Hydration Backpacks Again

spry.jpg

This case relates to an OEM for a hydration backpack that Shoresh (Source Vagabond) claims was planning on manufacturing anyway, and a potential customer who represents Strider, a company making children’s bikes, who negotiated with them to supply such a hydration backpack with his logo and in colours he specified, who claims to own rights in the product.

Due to a failure by the parties to make the relationship clear or to sign a contract, the customer considered himself the entrepreneur and brains behind the new product. However, the supplier considered him merely a potential customer that had no rights in the product, which could be sold by them to other companies, either branded by Source directly, or supplied with brands and logos of those other companies.

The Judge threw out the charges of ownership, breach of contract, intellectual property rights and so on but despite rejecting all charges brought, did nevertheless, find that since the plaintiff had taken a prototype home and given it to his child to test and provided feedback and suggestion for various features, he was nevertheless entitled to some compensation, and awarded 25,000 Shekels for his contribution. Although Unjust Enrichment was one of the categories in the Statement of Case, it seems that this basis for compensation was thought up by the Judge and was never asked for. If nothing else, the case shows the importance of clearly setting out a relationship in writing to avoid subsequent confusion. It also raises questions on how the Judge can rule compensation that was apparently not requested.

This case relates to whether the plaintiff, Yakobi, is entitled to compensation for breach of his alleged rights in a product manufactured by Source Vagabond.

According to the statement of case, the plaintiff is an entrepreneur, businessman and owner of exclusive intellectual property in the American Strider brand of children’s bicycles and related accessories.

The defendant manufacturers and sells various items including sandals, water bottles and accessories.

Strider

According to the plaintiff, due to his business, and since he was the owner of the Strider brand, he discovered and developed a unique market for bicycles for children aged between two and five; a demographic previously ignored by the market, and in which the defendant was not active. The plaintiff claims to have invented a unique water bottle for children aged 2+. Following his invention, he approached Shoresh (Source Vagabond) in November 2013 and offered to collaborate with them. The plaintiff held a number of meetings with a representative of the defendant and they planned and developed a product. The CEO of Shoresh (Source vagabond), Mr. Ronen Arazi, and the product manager, Ms Noam Werner, were present at these meetings. Furthermore, it was clearly agreed between the parties, that the defendant would manufacture the product exclusively for the plaintiff.

spry 2.jpg

The parties exchanged emails in which they undertook to have a formal agreement written up. The plaintiff even contacted a lawyer to help draft an agreement. After several meetings between Yakobi and Ms Werner to characterize the project, a prototype was made, Shoresh (Source vagabond) created a presentation for Yakobi, and Yakobi and Ms Werner created an organized work brief. Yakobi and his infant son tested the prototype and provided feedback regarding desired features to the defendant, with comments for corrections and improvements. He claims that from the correspondence it is clear that a new product that did not exist prior to the meetings between the parties had been created. Despite the lack of a signed formal agreement between the parties, the plaintiff relied on Shoresh that had a reputation for integrity in the Israel market, that they would not go behind his back and take over the product that was the result of his, Yakobi’s ideas and abilities. However, Yakobi subsequently discovered that Shoresh (Source Vagabond) had manufactured the product and tried to market it over the Internet and through sports and hiking stores, without receiving his authorization for so doing.

Enduro Magazine

Yakobi also discovered that the product was shown to the international cycling magazine ENDURO as being a product of Shoresh (Source Vagabond) and had even been awarded a design prize in the Products for Children category, without Yakobi, the developer, even being getting a mention. Yakobi also claimed that the plan was for him to market the product via the worldwide Strider distribution network which had shown a lot of interest in the product, and the defendant’s actions had reduced the novelty effect, thereby causing him problems with Strider.

The plaintiff claimed that the defendant was unable and incapable of creating the product without him. The product is a trade secret that is solely based on his effort and creativity. Without his contacting the defendant and agreeing to the co-development with them, Shoresh (Source Vagabond) would not have even been aware of the potential market for such a product; this market being something that the plaintiff had developed over the years by enormous investment. The plaintiff had intended to launch the product as a Strider exclusive, and the kidnapping of the prduct by the defendant had caused him a lot of damage. The plaintiff alleged infringement of the 1926 Patent and Design Ordinance, of the Copyright Law 2007, of the Trade Related Torts Act, of the Law of Unjust Enrichment, of negotiating in bad faith contrary to Section 12 of the Law of Contracts, and of significant Breach of Contract. In light of these allegations, the Plaintiff had requested a Court Order requiring Shoresh to provide a detailed accounting of sales, compensation of 100,000 Shekels under the Section 1e of the Trade Related Torts Act, a further 100,000 Shekels under Section 56a of the Copyright Act and the future profits from sales of the product.

