After several years of success, we grew Solid State Dielectrics, Inc. (SSD) to several million dollars in revenues, selling highly profitable dielectric materials used by our customers to make multilayer ceramic capacitors (I was cofounder and CEO). Our cash flow was easily funding our rapid growth and our new product development, which was an enviable position to be in.
We awoke one day to discover suddenly that one of our vendors (referred to as “vendor” herein) was marketing a new product with characteristics quite similar to our patented C800 high dielectric constant NPO formulation. Were they infringing? After surreptitiously gathering several samples from our customers and an exhaustive testing program, we determined that this competitive product did, indeed, violate our patents. But, what were we to do?
The vendor was a vanguard company in the materials industry with a long history of success. They were listed on the NYSE with revenues several hundred times that of ours. Compared with little SSD, the vendor had infinite resources. What action should we take?
I sat down with our advisors and attorney and laid out our options:
- We could ignore this infringement. This seemed inappropriate. C800 was our most profitable product line. We had several additional product development programs extending this technology with additional patent opportunities in the wings. Ignoring the first infringer would only open the door for others.
- Sue them! Based on our data, our case was open and shut – a slam dunk for us. But, our attorney cautioned us noting the vendor had unlimited resources. The vendor could likely extend a court battle for many years, costing us a substantial fraction of our earnings just to pursue the suit. While not discarded, we needed to exhaust all other options before filing suit for infringement.
- We could try the direct approach – convincing the vendor to discontinue this infringing product line by clearly showing decision makers within the vendor our convincing data and politely demanding they cease and desist. This technique is call “Jawboning” (the slang definition is to “try to influence or pressure through strong persuasion, especially to urge to comply voluntarily”).
Jawboning seemed to us the most reasonable approach – and if jawboning failed we could always resort to a lawsuit. We acknowledged at the outset that there were some downsides to jawboning. Most importantly among those disadvantages was that by laying out our case in detail, we were giving the other side important facts in the case. But, because of the circumstances of this case (described below), we decided to proceed with jawboning.
We were confident the managers of this division were aware of the infringement. Consequently, we needed to jawbone the CEO of the company. Fortunately, I had met the CEO before and was confident I could get an audience with him to make our case.
Other important factors in our favor were:
- We purchased $250,000 annually from this vendor, a top five customer for the division in question;
- I was well-known in the industry and viewed as a credible source should discussions of unethical business practices arise; and
- We had some inkling that the vendor might be interested in acquiring us at some future date. Of course, none of these points would be hammered home during the planned discussions – because the vendor already knew all this. We simply viewed these as strong points in our favor and proceeded aggressively to pursue the jawboning strategy.
A meeting was arranged within sixty days at the vendor’s headquarters (actually two-thousand miles from our offices). Our CEO (me) participated as the lone representative of SSD, facing a room full of managers and officers of the vendor. I was greeted cordially by their CEO and I made my pitch directly to him. I summarized reams of data and provided original reports from independent third party laboratories. I explained we wanted to continue to do business with them and keep our friendly relationship. I did not want to sue and had no need for compensation for infringement to date. I only wanted them to discontinue infringing.
After a careful review of the vendor’s options, their CEO contacted me shortly after the meeting with their decision to discontinue the product line and a promise to avoid our proprietary technology in the future.
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Author’s note : Since writing this article, I've been asked the following related questions:
Did you continue to do business with the vendor? We did, but for a variety of reasons we divided our business among three suppliers.
Did heads roll or was anyone reprimanded by the vendor’s CEO? No one was fired, but relationships with divisional management were frosty for some time afterward.
Did the vendor subsequently offer to purchase SSD? They did make an offer. However, we accepted a better offer from E. I. DuPont de Nemours.
Did you consider using the media as an option compared with jawboning? We did not consider a public fight to be a viable option. Our products were quite obscure – not known to the public and not generally covered by the press. The public – and perhaps even our joint customers – may not have been able easily to determine which side was right without substantial background information.
© 2006 Ewing Marion Kauffman Foundation. All rights reserved.
William H. (Bill) Payne Senior Program Consultant Kauffman Foundation