In the second of our five-part series on the music industry, we take a sneak peek into Skullcandy, the company that Fortune magazine called “the world’s coolest ear bud” back in 2008. In 2011, the company went ahead and purchased fellow headphone maker, Astro Studios, to give a fillip to its gaming headsets. Skullcandy holds the patent for LINK technology, the method that integrates mobile phones and music players, which is nearly a necessity for every mobile phone user.
The FIFA frenzy has finally died down, but the craze over Skullcandy’s new range of headphones is still on a high. Its unique headphone assortments designed for the players of Germany, France and England have had people grooving to rocking music for hours on end, synchronizing beats to their daily routine. From precision high to attacking bass, the headphones seem to be doing magic with every piece of music. Well, this is nothing new for Skullcandy that has been a popular sponsor of various sporting events. But this fashionable headphone maker has been making the rounds of lawyers’ offices and courts with filing and counter-filing of infringement cases, keeping the mood upbeat in the patent world.
If Fortune magazine named it the “the world’s coolest ear bud” in 2008, it was for no less reason. That was the year when Skullcandy was creating waves by filing a series of patent infringement cases in protection of its patents US7187948, which primarily aims at skiers and snowboarders, and US7395090. These patents were granted for Skullcandy’s creation of “Personal portable integrator for music player and mobile phone” and were granted in March 2007 and July 2008. The patent discloses an integrator with the functionality to receive and send signals to both the audio delivery device and the two way communication device through a headphone. This functionality of the integrator enables an user to listen to music and simultaneously talk on a cell phone.
In October 2008, Nokia, Audiovox Corp., Philips, Jabra, Samsung, Trittion, BlueAnt Wireless Pty. Ltd., Bytech NY Inc., Logic Inc., JayBird Hear LLC, Kye Systems and Hong Kong-based Modelabs Technologies were slapped with charges of infringing both or at least one of the two patents by Skullcandy. These are however just a few of the several other companies that were dragged to the courtrooms. With the exception of Nokia, all the other defendants settled the case in the court. With the headphone market hovering around the $8 billion mark in 2013, recording an average of 284 million units being shipped the world over, it is little surprise that this fragmented, yet increasingly competitive market has brands vying to keep its wings flying. Skullcandy is the least of the existing giants to stay behind, sweeping every nook and corner to keep its IP safe.
Defendants sing Skullcandy’s tune
Between May and June of 2010, Skullcandy reached settlements in a sweep with GN Netcom Inc., which sells Jabra’s headsets, in June and with Samsung Telecommunications America LLC, Tritton Inc., Kye Systems America Corp. and Plantronics Inc. in May. Skullcandy claimed that at least four products of GN Netcom infringed upon the two patents in the limelight.
The same was the case with Philips where Skullcandy claimed that four models of Philips Bluetooth stereo headphones infringed upon the two patents. And as in the cases with the other defendants, the judge dismissed the petition after Skullcandy said it reached a settlement with the opposite party in question. New York-based Audiovox followed suit and was the final defendant to settle the case.
Nokia waves peace flag, GoldLantern sees red
Unlike the other defendants, Nokia decided to take the discussion out of the courtrooms and make peace with the extreme sports headwear maker. While the initial complaint by Skullcandy demanded compensation and treble damages, besides a permanent injunction and payment of its costs and attorney fee by the accused, the settlement with Nokia included that each party would take care of its own legal expenditure. GoldLantern on the other hand was slapped with a permanent injunction barring it from infringing on the said two patents through its G-Lite range of products.
Currying over the legal hassles surrounding its two prized patents that provide the technology for every music-loving mobile user, Skullcandy continues to make music sound what it should sound like – Heavenly.
It all started with a medical intention, but grew into a popular device for those treading the path of quitting smoking. Yes, I am pointing to the ecigarette. With smokers increasingly looking towards the popular nicotine-free and environmentally friendlier ecigars, it is interesting to note that the first patent for this device was filed with a medical intention to help patients inhale vaporized medicine. However, today ecigarettes have become a preferred first step for those who wish to kick the butt.
How do ecigarettes work?
Electronic cigarettes, or ecigarettes, are a class of products which are intended towards simulating smoking using a battery powered vaporizer which vaporizes a liquid and produces aerosol (haze). The liquid includes glycerol, propylene glycol and may contain nicotine. However, it’s a more popular smoking device among those wanting a nicotine-free experience.
