We-Vibe vs. LELO: What Resellers Should Know

May 3, 2013 6:15 PM PST

LOS ANGELES — With cease-and-desist notices implicating resellers in the patent suits between Standard Innovation Corp. and LELO, distributors and retailers, as well as the manufacturers themselves, are speaking out about the ongoing legal battle.

In December 2011, We-Vibe's parent company, Ottawa-based Standard Innovation Corp., filed a complaint with the U.S. International Trade Commission (USITC) seeking an order that would halt shipments of the LELO products into the U.S. In addition to contesting the claims, LELO this year filed its own patent suit against Standard Innovation for infringement of its patented technology for inductively chargeable massagers.

“Unfortunately, the retailers are unintentionally put in a very confusing, bad place by these types of lawsuits,” Holiday Products Vice President Ken Sahn told XBIZ. “We immediately get a lot of phone calls and questions. I am sure some retailers feel very threatened and just pull product from their shelves. It is a very unfortunate side effect of these lawsuits.”

Williams Trading Vice President Bob Pyne Jr. shared his perspective on being pushed into patent litigation.

"The distributors work very closely with the manufacturers, represent their product and rely on them that they have done their due diligence for the product they wish us to resell,” Pyne told XBIZ. “The inconvenience of a product with patent and legal issues falls on the distributor, retailer and end user. We usually abide by the cease-and-desist order, but in the end it hurts everyone. There's plenty of business and market share for everyone to sell their product, save legal fees and may the best product win. We are a major supporter of LELO and wish them the best in this legal action."

Attorney Jason Fischer of the Randazza Legal Group, who is not involved with the case, told XBIZ that it is not unusual for the application of patent law to seem counterintuitive.

“The default rule to keep in mind when analyzing patent issues is that a U.S. patent owner has the right to stop anyone in the U.S. from making, using, importing, selling, or offering to sell an item that embodies the patented technology — including a retailer/distributor selling the item without any prior knowledge of the patent. Ignorance is no defense,” Fischer said. “The normal reason for sending a cease-and-desist letter is to put a seller of the item on notice, which can increase the amount of damages available to the patent owner if they prevail in a lawsuit against someone who continued selling a patented product after learning of the patent claim.

“A proper cease-and-desist (i.e., one that should trigger an immediate suspension of sales) will specifically identify the product in question and the patent that allegedly covers the product,” he said.

In the case of Standard Innovation and LELO, there has been some confusion regarding how to respond to letters threatening legal action against resellers coming from both manufacturers.

“A cease-and-desist letter as part of a patent dispute between manufacturers should be taken very seriously,” attorney Corey Silverstein, who is not involved in the litigation, told XBIZ. “Any retailer/distributor that receives a cease-and-desist letter should immediately contact an attorney familiar with intellectual property disputes. The first step in the process is for the lawyer to investigate the patent infringement claim and determine whether or not the cease and desist letter is genuine.

“Unfortunately, in the past few years there has been a substantial rise in the number of ‘fake’ cease-and-desist letters,” he said. “These ‘fake’ cease-and-desist letters are often created by a competitor attempting to scare its competition away.”

Following Standard Innovation’s initial patent claim, LELO filed its own claim alleging that a component of the We-Vibe 3 charging mechanism infringes a LELO-owned U.S. patent.

“In this latest round we worked with Standard Innovation immediately and they issued a statement that we were able to forward to our retailers,” Sahn said. “Essentially, they indemnified (protected) our retailers from the suit covering all potential damages.”

A recent open letter issued by Standard Innovation CEO Danny Osadca advised resellers to disregard LELO’s legal notices and continue with business as usual. Nevertheless, patent attorneys say this may not be the best way to deal with a cease-and-desist letter.

