Cartridge Refillers

Date: Apr 18, 2005
Contributor: Javier Bertolino

Ink Cartridge Refillers Wage Messy Spat

Stop the presses. Or more precisely, stop the printers.

The battle between two of the fastest-growing ink cartridge refillers is heating up as the firms trade charges -- some of them in court -- over each other's business practices.

"We are being bullied," said Caboodle Cartridge founder Daniel Wencel. The company this month sued for the right to hire a top engineer from Cartridge World.

Cartridge World, meanwhile, says Caboodle has withheld crucial information from potential franchisees, including a past lawsuit.

"They're going to end up in a lot of trouble," said Cartridge World Chief Executive Burt Yarkin.

The claims highlight the mounting stakes in off-brand printer ink sales. The industry is the scourge of printer makers, which rely on their brand-name supplies for much of their profit. But refills have become popular among frugal customers.

Cartridge refill services pour off-brand ink into empty ink cartridges. Thus, they bypass the most expensive part of the ink making process: the high-tech delivery mechanism.

The warring companies hope physical stores help overcome their reputation, some of it fueled by printer makers, of shady ventures and shoddy products.

Cartridge World is the biggest chain, with more than 150 U.S. stores and another 160 under construction. Caboodle, which recently began franchising stores, has 19.

In its suit, Caboodle asked a Silicon Valley court to formally OK its recent hiring of Tien Nguyen. Well-known in the ink world, Nguyen quit Cartridge World in January and soon joined the smaller rival.

Before Caboodle filed suit, Cartridge World had threatened, in letters sent by its attorneys, to sue Caboodle, saying Nguyen is subject to a noncompete agreement he's now breaking. In the letters, Cartridge World says Nguyen will almost certainly give away trade secrets.

But Cartridge World says it's now dropped the matter. "If they think he's so great, go to town and good luck," Yarkin said.

Cartridge World didn't "have a leg to stand on," said Caboodle's Wencel. He wants Cartridge World to refund Caboodle's legal costs.

In the meantime, Cartridge World is publicizing complaints filed in California and Michigan that claim Wencel broke franchise laws by failing to disclose a prior lawsuit to potential franchisees.

A complaint filed in Michigan by California attorney David Holmes also objected to other information Caboodle gave in franchise offer materials. The complaint to the Michigan attorney general's office said Caboodle understated franchisees' costs and made claims about their profit potential that aren't allowed. Holmes didn't return phone calls seeking comment.

Cartridge World's Yarkin says the Federal Trade Commission is probing Caboodle over the matter. An FTC spokeswoman says the agency comments on official actions only.

Caboodle's Wencel says he has corrected any errors. He says he's new to franchising and didn't know the prior lawsuit was relevant.

In that prior matter, Wencel sued former business partners for fraud. They countersued him. They later settled, and Wencel says he was paid an undisclosed sum.

The complaints to regulators are more attempts to intimidate the smaller firm, Wencel says. They reflect a pattern of strong-arming rivals and its own franchisees.

Wencel says several would-be Cartridge World franchises have come to Caboodle because they didn't like the bigger firm's methods and franchise terms.

In addition to refilled ink cartridges, both chains sell new ink cartridges. Wencel says his bigger rival forbids franchisees to buy those cartridges from anyone but Cartridge World, so it can squeeze more money from the stores.

Cartridge World's Yarkin says such deals are typical of franchise chains, meant to ensure quality.

"Do you think McDonald's allows franchisees to purchase their fries anywhere they want?" Yarkin said.

He added that Cartridge World has a purchasing committee that includes franchisees. The firm has lowered prices twice in recent months, thanks to its growing size and buying power. Caboodle doesn't understand ink technology or how to franchise, Yarkin says.

Several Silicon Valley-area franchisees, contacted without Cartridge World's knowledge, say they're happy with the company.

Frank Salamanca, who owns a Cartridge World store in San Jose, Calif., said he has "no complaints whatsoever." He plans to open a second store. "So far, so good," he said.

Paul Mehta, who opened a Cartridge World franchise this month in nearby Milpitas, said his franchise contract "has been very fair."

Cartridge World and Caboodle see a quick resolution to their current legal disputes.

But with ink fetching higher prices per ounce than fine wine, many perfumes and crude oil, their rivalry shapes up to be a long one.





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