It's real and happening every day in the U.S. to businesses, inventors and innovators. Patents that should protect an invention, product or idea have done just the opposite. Below are stories of patent abuse and the importance of a strong patent system.
The Cablz Story— That’s What Happens When You Have a Weak Patent System
Ron Williams, the President CEO and Founder of Cablz Inc. in Birmingham, Alabama has spent $3 million defending his patents. That’s right, $3 million to protect his intellectual property. It’s unfortunate he has had to spend that amount of money to protect an idea that is rightfully his. But that’s what happens when you have a weak patent system.
In 2007, Ron came up with the idea of an eyewear retainer to help keep sunglasses in place while the retainer stayed off of your neck. The retainer, called Cablz is made with a resilient cable that extends rearward from the head of the wearer and is suspended off the wearer’s neck. The device is comprised of two temple retainers connected by a stainless-steel cable with ball bearing technology. A patent for his invention was issued in 2007.
For the next two years he perfected the product, received the appropriate trademark and copyright and was ready to bring it to market. He did so in 2009 and Cablz took off nationally. Then, while attending a trade show, he showed it to a national rep from a large company. And, you know what happens next. A short time later a company called Chum’s started selling a sunglasses retainer, exactly like Cablz.
Ron and his attorney tried to stop Chum’s, which at one point the knockoff eyewear retainer was 60 percent of their gross revenue (per the Judge at the Inter Partes Review). They even introduced evidence in court…letters in which the infringing company said, “We need to make these things (eyewear retainer) and knock off the other guy, because it (the product) is really taking traction.”
Ron went before the Patent Trial and Appeal Board (PTAB) six times to try and get some relief. But to add insult to injury, the PTAB invalidated one of the patents. Chums and other companies are continuing to benefit from his invention.
What keeps Ron Williams going? He says it’s the hope and the belief that the patent system will change and protect entrepreneurs like himself who come up with great products and great ideas every single day.
In 1996, Peter Keller, a computer hobbyist and music collector, invented a stereo component that enabled archiving music from degrading vinyl records and tapes and storing it on CD-R media. The Discribe™ Recorder became the basis for formation of his Lake Forest, IL company Advanced Audio Devices, LLC (AAD) in 1997.
As hard drives got cheaper and bigger, AAD refined its product and created a digital audio recording and playback device as simple and easy-to-use as a cassette tape recorder. It functioned as a “music jukebox” or “digital audio player” and required no computer literacy. With issuance in 2003 of its first Music Jukebox patent, AAD was off to a great start. In all, AAD secured eight U.S. patents based on its inventions.
In 1999, a California company, Alesis, announced a new high-end professional studio product similar to the Discribe™ Recorder. In 2004, Alesis became the first company to license AAD’s patents. No litigation was involved. In the meantime, Apple introduced the iPod. As more mp3 players and smart phones came to market, infringement of AAD’s patents was well under way. So was the beginning of years of legal proceedings and patent licensing activities.
In 2005, AAD filed a patent infringement suit against Apple that was quickly settled out of court. As infringement cases were resolved, others popped up and AAD has been fighting these cases ever since. To date, AAD has spent more than $6 million in patent enforcement legal fees and it now has over two dozen companies licensed, mostly without litigation. But recent “proceedings” before the newly created Patent Trial and Appeal Board (PTAB) have resulted in some of AAD’s patent claims being ruled invalid as “obvious.”
Mr. Keller who has been president of AAD since its formation says, “I feel I have been betrayed by my own government, which ostensibly issues patents ‘to promote the Progress of Science and useful Arts’ as is written in the Copyright Clause of the U.S. Constitution. The possibility that my own intellectual property would be declared not to be my property and then extinguished altogether, without due process, wasn’t part of the deal. This is very disheartening, but my fight will go on.”
The story is not that uncommon. Idea. Product. Patent. Sales. Rip-off.
Josh Malone, a Plano, Texas inventor, entrepreneur and father of eight came up with a novel idea, specifically how to quickly fill water balloons. Malone invented Bunch O’ Balloons, a garden hose attachment that can fill 100 balloons with water in just one minute. His kids loved it and he secured a patent for his idea. He worked out a licensing agreement with Zuru, a toy company, and was off and running to fill orders of several million units. Then, a friend noticed an ad on TV for what was essentially the same product. Someone ripped him off and was selling his invention.
Malone sued. He sought an injunction to stop the infringer, Telebrands, but the fight has lasted more than three years. Why has it taken so long? Weak patent laws. Patents that are designed to protect inventors like Josh Malone are not doing the job. Thanks to the revenue of Bunch O’ Balloons, Malone and Zuru have been able to fight the abuser, but legal costs have amount to more than $20 million dollars!
“We obtained an injunction against Telebrands that says they can’t sell the product anymore,” Malone said. “Then, they make a change to the design and claim it doesn’t infringe our patent. They found a loophole to keep it going and then we have to start the legal process all over again. This has been a never-ending battle, that is just not right. If patent laws were effective, nefarious competitors would not be so cavalier about taking what does not belong to them.”
