HP, Staples Lawsuit Shows Cutthroat Competition - Analyst

The antitrust lawsuit, filed in U.S. District Court in Boston, alleges HP and Staples enacted an "an illegal agreement between competitors to stop competing" in which HP paid Staples market development funds to stop selling non-HP-branded ink-jet printer cartridges for HP printers.

The suit, filed by a Pacific Palisades, Calif. resident named Ranjit Bedi, said HP paid Staples more than $100 million in market development funds to sell HP cartridges and to stop selling lower-priced cartridges.

However, Andy Lippman, an industry analyst for ink-jet cartridge markets for Lyra Research, a Newtonville, Mass., research and consulting company, said jockeying for position occurs frequently in the intensely competitive, $30 billion, ink-jet cartridge market.

Lippman said the practice was not necessarily illegal. "The whole business market for HP and other printer manufacturers is to lock the consumer into buying the products from the manufacturers," Lippman said. "There is a constant struggle. It's not just HP, but all the manufacturers are doing their best to sell these ink-jet cartridges."

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HP released a statement earlier this week denying the claims of the lawsuit. "HP denies that it has engaged in any anticompetitive conduct," the statement said. "HP is confident, therefore, that after the relevant facts are presented to the judge it will be determined that our business relationship with Staples has been and is entirely proper." Staples said it will have no comment while it reviews the lawsuit.

Other leading ink jet replacement cartridge manufacturers, including Epson, Canon and Lexmark, could not be reached for comment.

Staples at one time sold its own brand of replaceable printer cartridges, which competed with HP's, Lippman said. HP asked Staples to use the HP brand instead.

"HP, which is the big partner with Staples, told Staples they were not being treated fairly," Lippman said. "HP said to Staples, 'We provide you with a lot of good products, but you are selling your own brand of products and taking revenue from us.' Staples was selling cartridges a couple of dollars cheaper and putting it next to the HP brand. It's an obvious choice to go with the cheaper product."

Lippman said the amount of money listed in the lawsuit to describe the market development funds provided to Staples in the agreement appeared accurate. "We also heard it was $100 million," he said. "We think HP gave Staples a couple of percentage points of profit on the cartridges as well. So Staples gets a cut whenever they sell them."

Lippman said such agreements may not necessarily use the term "market development funds" to describe payments. "A lot of money is exchanged in what are called 'shelving fees.' To get a key shelf or kiosk, you have to pay," he said. "It's easy for HP to say, 'We decided to pay for the space."'

However, not all customers are happy that Staples cartridges are replaced with HP products, Lippman said. "Staples told the public, 'We are going to stop selling our own brand of cartridges, but you get a better quality of cartridge from HP,''' Lippman explained. "A lot of customers would say, 'We save money on the Stapes product and will go to another office supply store or online to make the purchase.''' Some HP partners said the actions would depress printer cartridges, making it difficult for them to compete.

"I wouldn't be surprised a bit [if the lawsuit claims were true]," said Jay Tipton, vice president of business solutions for Technology Specialists, Fort Wayne, Ind., an HP partner. "That is how big box retailers can make their money [selling products like printer supplies], by sometimes selling at ridiculously low prices. I can't beat those prices. The only way I can make money is through services. In turn, Staples probably has an agreement with HP to sell a certain amounts of cartridges."