Patent Litigation Shapes Step-in Market

By John Hangartner

Technical innovation is the lifeblood of snowboard manufacturers, and no area has seen more advancements recently than step-in bindings. An invention, however, has no value unless it's protected by a patent. A patent, in turn, has no value unless it's enforced. Now that many hardgood companies have developed and introduced step-in systems of their own, the patents are flowing. As a side effect, patent litigation, the most powerful tool to enforce a patent, is unfortunately becoming a fact of life in the snowboarding industry.

Litigation, however, is not the only tool available. A patent holder can also try to work out a deal with the alleged infringer, usually in the form of a license agreement. Given the huge costs of patent litigation and the potential for collaboration through strategic licensing arrangements, whether manufacturers resort to patent litigation or use licensing and other arrangements to avoid lengthy court battles will shape the step-in market over the next five years.

Why Patents Are So Important

Patents are the true studs of the intellectual property world. While other forms of intellectual property such as copyrights and trademarks are subject to certain limitations and defenses, a valid patent gives the owner an absolute monopoly over the device covered under the patent for a period of twenty years. The patent holder can prevent anyone else from making, using, selling, or importing the invention into the United States. The patent holder can also sue anyone who violates these rights, and can both stop distribution of the infringing product and win substantial damages to compensate for the infringement.

Choosing how to protect a patent requires a clear understanding of two key issues: patent validity and patent scope. First, a company considering enforcement of its patent must assure itself of the validity of that patent. A patent is only valid if it meets the three basic requirements for patentability: the item must be novel, it must have some utility, and it must not be obviously based on prior inventions. If any of these three requirements are not met, the patent may be invalidated and the invention will not be protected.

Next, a company considering enforcement must determine the scope of its patent. Only by understanding what the patent protects can the owner determine whether a competitor's product infringes the patent. The scope of the patent is defined by the claims that are made in the patent itself. The process of reviewing those claims and laying out the specific protection provided by the patent is known as “claim construction,” and is often the key battle in patent litigation. Once the scope of the claims is known, the device that allegedly infringes on the patent can be compared to the claims to decide if there is actual infringement.

Sounds simple. Like most things in law, it usually isn't. Patent claims use a very stylized form of English that to the uninitiated may as well be written in gibberish. Furthermore, once you have figured out the patent claims, the comparison of the allegedly infringing product against those claims requires application of some fairly vague legal doctrines. Most importantly, unless there is obvious or literal infringement, a court will apply the Doctrine of Equivalents to determine if there is an infringement. Under the Doctrine of Equivalents, a product will be found to infringe a patent if it essentially does the same thing in the same way, even if it's not identical.

The Patents and Lawsuits Are Flowing

In 1997/98 alone at least 39 patents were granted for snowboard bindings of one rt or another. Step-in binding patents granted in the last couple of years include everything from major manufacturers' long-term development projects such as K2's Clicker, Burton's SI, and Morrow's Engage system, to homespun ideas by individual inventors hoping to create the next gizmo that will revolutionize the industry. As these systems have hit the market, several major patent infringement cases have been filed in the federal courts. Not surprisingly, this litigation centers around the major manufacturers, reflecting the cost and hassles associated with undertaking a patent case.

The granddaddy of step-in patent litigation is Raines v. Switch, which began more than two years ago, and pits Ride, Inc. against Switch Manufacturing.

This case centers around a claim by Ride that the Switch step-in system infringes on the Raines step-in binding patent that Ride bought in 19XX. After more than two years of procedural wrangling, the court is just getting around to determining the scope of Raines' patent.

In late October, the two sides submitted their interpretations of Ride's patent claims, which the court will use to define the protected invention. Eventually a jury will use this claim interpretation to compare the patent against the Switch system and determine if there has been an infringement. Don't hold your breath–it could easily be another year or more before the case is finished.

Raines v. Switch was the only major step-in case until early 1998, when K2, filed its own patent claim against Switch. K2 and Switch, which has since been purchased by Vans, settled this case in August 1998. Perhaps spurred on by its success with Switch, K2 quickly followed with a patent suit against Morrow Snowboards in September. This case also settled quickly, when Morrow agreed to a licensing arrangement for certain aspects of the Engage system.

Why Litigate?

So did K2 really need to sue Switch and Morrow to get what it wanted? It's hard to tell, but the lawsuits may have helped. At best, litigation is an extremely powerful tool that can be used to protect critical assets. At worst, it's a costly and unpleasant battle that can drag a company down for years. K2, Switch, and Morrow all apparently wanted to avoid a battle and found common ground.