CAMELBACK MINI

CAMELBACK MINI

In their Statement of Defense, the defendant claims that the allegations are baseless, and are simply intended to extort payment. The defendant considers that the charges should be thrown out as they are based solely on the plaintiff’s allegations. The product in question is a hydration pack for children, and is not new. Such hydration backpacks have been available for years, including in models intended for kids. Hydration backpacks and hydration backpacks for children are in the public domain and are easily researched. By way of example, the defendant referenced the hydration backpack available from CAMELBAK MINI which is a leading American company and in communications with Mr. Arazi, the CEO of the defendant, the plaintiff himself had referenced CAMELBAK’s website. Similarly, the defendant referred to the website of NORTHSTAR, an Israeli company that provides a hydration backpack having a 1.5 liter capacity which is sold under the name Muki, and to a third website that shows the worldwide sales of these products. This correspondence shows that the ideas for which the plaintiff claims a monopoly were commercialized years earlier by others. Shoresh further claims to be an innovator in the hydration backpack field, and in April 2003 in the War in Iraq, US marines used Shoresh hydration backpacks. The defendant has also developed and manufactured a range of water products and has a registered patent for their water bottle. The company claims to have developed and manufactured a hydration backpack for children called Spinner back in 2012, and, to support this claim, they referred to catalogues from that period. Shoresh considers that the accumulation of this prior art is sufficient to show that the plaintiff’s claims are baseless, and that no one has copyright for a hydration backpack.

As to the claim that Shoresh (Source Vagabond) were unable to conceive or manufacture the product without the plaintiff’s help, the defendant considers this charge ludicrous, since not only did they develop and sell hydration backpacks before the plaintiff contacted them, but the work plan for 2014 prepared for a director’s meeting back in 2013, prior to the first meeting with the plaintiff, advised investing in marketing hydration backpacks for little kids. The development of the Spry model of a hydration backpack was developed within the work plan, and this product is the basis of the plaintiff’s claims. The Spry model is essentially an upgrade of the Spinner hydration backpack. The plaintiff had merely requested that Shoresh apply the Strider logo to the hydration backpack as they did for other companies.  As to the ownership of Strider that the plaintiff claimed, the defendant denies that the plaintiff has exclusive rights to the Strider brand in Israel and does not own the Strider logo, but merely the STRIDER word mark.

The Defendant also claims that contrary to that claimed in the Statement of Case, there were no ‘characterization’ meetings. The plaintiff contributed nothing to the development of the hydration backpack, did not prepare a work brief and did not pass over features and did nothing else to aid the development of the hydration backpack, since all the features were known to the defendant. The plaintiff also did not provide any comments regarding the product to the defendant who anyway did not need any input from the plaintiff who lacked all experience and knowledge, and was not requested to do any testing of the product. As to the plaintiff’s claims that the product was intended to be manufactured in a range of colours; the defendant notes that their hydration backpacks are generally available in a range of colour schemes.

The parties submitted witness statements. The plaintiff filed an affidavit by himself and one by Mr. Yoval Dagan, to whom, according to the plaintiff, he’d reported his progress to at the relevant times. The defendant submitted an affidavit from Ms Noam Werner who served as a product manager, and one from Mr. Ronen Arazi who was the CEO of the defendant at the relevant time. The witnesses were cross-examined on their statements.

Discussion and Ruling

After examining the Statements of Case and the evidence, and after hearing the claims of the parties in the hearing, the main claim is rejected. Hydration backpacks for children were available before the plaintiff contacted the defendant

As stated, the plaintiff alleges that he developed the hydration backpacks for children aged 2 to 5, and this was his unique idea. From the evidence submitted, Judge Ilan Dapty rules that this is not the case.

The defendant refers to the website of the American company Camelbak which shows that similar hydration backpacks already existed. By way of example, one of these packs is CAMELBAK MINI M.U.L.E.

