statement of indemnification. This will be a first step toward protecting your company from future monetary responsibility if a problem arises. Also review your business insurance for coverage dealing with possible patent and software infringement issues. Now is the appropriate time to be an educated and proactive buyer.
