It was decidedly one of the saddest moments in my decades-long PR career.
A nattily dressed inventor in his late 50s came to see me in my office hoping I’d publicize his plight with a major retailer. I can’t remember his name or his invention, save for it being a consumer product. Although I knew instantly I couldn’t help him, he had prepared a detailed presentation and I sensed it would be therapeutic for him if I just listened to his story. I sat back and let him present his carefully crafted spiel.
One of the Big Box retailers had agreed to sell one of the designer’s patented inventions but had beaten him down so badly on price that it was unprofitable for him to manufacture the product. The retailer promised if the product proved popular, they’d purchase more units and he’d make money because of the higher volume. That sort of deal was quite common.
The product was a big seller, but the retailer after a year cancelled its contract. Having been certain of its popularity, the retailer reversed engineered the product and sent the specs to a low-cost manufacturer in China. The inventor had schematic diagrams proving the Chinese manufactured product was an exact replica of his, right down to the last screw.
After the more than hour long presentation, I politely told the inventor that without filing a lawsuit a PR campaign would be a waste of time and money. He didn’t have the funds regardless.
Then he started crying up a storm and made a moving speech about how big retailers were going to kill entrepreneurship in America. He said inventors were constantly getting screwed by the big retailers, taking patented ideas, and making products and profits without paying the legally required royalties. As an entrepreneur myself I felt the man’s pain.
Filing a patent infringement lawsuit isn’t for the faint of heart, which is why most of the cases involve one deep pocketed company suing another. Proving patent infringement is a formidable legal challenge, and the years-long legal process can break a person.
That’s what happened to Robert W. Kearns, who pursued Ford Motor Co. in court for years alleging the automaker stole his patents for intermittent windshield wipers he invented in his basement. Ford eventually settled with Kearns for $10.5 million, but during his 12-year legal ordeal Kearns suffered a nervous breakdown and the breakup of his marriage. He died in February, 2005.
A Michigan jury on Wednesday ruled after hearing three weeks of testimony that Ford must pay Texas-based Versata Software $104.65 million for violating a contract and misusing trade secrets. As reported by the Detroit Free Press, the jury determined that Ford misused confidential information, reverse engineered Versata’s software for its own commercial use and used it without a license. The jury awarded $82.26 million for breach of contract and $22.39 million for misuse of trade secrets.
“For Ford to have stolen the software of Versata’s just so they could make a competing product and then no longer have to pay license fees to the software owner, that is a serious act of misconduct that we just can’t allow to go on,” Dan Webb, Versata’s attorney, told the Free Press.
Referring to Webb, who is co-executive chairman of the powerhouse law firm Winston & Strawn, simply as an attorney is akin to calling Tom Brady just a quarterback. He is one of the most well-known trial lawyers in the country and as a former prosecutor he won some landmark cases, including the conviction of retired Admiral John Poindexter for his involvement in the Iran-Contra Affair. Webb’s bio says he’s tried more than 100 jury cases, including helping Verizon obtain a $58 million verdict in a patent litigation matter. Serving as a special prosecutor, Webb secured the conviction of actor Jussie Smollett last year for fabricating allegations that he was the victim of a racist attack.
For the record, Webb’s impressive bio omits that his Poindexter conviction was overturned on appeal. It also references a report he prepared for the NYSE smearing former CEO Dick Grasso, which was the basis of charges former NY Attorney General Eliot Spitzer subsequently filed against Grasso. The case was quietly dropped. I proudly represented Grasso throughout that ordeal; he is one of the most ethical and decent people I ever encountered in business.
Nevertheless, Webb is a formidable attorney, the second legal heavyweight to strike a major blow to Ford in recent months. In August, attorney James Butler secured a $1.7 billion punitive judgment against Ford after presenting evidence that Ford knowingly sold Heavy Duty trucks with shoddy roofs that failed the company’s own internal testing standards. Ford is appealing the verdict.
Not surprisingly, the company also is appealing the Versata verdict.
“While we respect the jury’s decision, we believe the facts and the law do not support this outcome,” Ford spokeswoman Catherine Hargett told the Free Press.