The mini M.U.L.E® is the ultimate kids hydration pack that lets them carry the essentials when headed out with their parents. This pack has grownup features -1.5 liters of water, a bike tool organizer pocket. zippered compartments for layers and essentials, and reflective strips – in a package that fits younger riders. There’s a built-in whistle for emergencies, and adjustable straps that let the pack grow with kids over the years.

See section 5 of Ms Werner’s statement and the appendix thereto.

In a further publication the following is written:

Think of it as a bike pack with training wheels. The skeeter™ is a kids’ pack for beginning riders that features a 1.5 L Antidote® reservoir and a reflective strip down the front for safe riding.

It should be noted that the Spry pack and the Camelbak’s pack are very similar.

Northstar MOKI.jpg

Additionally, the defendant referred to the NORTHSTAR site that advertises 1.5 liter water packs called MOKI as follows “A water pack for children, that includes a 1.5 liter water bag that is suitable for hikes and sporting activities, a magnetic clasp for attaching the mouth-piece to a chest strap, very lightweight.” (See paragraph 5 of the Statement of Defense).

Furthermore, the defendant gave the plaintiff a quotation for a batch of backpacks having the Strider logo stamped on them. In the correspondence between the plaintiff and Mr. Arazi, CEO of the defendant, the plaintiff states that “I am not happy with the price of the product. I think it is too high. It is higher than that of the Camelbak Mini which has more features.”

From the above, it is clear that similar hydration backpacks were previously available and that the plaintiff himself was aware of them and used them for comparative purposes. The plaintiff admitted under cross-examination that such hydration backpacks were available before he contacted the defendant. He even claimed that his contribution to the art was the capacity being 1.5 liters. However, this exact volume is described in the cited prior art.

The defendant intended to invest in the production of hydration backpacks for little children regardless of the plaintiff

From the evidence it appears that the defendant did indeed plan to invest in hydration backpacks for little kids prior to the plaintiff contacting them. Shoresh (Origin Source)’s work-plan was prepared during the summer of 2013 and predated the plaintiff contacting them in November 2013. It states:

KIDS’ HYDRATION PACK – As the kids’ market is expending and we see more and more outdoor solution in a kids proportion, there must be a hydration system that can fit for a 4-8 years old kid.

Ms Werner testified that the Spry model was not an innovative development but merely an upgrade of the Spinner model that the defendant had marketed earlier, having a design that was appropriate for younger children, similar to the Camelbak Mini model. Her testimony correlates with the Work Plan.

As to the defendant’s claim that his bag was suitable for children aged 2 plus; Ms Werner and Mr. Arazi testified that there is a general children’s market that is not differentiated by specific age and it is difficult to give an exact appropriate age, since it depends on the specific child. However, without detracting from the above, it is noted that the Spry hydration pack is larger than that claimed as his invention by the plaintiff.

The Plaintiff-Defendant Relationship is a Customer-Manufacturer Relationship

The judge was convinced by the testimonies of Ms Werner and of Mr. Arazi that they related to the plaintiff as they generally related towards customers, and there was nothing in the relationship to give the plaintiff rights in the product. The case is simply one of a customer having specific product requirements demanded from the manufacturer.

OEMMs Werner testified that one of the characteristics of the defendant’s hydration backpacks is the OEM which is a common practice widespread amongst manufacturers of hydration backpacks. This is how she related to the plaintiff when considering the possibility of closing a deal with him to stamp the Strider logo onto the hydration backpacks, so that they would be purchased by his customers who purchase Strider bicycles. She claims that there was nothing special about her relationship with the plaintiff, but that it was simply an example of an OEM.

[OEM is an acronym for Original Equipment Manufacturer, and is used to describe a company that produces parts and equipment for branding and marketing by another manufacturer -MF].

Mr. Arazi’s testimony was similar. He stressed that the purpose of the OEM is to provide an additional distribution channel. However under that relationship, the defendant remains the manufacturer and owner of the rights, and the only one who can decide when and who can use them. Mr. Arazi also noted that the early contact with the plaintiff did not develop into a collaboration.