Most company attorneys see litigation as a necessary evil, to be avoided if at all possible. As Ride's General Counsel Dave Davis, someone who knows what he is talking about on this subject, says: “We want to resolve these things by agreement. Litigation is not something we want to do. We have to do it.”

But the decision of when to litigate and when to license is complicated, and may reflect everything from fundamental business strategies to personal vendettas.

The complexity of such decisions is demonstrated by a comparison of Morrow's recent licensing arrangements with K2 and Burton. Unlike K2, Burton negotiated its licensing arrangement without ever filing a suit. In November Burton and Morrow resolved infringement issues related to the SI and Engage systems through a cross-licensing arrangement.

Burton licensed certain technology for use in the Morrow boot for three years, at 20,000 dollars per year plus a three-percent royalty, and also obtained a license from Morrow for some unidentified future technology. As part of the deal, Morrow will also offer a 3-D compatible version of its bindings. This is the first time Burton has reached agreement with another company to sell a 3-D compatible binding.

K2, of course, filed a suit but ended up with a slightly different arrangement. Under their settlement, Morrow will pay only a three-percent royalty, with a minimum annual royalty payment of 15,000 dollars. In addition, the term of the agreement is unspecified, but Morrow has a right to cancel the agreement at any time. Thus, despite the leverage provided by its lawsuit, K2 could not negotiate as strong an agreement as Burton. This doesn't mean K2's decision to sue was wrong. K2's claims may have been weaker than Burton's or there may have been other considerations that are not obvious from the settlements. After evaluating its claims, K2 obviously believed that having a lawsuit on the table would either help the company negotiate a better deal or ultimately protect its patent rights.

Interestingly, Switch was able to settle its case with K2, but the litigation with Ride will likely go all the way to trial. The terms of the K2 settlement are confidential, and neither company will discuss the case, but there are plenty of reasons Switch might have decided to settle with K2 but not Ride.

Switch may have determined that K2's claims were stronger and that Switch needed to work out a licensing arrangement. Maybe both companies were uncertain about the strength of their claims, or Switch's management may be on better terms with K2 than with Ride. Whatever the ultimate reasons, lawyers for both companies undoubtedly reviewed their claims and defenses very carefully and found common ground that has not yet been realized in the Ride case.

In The Future

As new step-in systems come onto the market, patent attorneys around the country are taking a close look and comparing every aspect of each system against their clients' patents. Where they find an infringement, some companies will negotiate for peace and others will slash and burn. One way or another, each company will develop a strategy that it hopes will work for them in the long run.

“We invest a lot of money in performance-enhancing innovations,” says Darren Jones, general counsel for K2. “We're obviously going to put a lot of effort into protecting that investment.”

Sometimes that just means you have to put up your dukes and take it outside.

orrow will pay only a three-percent royalty, with a minimum annual royalty payment of 15,000 dollars. In addition, the term of the agreement is unspecified, but Morrow has a right to cancel the agreement at any time. Thus, despite the leverage provided by its lawsuit, K2 could not negotiate as strong an agreement as Burton. This doesn't mean K2's decision to sue was wrong. K2's claims may have been weaker than Burton's or there may have been other considerations that are not obvious from the settlements. After evaluating its claims, K2 obviously believed that having a lawsuit on the table would either help the company negotiate a better deal or ultimately protect its patent rights.

Interestingly, Switch was able to settle its case with K2, but the litigation with Ride will likely go all the way to trial. The terms of the K2 settlement are confidential, and neither company will discuss the case, but there are plenty of reasons Switch might have decided to settle with K2 but not Ride.

Switch may have determined that K2's claims were stronger and that Switch needed to work out a licensing arrangement. Maybe both companies were uncertain about the strength of their claims, or Switch's management may be on better terms with K2 than with Ride. Whatever the ultimate reasons, lawyers for both companies undoubtedly reviewed their claims and defenses very carefully and found common ground that has not yet been realized in the Ride case.

In The Future

As new step-in systems come onto the market, patent attorneys around the country are taking a close look and comparing every aspect of each system against their clients' patents. Where they find an infringement, some companies will negotiate for peace and others will slash and burn. One way or another, each company will develop a strategy that it hopes will work for them in the long run.

“We invest a lot of money in performance-enhancing innovations,” says Darren Jones, general counsel for K2. “We're obviously going to put a lot of effort into protecting that investment.”

Sometimes that just means you have to put up your dukes and take it outside.