I wonder how much thought Hargett, whose LinkedIn bio curiously lists her as living in Austin when Ford is based in Dearborn, MI, puts into her media statements. If Ford respected the jury’s decision, it wouldn’t be appealing their judgment.
One doubter about Ford’s respect for the legal process is Butler, the Georgia attorney who secured the $1.7 billion punitive judgment and has also won several other landmark verdicts.
“Ford is unique and singular in the extent to which they exhibit disdain for the law, for courts, and for jurors,” Butler told me in August.
The Versata verdict isn’t the first ruling against Ford for patent infringement. In 1981, the company was forced to pay an inventor $650,000, or 10 cents apiece, for 6 million power-steering pumps. A Ford lawyer was quoted in this 1983 Washington Post article saying it was the only patent case Ford had lost in 11 years.
Ford’s business practices indicate the company has maintained a hearty appetite for litigation risk. Last July, I published this post outlining some of the product liability cases the company is currently facing. The lawsuits shouldn’t come as a surprise given that Ford this year alone has issued more than 50 safety recalls on its vehicles.
The brazenness of Ford’s wrongdoing is alarming. Last May, Ford agreed to a $19.2 million multi-state settlement with about 40 attorneys general for knowingly lying in its advertising for its Super Duty trucks. The response from spokeswoman Hargett was telling.
“We are pleased that the matter is closed without any judicial finding of improper conduct,” Hargett told the Detroit News. Translation: No judge or jury convicted us of doing anything wrong.
Ford has a storied history in American jurisprudence. The American Museum of Tort Law features this writeup on the landmark Grimshaw v. Ford Motor Company case that was tried in 1981. That case related to Ford’s infamous Pinto, a subcompact the automaker sold in the 70s that often burst into flames because of an allegedly faulty gas tank. Lawsuits brought by injured people and their survivors uncovered how Ford rushed the Pinto through production and onto the market.
Internal company documents showed that Ford secretly crash-tested the Pinto more than forty times before it went on the market and that the Pinto’s fuel tank ruptured in every test performed at speeds over twenty-five miles per hour. This rupture created a significant fire risk.
The Pinto was rushed through production in just twenty-five months, rather than the customary 43 months. Although Ford held a patent on a much safer gas tank, it opted to proceed with the faulty one.
From the Tort Law Museum’s writeup:
Did anyone go to (then Executive Vice President Lee) Iacocca and tell him the gas tank was unsafe? “Hell no,” said an engineer who worked on the Pinto. “That person would have been fired. Safety wasn’t a popular subject around Ford in those days. With Lee it was taboo.” Iacocca used to say, “Safety doesn’t sell.”
Why did the company delay so long in making these minimal and inexpensive improvements? Simply, Ford’s internal “cost-benefit analysis,” which places a dollar value on human life, said it wasn’t profitable to make the changes sooner. Ford’s cost-benefit analysis showed it was cheaper to endure lawsuits and settlements than to remedy the Pinto design.
Ford knew about the risk, yet it paid millions to settle damages suits out of court and spent millions more lobbying against safety standards. Pinto was a best-selling subcompact. By 1977, new Pinto models incorporated a few minor alterations necessary to meet federal standards that Ford had managed to hold off for six years.
The Grimshaw case was just one of more than one hundred lawsuits that were filed because of design flaws in the Pinto that resulted in fuel tank fires. Estimates by Mother Jones attribute between 500 and 900 burn deaths to Pinto crashes. These people would not have been killed or even seriously injured if the car had not burst into flames.
In the Grimshaw case, a jury awarded the families of a driver killed and a passenger injured in a Pinto explosion more than $3 million. For good measure, the jury awarded $125 million in punitive damages to punish Ford for its conduct.
Although a judge reduced the punitive award to $3 million, he ignored Ford’s request to toss it entirely, finding that Ford knowingly endangered the lives of thousands of Pinto owners.
Perhaps if the judge had let the punitive award stand, Ford would have stopped regarding lawsuits as an acceptable cost of doing business. If the $1.7 billion Georgia verdict remained intact, rest assured Ford would begin to regard safety as being critical to profitability.