“The process starts with a brief in which we hear what the customer wants. This is generally not a monologue but a dialogue, since our company, from developing and managing the product, gives feedback about all sorts of things and we try to match our product to the need, either as is, or with small changes, and we can provide examples of customers that received minor changes in the packaging and others that received minor changes in the product. Generally for an OEM one does not manufacture a new product unless there is a tremendous potential in terms of numbers of units that could be sold, and there have been such cases”. He continued that “In an OEM there is the issue of choosing colours in addition to main materials, and these are the sort of things that a brand chooses from our products.”

Under cross-examination MS Werner explained the underlying rationale for the OEM and the supplier customer relationship:

“There is a number of projects that are codified as OEM. One is where an existing product is taken or one that Shoresh is manufacturing, and it allows another company to put their logo on it.”

Q. The relationship wasn’t one where the client came to take the model, but where he came with an idea. Why should the customer provide ideas for a product that you are developing?

A. Because he wanted to use the product for his customers.

Mr. Arazi clarified that:

“We invited the plaintiff since the product manager thought that there was a business opportunity for an OEM, which is essentially manufacturing our product in the colours chosen by the customer and with his logo, the customer is the plaintiff, but this is why we met with him.

The Product Development was Done by the Defendant

From Ms Werner’s testimony is transpires that the plaintiff approached the defendant when they were busy in development.

She testified that she had worked with a representative of the design department to upgrade the hydration backpack for (Spinner), basing themselves, inter alia, on the Camelbak product intended for small children. She noted that most of the features of the Spry product were based on Camelbak’s design, and lacked innovation.

Under cross-examination, Ms Werner clarified that:

“The Spry product was developed to meet Shoresh’s needs as set out in the work program, and would still have been developed had the plaintiff not contacted them.”

 Furthermore, Mr. Arazi testified that at the meeting with the plaintiff on 18 November 2013, he told him that Shoresh was already working on upgrading the product and added:

“In our work plan for the coming year we are intending on developing a pack for four year olds, and are willing to make a version of this for you, meaning in the desired colour scheme and with Strider’s logo, and perhaps with other functional adaptations. I said it appeared in the work plan and is scheduled for March, but that we may have to hold him off until we’ve finalized our own design. This means that we will not engage in development work for the plaintiff but will piggy back his order onto the work we are doing for own product”.  

Mr. Arazi reiterated that Shoresh was already engaged in the process of upgrading their backpack.

It will be noted that the plaintiff did not present plans, specifications or sketches as part of his evidence to support his allegations that he’d developed the product.
Ms Werner also testified that this was the case. There is also no argument that the parties did not sign an agreement. The communications between the parties also supports Shoresh’s account regarding the relationship between the parties.

The Judge did not find that the fact that the product was featured in a magazine and had won a design award in any way supported the plaintiff’s claims that he had rights in the product, and accepts Mr. Arazi’s contention that this was simply the result of marketing by the defendant.

In summary of the above, the Judge did not find room for the plaintiff’s claims that he had exclusive rights in the pack in question, or that it was the product of his unique development. The Judge also rejected the claim that the defendant was obliged to manufacture the product exclusively for the plaintiff and required his authorization to sell it to others.

The Plaintiff Should be Paid

Despite the above, the Judge considers that there is room to give the plaintiff payment for his work and his contribution to the product development by the defendant.

Although in the statement of defense, the defendant claimed that the plaintiff had contributed nothing to the development process of the hydration backpack, this is contradicted by Ms Werner’s testimony. She testified under cross-examination that the plaintiff was present in meetings that dealt with the manufacturing of the Spry backpack and that a prototype was given to him, as it was to all beta sites of the defendant. Following this, she related to recommendations and comments that the plaintiff had made. Her words follow:

Q. Is it true that the plaintiff sat with you in meetings with bags of sand that simulated the volume that goes into the bag?
A. Yes, I showed him my recommendations.
Q. Is it true that the plaintiff tried out the prototype with his son.
A. One of the models sewn up for testing purposes was given to the plaintiff
Q. The plaintiff returned from the testing which he’d conducted using his son.
A. He returned with a number of recommendations.
Q. They were included in the development
A. Partially.

And then:

Q. I return to the points. If the backpack is all your creation, why did the plaintiff provide points with quotations marks and points without quotation marks.
A. Like all testers that receive a product to test, he had comments and criticisms, ideas and requirements for the product he tested. This was the case here.
Q. The defendant manufactures the Spry for the general market and not the plaintiff?
A. Correct.
Q. So why should he contribute to Spry.
Q. He asked to try the model. After he received a prototype, he shared his comments and criticisms.

