In a major ruling against a Japanese company, the United States has found Canon guilty of violating US trade and antitrust laws. In an initial decision Tuesday, International Trade Commission judge John Mathias found that Canon, the giant electronics company, had used unfair trade practices in monopolizing the market for toner used in its copying machines.
The ruling marks the first time the ITC has ruled against a Japanese company for monopolizing a market and is a victory for Aunyx, Inc., the Boston-area company that brought the suit against Canon.
Aunyx is an independent producer of toner - the powdery material that acts as a dry ink in photocopiers. Aunyx president Bob Langone said the decision, ``reinforces my belief that the system works the way it is supposed to.''
Outside analysts said the decision would likely have a ripple effect in the multi-billion dollar toner industry. Richard Norton, an industry analyst with Dataquest, a San Jose, Calif., research company, said it would likely help independent manufacturers, including several Japanese companies, that are building facilities in the US.
In addition, Mr. Norton predicted independent companies are likely to become more aggressive at attacking some of Canon's other products such as supplies for high-speed computer printers. Because of a complex series of patents, Canon holds a monopoly on producing toner for the printers.
The detailed toner case is unique because only one other predominantly antitrust case has gone to trial at the ITC in the past 10 years.
Aunyx's lawyer Bart Fisher says the dispute illustrates another facet of the nagging trade deficit. Japanese companies, aware of the importance Americans place on service, have found a way to use service departments to beat back competition.
According to documents filed with the ITC, Canon used service technicians to disparage competing products.
For example, Sam Maharaj, a former Canon employee, testified before the ITC that the company taught dealer servicemen to tell customers that non-Canon supplies would cause electrical and mechanical problems for their copiers. Once they repaired a machine, technicians were told to replace non-Canon toner with Canon supplies.
At the same time, Mr. Maharaj, who was a service training supervisor at Canon, said some servicemen were taught how to sabotage copiers using non-Canon toner. And, customers were told their warranties might be void if they used competing products. In his testimony, Maharaj said he told servicemen if a customer continued to use competing supplies, the dealers ``have a right, if the machine has any problems, to void the warranty on the equipment.''
``The training activities were schools for scoundrels,'' Mr. Fisher says.
Art Diamond, president of Diamond Research in Oak View, Calif., says Canon dealerships are so profitable, ``a dealer would be willing to swallow some transgressions.'' Disparagement of competing products is common in the industry, he says. This is especially true of Japanese companies since they do not face the same competition from independent manufacturers in Japan as they do in the US. ``They call independents `pirates' in Japan,'' Norton says.
In the US, major users of toner frequently buy from independents such as Aunyx to get a lower price. To keep their warranties in effect, large users asked Canon for the specifications on its toner. Canon's reply was that the specs were not public information.
``It was a Catch-22 effect,'' says Stephen Sulzer, a lawyer for the ITC, which argued against Canon in the suit.
Canon's lawyer, Harvey Applebaum of Covington & Burling, had no immediate comment on the case.
The full ITC may review the decision next February and subsequently decide on the remedy to resolve the dispute. The remedy could take the form of an embargo on Canon toner imports or an order to ``cease and desist'' from future anticompetitive activity.
The dispute goes back to 1981 when Aunyx, a small Canon dealer and toner manufacturer for machines made by other companies, offered to produce toner for Canon in the US. Mr. Langone realized profits were in the supplies for copiers - not in the machines themselves.
Canon also knew there were large profits to be made in the supplies. Its prices for machines were low while its toner prices were high.
In April of 1982, Aunyx employee Richard Thompson produced a toner which would work in Canon New Process copiers. Aunyx sold it for 20 percent less than Canon's price. Shortly after Aunyx introduced its toner, Canon began competing against Aunyx vigorously, eventually leading to the lawsuit.
In a separate case, Aunyx has filed a $300 million antitrust lawsuit against Canon in the federal district court in Boston. This case could drag on for years, however.