Example of 3D Systems filament cartridge
Resellers of hardcopy equipment will have a strong sense of déjà vu once they look at the patent and copyright issues surrounding the 3D printing market. Like their hardcopy siblings, 3D OEMs are using the courts and lobbying for legal interpretations in order to control the consumables side of the business. And they are using the same legal tactics that have worked for the hardcopy vendors: patents, copyrighted code in microchipped cartridges, warranties, and service agreements.
What’s surprising is that 3D OEMs are using the same arguments on copyright that were unsuccessful for the hardcopy OEMs. Specifically, they claim that controlling consumables is good for the consumer and will allow 3D equipment makers to innovate faster. While there are technical differences in the products and materials, experts say that the two situations are conceptually similar from a legal standpoint.
So what does this mean for resellers of 3D systems, especially for those marketing products from smaller OEMs with no patent portfolio and limited resources for legal defenses? Will the reseller get stuck with inventory that it can’t sell? Or will channel partners themselves face legal liabilities for having sold infringing 3D products like we’ve seen so often with vendors marketing infringing hardcopy supplies?
The short answer is probably not as long as they stay on top of legal developments and play it smart. What follows is an overview of significant legal wrangling in the 3D world, potential areas of liability, and advice for resellers to avoid disruption or loss from any potential legal issues.
Legal and Liability Issues
Currently there are two pending cases that potentially could set important precedents in the 3D market—one on patents, the other on product liability. Both involve market leader Stratasys. Another significant patent case, 3D Systems v. FormLabs, was settled last year in 3D Systems’ favor.
The patent case is Stratasys v. Microboards Technology, which is the parent company of 3D printer manufacturer Afinia. Stratasys filed the patent-infringement suit in November 2013 and recently won a round when the court denied Afinia’s request to have the patents invalidated.
If Stratasys wins this suit, then it would have a huge impact on all other makers of Fused Deposition Modeling (FDM) machines. A win would give Stratasys leverage to force Afinia and possibly other companies to stop selling its printers or pay royalties.
This case is particularly significant for resellers because many FDM printers are sold through the reseller channel. Brands that sell FDM printers other than Afinia include Colido3D, Airwolf3D, Cubify, and Dremel.
Last December, 3D Systems and FormLabs settled a suit over FormLabs’s alleged infringements on stereolithography (SLA) patents held by 3D Systems. FormLabs agreed to pay an 8 percent royalty to 3D Systems on net sales of its Form 1 and Form 1+ systems. FormLabs settled even though its technology was significantly different in some respects.
It’s hard to say if the Stratasys v. Afinia case will go in the same direction. Afinia’s product also has some key technical differences from the patents in question. A royalty payment, however, would be a much better outcome for Afinia and its channel partners than being forced to pull the product from the market.
Stratasys is also involved in a shareholder lawsuit that involves well-reported issues with its Makerbot line. The suit claims that Makerbot and Stratasys knowingly sold printers with defective extruders and then counted those sales to report growth. By some reports, as many as 50 percent of those systems were returned.
While the suit does not directly affect resellers, it underscores the risks associated with dealing with product defects on a large scale. All resellers have to deal with the consequences of defects, but if one of the biggest and most stable 3D OEMs can have an issue at this scale, then what should the expectations be for return rates in the industry as a whole?
Another issue involves a debate over how OEMs may use copyright to protect its consumables business. Public Knowledge, a public policy organization, has petitioned the US Copyright Office to exempt 3D printing from the Digital Millennium Copyright Act (DMCA) in regard to digital locks. Essentially, Public Knowledge argues that owners of 3D printers should be allowed to disable or bypass proprietary mechanisms that prevent them from using third-party consumables.
Stratasys countered Public Knowledge by submitting comments in opposition to the Public Knowledge petition. In part, the company claims that the digital locks are good for consumers and industry because it allows them to be more innovative and maintain quality standards, an assertion we’ve heard many 2D OEMs make about their consumables.