Have the Courts succeeded in turning our patent system upside down?
Here is the story of Evolutionary Intelligence (EI) of San Francisco. EI holds patents issued in 2006 and 2010 for a specific method of improving and automating mobile search results. The method would use information about a user’s precise location and other rapidly-changing data from the outside world to dramatically improve mobile search and advertising placements. For example, EI’s invention made it possible for someone stepping off an airplane in an unfamiliar city to be informed of current nearby restaurant dinner offers. While commonplace today, the design was revolutionary in 1998, when the patent was first filed.
However, several years after obtaining the patent for this method, EI learned that big tech giants, including Apple, Facebook, Groupon, Sprint, and Twitter were using this technology. EI sued in the Eastern District of Texas to stop the patent infringement but was moved to Northern District of California. However, before anything could proceed in California, the case was stayed pending eight (8) requests for inter-partes reviews at the Patent Trial and Appeal Board (PTAB), with both Defendants and the Court claiming they would be “informed” by the proceedings. EI successfully defended all of the inter-partes review proceedings, including an instituted trial, without a single revision to any of its claims, with estimated costs exceeding $1 million dollars in legal fees.
When the case returned to the California district court, the court granted defendants motion to dismiss the case, holding that the patent claims were abstract under 35 U.S.C. § 101. The court failed to consider any of the underlying facts as found by the PTAB, ignored actual claim limitations, and instead accepted the vague and unfounded characterizations of the Defendants. It did so despite the PTAB’s construction of the claims and weighing of conflicting expert testimony any one of which likely would have defeated the 101 motion.
EI continues to fight for its patent rights, which they are entitled to based on the Constitution.
For more than 100 years utility companies have used wood for utility poles. While extremely durable, wood poles are subject to decay and rot and need to be replaced on average, every 30-40 years.
That got Tom Waugh, the president of a Birmingham, Alabama based company to thinking. Waugh had been in the electrical utility industry for more than two decades with both product and manufacturing experience. He thought there had to be a better product and sure enough he developed it. In the mid-90’s he created and patented a technology to manufacture centrifugally cast tapered ductile iron utility poles, a more durable pole made from iron that could last up to 75 years.
Waugh, created a company called Seamless Pole, Inc. and showed his technology to several U.S iron companies including McWane Global. McWane was interested, but after 15 months of negotiations declined to manufacture the product. Then in 2008 McWane created a new company division, called McWane Poles and began manufacturing and selling centrifugally cast tapered ductile iron utility poles, using Waugh’s technology. While Waugh was able to stop McWane from selling the product in certain states, the poles are still being sold in Ohio and Utah and McWane’s sales, using Waugh technology, have topped $50 million.
Tom Waugh has been in and out of court fighting this battle ever since. His legal fees have soared into the hundreds of thousands of dollars. A current case again McWane will be heard later this year.
This is a classic story of patent abuse. Inventor comes up with an idea. Shows it to a company. Company declines to participate, but then later the company uses the idea and starts manufacturing the product using the stolen technology.
In 2010, Michigan based automotive engineer, Choon Ng, created a device, the Rainbow Loom, that links rubber bands into bracelets. He was motivated by the reaction of his two young daughters’ and their neighbors’ kids. Choon and his wife decided to invest their life savings of ten-thousand dollars and start a business that could help pay for their daughters’ education. They secured a patent for the Rainbow Loom, formed a company and contracted with factories to produce the components, so they could assemble the Rainbow Loom in their home. The beginning chapter of their business was rocky since they didn’t have experience in marketing and sales. But by 2012 the Rainbow Loom found its way to independent toy stores and gained popularity. In the 2014, the Rainbow Loom received 4 TOTY Awards, which is the most prestigious award in the toy industry.
As sales were rising, the numbers of copycat products were also increasing. In 2013, there were seven copycat versions of the Rainbow Loom sold at Walmart.com and at least five times more at Amazon.com and ebay.com. Ng hired a team of attorneys in 2012 and began filing stop and desist orders. Fifteen federal lawsuits were filed citing patent infringement to stop the abusers. After many years of gruesome legal fights, there is one remaining lawsuit against Tristar Products, Inc.
Since Ng’s company was launched in 2011, they have sold millions of Rainbow Looms and yet, despite strong sales, they have also spent millions in legal fees to stop the abusers.
“We need a stronger and more effective patent system, since the current slow-to-react system provides a loophole that benefits the infringers,” said Ng. “As we painstakingly went through the legal process, infringers were invading and taking advantage of the market we created. That is just sad and wrong. In addition, most startups would not have enough cash to fight seasoned infringers who have deep pockets. These startups unfortunately give up their fight or settle in favor of the ‘bad guys’. The U.S. patent system needs immediate reform to protect the American innovation economy.”