From that written above, it transpires that the defendant benefited from the plaintiff’s contributions and it helped them develop the product. Although the defendant considers this part of the development that need not be compensated for, the plaintiff saw things differently. In the circumstances described above, the Judge conisders that he should be compensated for this and, after weighing things up, rules that 25,000 Shekels is fair and reasonable compensation.

In consequence, the defendant will pay the plaintiff 25,000 Shekels within 30 days, or accrue interest. In light of this, no costs are awarded.

Tel Aviv Jaffa Magistrate’s  Court, 7187-09-15 Gil Yakobi vs. Source Vagabond ltd. Ruling by Ilan Dapdy, 1 March 2019

COMMENT

Shoresh trades outside Israel as Source Vagabond. They do, indeed, have a patent for the sealing mechanism of a hydration pack or shluker in the United States: US 7,648,276 titled “Sealing device for flexible liquid container”.

In August 2011, Source Vagabond, represented by Pearl Cohen-Zedek Latzer (PCZL) sued Hydrapak for patent infringement, contending that the top closure system used in Hydrapak’s Reversible Reservoir II infringed upon Source Vagabond’s patent.

In April 2012, Hydrapak, represented by Morrison & Foerster’s patent litigation team, won a summary judgment of non-infringement in the New York Federal Court. Not only was the case thrown out, but the defendants were awarded Rule 11 sanctions against the prosecuting counsel (Pearl Cohen).

Later that year, Source Vagabond appealed the ruling of non-infringement to the Court of Appeals for the Federal Circuit (the CAFC), where, following oral arguments, the court affirmed the District Court’s decision of non-infringement.

Following the appeal, Source Vagabond filed for a motion for reconsideration:

Judge Colleen McMahon wrote in her decision:

Plaintiff’s proposed construction violates nearly every tenet of claim construction and amounts to a wholesale judicial rewriting of the claim.” In granting the award of sanctions, Judge McMahon noted that while “I and so many of my colleagues bridle at the flood of Rule 11 motions that arrive on our doorsteps,” in this case sanctions were warranted because “this case is simply not close on the merits.”

On February 21, 2013, Judge Colleen McMahon ruled that the law suit brought by Pearl Cohen Zedek Latzer on behalf of Vagabond was wholly without merit and ordered PCZL to pay $200,054 in costs to Hydrapak and their lawyers. The ruling by Judge Mc Mahon was upheld by Judge Cott of the Federal Circuit Court of Appeal, see here.

So it seems that Shoresh (Source Vagabond) not only file frivolous law-suits, but have themselves been sued on very weak grounds. We are pleased to see that thi stime around, Shoresh (Source Vagabond) had the sense to use more competent counsel than PCZL, but are somewhat shocked with the ruling of 25,000 NIS against them, since the plaintiff had no registered IP and no contractual arrangement with the company. It is far from clear from the ruling that the plaintiff requested compensation for their testing work, although we note that the Law of Unjust Enrichment was apparently cited in the statement of case. I have no idea how much Source Vagabond provides to testers of their products. It may well be no moe than a free prototype in exchange for feedback, and such testing may be performed by children of employees and their neighbours. In this instance, the plaintiff tested the product and gave feedback in an attempt to optimize the product for his purposes. Only once the product was finalized in terms of design and materials, etc., could Shoresh (Source Vagabond) reasonably provide a quotation for manufacturing a batch for the plaintiff. Until then, the plaintiff could not accept or reject the price quoted. There is no IP here, and the plaintiff could and indeed may yet approach Camelbak or another manufacturer, or have a batch made in China.

I can understand the Judge feeling sorry for the plaintiff, but I am a little formalistic  in my approach to the law, and am unhappy with the Judge deciding to provide compensation for something apparently not claimed.  Would it stand up on appeal? Who knows? I suppose it depends on how formalistic / activist the Appellant Judge would be.



Categories: contract, Copyright, costs, designs, entrepeneurs, Intellectual Property, Israel, Israel Court Ruling, Israel IP, Uncategorized, unjust enrichment, זכות יוצרים, מדגם, סוד מסחרי, עשיית אושר, קניין רוחני, קנין רוחני

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