Why Keurig’s locked-down K-Cups won’t prevent competition from generic coffee-pods

Printer ink cartridge manufacturers couldn’t stop refillers. The same will happen here

Keurig single-serve coffee pods

Keurig getting sued for anti-competitiveness was probably inevitable, but it’s a little surprising that it’s a small Canadian company taking the U.S. coffee machine giant to task.

Toronto-based Club Coffee on Wednesday announced it is suing Vermont-based Keurig Green Mountain Inc. for $600 million for allegedly trying to exert monopoly control over the coffee pod business. The allegations have not been proven in court and Keurig has not yet commented on the matter.

MORE: The next generation of Keurig single-serve brewers will DRM-lock your coffee »

Keurig has been telling retailers, coffee makers and consumers that only its own proprietary pods will work with its new machines, which is harming competitors and driving up prices, according to Club Coffee’s claim.

“In fact, some Canadian retailers were told they couldn’t even talk to Club Coffee,” Robert Russell, the smaller company’s lawyer, told The Globe and Mail.

Earlier this year, Keurig announced a “2.0” version of its machines that would only work with its pods, or K-cups, thereby cutting out third-party manufacturers such as Club Coffee or force them to pay a licensing fee.

The scheme looks much like the one used by printer manufacturers such as HP, Epson and Kodak, all of which have provoked various lawsuits over the years. The printer giants have claimed their cartridges rely on proprietary technology, which has resulted in sky-high prices on ink.

In Canada, however, the printer companies are prevented from excluding third parties by the Competition Act, which has enabled refilling businesses such as Island Inkjet to operate and provide some measure of competitive pricing discipline.

“We’ve refilled 10 million cartridges,” says president Alex Schulz. “That’s a savings to consumers of about $100 million.”

Despite the law, the printer companies have been trying to make their cartridges harder for third parties to crack. Epson designs, in particular, are difficult if not impossible to refill, Schulz says. Some refilled cartridges can end up being blacklisted by a printer if the user presses the wrong button.

The moves aren’t just anti-competitive, he says, they’re also environmentally unfriendly. “In Germany, it’s illegal to produce a cartridge that isn’t refillable. We don’t have the same laws here.”

Keurig has been also been criticized for the non-recyclable nature of its pods, an issue that third parties such as Mother Parker have been trying to address.