While Smokeless Cigarettes were conceptualized decades back, their commercial success is a relatively recent phenomena. Ecigarettes entered the marketplace in 2003-04 and have exhibited rapid growth since then, primarily in US, China and Europe. The US market already surpassed a billion dollar mark last year. The NJOY brand of e-cigars controls 40% of the US market, while other prominent players include V2 Cigs, Reynolds American and Lorillard.
While ecigarettes didn’t enjoy a mass market until recently, it has been 87 years since the first patent application around the concept was filed. Joseph Robinson first patented “Electric Vaporizer” in the year 1927 (US1775947). Interestingly, the patent specification doesn’t discuss tobacco or cigarettes at all; rather it discusses administering medication. However, several modern ecigarette patents (primarily those registered starting circa 2010 and later) cite this early Robinson patent. Robinson’s Vaporizer comprised a container for holding a medicinal compound, which is electrically or otherwise heated to produce vapors for inhalation.
Over 25 years later, in 1955, Otto Lobl was granted a patent (US2721551) titled Tubular mouth inhaler simulating a smoking device. Lobl’s invention was primarily a cigarette simulator with various inhalent or aromatic substances such as Camphor or Menthol, and Lobl wished it could be used for overcoming the habit of cigarette smoking. The inhalant is kept in a glass tube with a tapering structure mounted on a mouthpiece which is closed at the end, with a small hole.
Almost a decade after the Lobl’s patent, in 1965, Herbert Gilbert was granted a patent on Smokeless non-tobacco Cigarette (US3200819).
This is a widely cited patent in the domain (with 92 forward references) and Herbert Gilbert is considered by many to be the inventor of the modern ecigarette. In his invention, burning tobacco and paper was replaced with heated and moist air; thus replacing tobacco smoking with inhaling warm vapor via an object that resembles a cigarette. The patent describes a detachable flavor cartridge fitted in a tubular structure to which a mouthpiece is attached. There is a battery cavity and electric socket in an inner ring of the structure which powers the heating element in an elongated bulb. The patent also accepts the possibility of a rechargeable and detachable battery.
The story from the 1970s-90s
In the ensuing years, several other patents were granted on therapeutic cigarettes (US4149548), device for air purification surrounding a smoker’s nose and mouth (US4184496), cigarette substitute (US4429703), smokeless cigarette (US4911181) and other related inventions. The following table enunciates this:
Two prolific inventors of the new era
It wasn’t until the 2000s that the modern version of ecigarettes started to be commercially manufactured. An American student, Stephane Vlachos, is credited by some to have invented the functional prototype of the ecigarette in 2001. However, it was a Hon Lik, a Chinese inventor of another version of the ecigarette, who enjoyed the first commercial success. He went on to file several patents in China, Europe and US since 2003 and to this date is the most successful inventor in the domain.
Early Hon Lik patents were assigned to Best Partner Worldwide Entities, which was acquired by Ruyan Group. Ruyan later changed its name to Dragonite International Limited and sold its global ecigarette patent portfolio to Fontem Ventures in Nov 2013 in a $75 million deal.
Another inventor, Qiuming Liu, is even more prolific than Hon Lik, but his patent applications are fairly recent (in the last three odd years) and it remains to be seen how many of those get granted. Liu received several design patents around charging case, charger and mouthpiece, and has filed utility patents for all aspects of the ecigarette. Patent publication searches indicate that US and China dominate the patenting activity in ecigarettes worldwide (with a two-third share between them in 2013), and filings have trebled between 2011 and 2013, with Qiuming Liu as by far the most dominant inventor and assignee.
Smoking off with patent litigations
The industry, though in its early stages of growth, is not without its share of patent disputes though. The earliest US patent lawsuit seems to have been filed by Ruyan Group (Holdings) Limited in Jun 2012 asserting its patents against a host of US companies, including Barjan, Finiti Branding Group, Logic Technology Development, Spark Industries and others.
In Nov 2013, Imperial Tobacco acquired Dragonite’s ecigarette unit, including its patents, in a $75 million deal. Later in March 2014, Fontem Ventures sued eleven US companies on charges of infringement. Fontem Ventures is a subsidiary of Imperial Tobacco and is the assignee for the patents that Imperial Tobacco acquired from Dragonite. The 2014 patent lawsuits allege that several products of the defendants infringe on the five patents namely 8365742, 8375957, 8393331, 8490628 and 8689805.