“Failing to respond to such a letter can have various negative consequences,”  Jonathan W. Brown of the Lipsitz Green Scime Cambria law firm, who is not involved in the case, said. “For example, the party sending the letter may decide to sue you because you were unresponsive and did not comply. Moreover, if the matter does result in litigation, the sender of the letter will likely argue that you were placed on notice of its patent rights and that you willfully ignored those rights. This leads to claims of willful patent infringement that could result in enhanced damages to a plaintiff (i.e. enhanced damages may include an award multiplying actual damages by three (called ‘treble damages.’)”

When queried about its protection of its resellers, Osadca maintained that it would protect them.

“As we have stated, Standard Innovation stands behind our dedicated distribution and retail partners and we will take steps to protect our business with them,” Osadca said. “Any concerned distributors or retailers should contact us at legal@standardinnovation.com.”

According to LELO, it has chosen to refrain from naming resellers in its patent suit against Standard Innovation, which was filed in federal court in San Jose, Calif. Although Standard Innovation’s publicized open letter addresses LELO’s legal notices sent to resellers, LELO said it has elected to name only SIC as defendant at this time.

“Potentially infringing retailers and distributors may have the opportunity to decide on their own if they will respect LELO’s intellectual property rights,” LELO said in statement issued to XBIZ. “In addition to Standard Innovation’s liability for infringing LELO’s intellectual property by among other things selling and importing infringing products into the U.S., the liability for infringement is also with the resellers and retailers that disregard LELO’s intellectual property by selling infringing products to their customers.

“Retailers that are now aware of the patent infringement allegations and choose to continue the sale of We-Vibe 3 products are exposing themselves to additional liability for willful infringement of LELO’s U.S. Patent No. 7,749,178. LELO will hold Standard Innovation and all infringers accountable for damages as the court might assess.”

In the company’s open letter, Standard Innovation also accuses LELO of patent trolling in order to file a retaliatory patent suit.

“If you do any basic research on what that really means you will find that what is generally referred to as a ‘patent troll’ is an entity that has no products and its sole purpose is to assert patents in litigation,” LELO said in its statement to XBIZ. “Obviously, that is not LELO’s business model. It is Standard Innovation who is failing in the marketplace and instead on innovating and competing fairly by introducing innovative new products like LELO does, Standard Innovation has chosen to engage in patent litigation to stifle competition. Given Standard Innovation’s decision to compete through litigation, LELO has been forced to assert its own patents against Standard Innovation. LELO owns all rights, title and interest in U.S. Patent No. 7,749,178, which is a patent that, as its titles conveys, covers ‘an inductively chargeable massager’ not just some portions as Standard Innovation misleadingly alleges.”

On June 7, the U.S. International Trade Commission will decide whether certain LELO products infringe on more than 60 claims of Standard Innovation’s U.S. patent. The USITC is a quasi-judicial agency that has the power to block imports of products that violate U.S. patent rights.

“We don’t expect any significant effect of the ITC’s final determination on retailers at this point,” LELO said. “The major effect of the ITC complaint on the retailers was at the beginning of the ITC case when SIC named a large number of resellers in the complaint, something that LELO has chosen not to do in its initial complaint. LELO is confident that, on June 7, the Commission will uphold the judge’s determination that LELO did not violate section 337 and SIC’s ITC complaint will be finally rejected by the ITC.”

The patent claim first initiated by Standard Innovation in December 2011 naming a slew of manufacturers and resellers immediately sent the marketplace into a tailspin, and rightfully so — industry attorneys conclusively agree that cease-and-desist notices should not be taken lightly by manufacturers and retailers alike. Resellers are advised to seek legal assistance if they have received any notice of involvement in a patent dispute.

The prolonged dispute between Standard Innovation and LELO continues to take an unfortunate toll on resellers’ ability to operate normally in an already challenging marketplace under the threat of legal action. Nevertheless, intellectual property laws grant owners the right to protect the integrity of their creations to the fullest extent.

As LELO and Standard Innovation continue to defend their contributions to the industry, resellers impacted by the litigations should stay tuned to XBIZ.com for coverage of developments as they occur.

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