The DMCA is important to resellers for two seemingly contradictory reasons. In the short term, locking in customers to the OEM’s materials means an ongoing revenue stream for dealers that sell exclusively OEM consumables. Customers can’t shop around for the lowest price or they’re apt to face legal consequences. But in the long-term, limiting consumer choice could be bad for business. Certain customers will need a bigger range of materials options than any one vendor can provide. For example, engineers doing prototype work often look for materials with very specific qualities. Having an option to unlock the systems for third-party consumables could help sales and keep customers happy. In fact, I suspect that some customers will be attracted to hardware that supports non-OEM materials.
OEMs also protect their consumables business through language in warranties and service agreements that discourages use of third-party materials. In most cases, use of third-party materials is not outright prohibited. The warranties and agreements state that their use “may” void a warranty or result in service fees beyond the contract payments. This tactic has been used in the hardcopy industry too, but most printer and copier companies avoid the practice because it can be seen as limiting competition.
There is legitimate concern on the part of the OEMs about inferior quality materials damaging the equipment or producing poor results. And resellers don’t want to start bickering with customers over why a machine is broken. Both 3D OEMs and resellers want to ensure good performance without entirely ruling out the use of third-party consumables as is often the case today with hardcopy consumables.
Avoiding Trouble
The problems that the risks described above can create for resellers fall into these categories:
- Loss of product to sell due to OEM losing a patent infringement case
- Sales lost due to materials limitations placed by the OEM
- Disruption and damaged reputation from product defects
- Lower customer satisfaction and loss of reputation when customers find they can’t use a desired materials option post-sale
A lot of this might seem out of the reseller’s control, and that’s true to a degree. However, there is much a reseller can do to maintain credibility with customers and minimize loss or disruption brought on by their OEMs’ actions or policies.
Diversify: This is good advice regardless of any legal or liability issues when it comes to the 3D market. A reseller can diversify on a number of levels. One is to sell more than one 3D printing technology. This will not only provide a hedge should one OEM run into trouble, but it’s a smart business move especially in certain verticals. Education and manufacturing firms, for example, often have multiple 3D printing technologies in place for different applications. A reseller who offers only one will have a harder time getting business from those companies.
Resellers can also diversify by selling ancillary appliances required by certain 3D technologies and applications, or by selling services such as training or prototyping. This creates multiple revenue streams that can protect against disruption in one.
Know your OEM’s policies and protections: As with the hardcopy market, 3D OEMs typically have indemnification clauses in their reseller agreements. This protects resellers from losses due to legal issues or product defects. However, don’t assume that those protections are in the agreement or that the OEMs will handle problems in the same way as hardcopy OEMs, especially with younger OEMs or overseas OEMs entering the North American market.
Make sure you understand how an OEM processes product returns or recalls so that your expectations are clear and you can accurately set the customers’ expectations. In particular, you want to know how fast the OEM can replace or repair a system and who is handling the process. Some OEMs outsource manufacturing, which can create delays. Also important: How quickly do they compensate you or your customer on a product return due to defect?
Be a trusted resource: The 3D market is confusing, even for some people who have been using the technology. A reseller who knows not just the technology, but how it works from the supply chain to customer service will gain customers’ trust. As a result, when something does go wrong with an OEM or a product, customers will more likely see the reseller as an ally who will help them sort out the problem.
On the materials side, resellers should help steer customers intent on buying non-OEM options toward those that are most likely to work well and produce good results. Losing a little consumables revenue is better than losing the customer altogether.
Set realistic expectations: Customers are exposed to a lot of hype about what 3D printing can do, and that can be a problem if they believe they can use the technology for applications it’s not capable of doing. Similarly, the 3D market is young and the infrastructure and policies are not as robust as they are in the hardcopy world. For example, the 3D printing supply chain is under-developed, so getting replacement parts might take longer. Service done by the OEM takes more time, too.
It’s important for a reseller to know the capabilities of the technology he or she is selling and how the OEM’s processes for service and support work. Resellers will then be able to communicate what to expect before a problem arises. This enhances the reseller’s credibility, which will shield them from the customer’s wrath when they learn, for example, that it will take a week to replace a defective part.
Be an advocate for your customer: By this, I don’t just mean when there is a problem. Resellers should be proactive on the customers’ behalf with OEMs. If the reseller believes that an OEM’s policies or processes are not acceptable, then it’s a safe bet the customers won’t like them, either. Change happens slowly, but resellers have leverage with OEMs and can make a difference if they take a true partnership role.