The products in question are ecigarettes and its accessories such as rechargeable kits, starter kits, cartridge refills, batteries from the big names in the ecigarette industry NJOY, Logic Technology Development and CIG2O brand from Spark Industries among others. While it is too early to tell whether these lawsuits will result in windfall licensing deals for Fontem, or these patents risk getting invalidated by prior art, more patent disputes and counter suits are likely on the way. Several of the defendants in the 2014 litigations have their own ecigarette patents. Similarly, if Qiuming Liu’s utility patent applications are granted, it will be a very lucrative portfolio for the current ecigarette makers given its coverage of ecigarette the accessories.
For now, it’s a wait and watch game in this space.
Disclaimer: This article in no way tries to promote ecigarettes. It accepts that the rapid rise of ecigarettes cannot be wished away and tries to look at several aspects related to the technology behind it, both from an evolutionary and an enforcement standpoint.
In the first of a five-part series that assesses the music industry through a looking glass, our bloggers analyze Beats’ market in the wake of its acquisition by Apple. With Beats’ software compatible on Android and Windows phones, what will be the possible ways that Apple will strategize to make the most of this new acquisition?
May 2014 witnessed one of the biggest acquisitions in the music industry with Apple purchasing streaming radio service and manufacturer of headphones, speakers and other audio software, Beats, for a whopping $3.2 billion. A giant of the headphone market, Beats, which enjoys over 51% of the $100-plus market share, is said to have sold nothing less than 20 million units of its audio products till date. While the company doesn’t reveal official revenue figures to the public, a general assessment puts its revenue generation until the sale at about $140 million.
What makes Beats special?
In less than five years into its launch, people across the world of music and sports were swaying to the music of Beats. From Lady Gaga to Nicki Minaj and Lil Wayne, every big name in the industry looked to Beats for customized headphones and speakers. Sportsmen of the likes of LeBron James, Serena Williams and Neymar swear by the quality of music that Beats’ products provide for use in their training sessions, while artistes such as Alexander Wang, Futura and Snarkitecture have collaborated with the company to create and market special limited edition products that have sold like hot cakes.
Beats Electronics was formed when a premium manufacturer of audio hardware led by Dr. Dre joined hands with Jimmy Iovine of Interscope Geffen A&M Records. Soon enough, their combined power had the best of music rolling out of their products. Beats grew magnanimously by returning to the studios the energy and emotion of playback and the power of sound entertainment.
The story before Apple made its grand entre
In 2011, Taiwan-based HTC Corp purchased a majority stake of 50.1% in Beats for about $180 million. However, it sold half its shares the following year. Soon after, Samsung Electronics and Apple Inc. got embroiled in a musical war with each vying for a stake in Beats. With stiff competition coming its way, HTC announced its intent to sell the remaining 24.5% stake for $265 million, expecting to make a profit of nothing less than $85 million. Soon after in 2013, Beats was valued at $1 billion and received a $500 million capital investment from the Carlyle Group.
With over 50 registered trademarks and a strong patent portfolio in the music industry, Beats set about adding to its coffers with its rich patent portfolio. In 2013, Beats dragged Yamaha to court alleging that the brand’s Pro 300, 400 and 500 lines of headphones infringed upon Beats’ patents D632668 and D552077, and trade dress. Beats added that these products of Yamaha were fabricated on the lines of Beats’ popular range of Solo, Studio and Wireless headphone models.
Apple’s day at the disc
Apple has been associated with Beats for a while now, selling the brand “b” products through its retail stores and select authorized re-sellers. With Beats holding a 51% share of the $1 billion premium $100+ music industry, and with its strategic relationship with Chrysler to offer excellent high-definition music technology across select models such as the Fiat series, Apple stands to gain strong with a ready platform to propel its new CarPlay product and thus create a mark in the automobile sector. (Read about Digitech developments in the automobile sector)
But the most that Apple gains with this acquisition is a fabulous boost to its popular iTunes. A business vertical of Beats offers customized streaming music that has become very popular among users. This platform is set to boost the social experience offered by Apple iTunes. Apple is set to also exploit Bates’ music segregation and assimilation platform that finds and plays music based on genre, artist and curator. With such services set to enter the Apple experience, the California-based company is hoping for a whopping increase of its existing 800 million accounts.
But with Beats offering a music platform for Windows and Android Smartphones, will Apple continue to share this experience with its rival mobile platforms? Well, that would be an interesting aspect to note.Earlier Posts »