Ring binders might not seem the sexiest of subjects, but the word ‘binders’ has been topping search engine lists since Mitt Romney’s "binders of women" comment during the second US presidential debate last month.
The real world of binders – or, more specifically, metal binder mechanisms – has also seen its own fair share of controversy recently, as highlighted by the news story on opi.net last month revealing that US distributor Bensons had been awarded almost $2 million by an Ohio jury in a legal battle with Hong Kong-based powerhouse World Wide Stationery.
At the centre of the legal wrangling is a patented automatic binder locking mechanism that is used in a fair number of added-value ring binders. The mechanism was developed by Swiss inventor Hans-Johann Horn, and the patent – known in the industry as ‘patent 695’ – is assigned to Esselte Leitz. Over the years, Esselte Leitz and Horn have licensed out the patent to manufacturers and distributors for a royalty fee.
Enter World Wide Stationery and Bensons. World Wide, under the leadership of its flamboyant CEO Simon To, has become the dominant global force in the manufacturer of metal ring binder mechanisms with an estimated US market share of 80%. Bensons – formerly a leading manufacturer and once a division of Esselte – is the US distribution subsidiary of Europe-based Ring Alliance, whose parent group Ring International Holding (RIH) is the nearest manufacturing challenger to World Wide.
Both Bensons and World Wide had entered into licensing agreements with Esselte Leitz for the US market that included products covered by patent 695. Bensons’ original exclusive agreement dated back to 2000 when it was still a part of Esselte (an updated agreement was signed in 2010). In 2004, Esselte Leitz entered into a non-exclusive agreement with World Wide granting the Hong Kong firm rights to make and sell products covered by patent 695 in the US. Meanwhile, in 2002 Bensons and World Wide had entered into a supply agreement in which World Wide guaranteed to supply all ring metals ordered or requested by Bensons.
There was obviously a conflict between the 2000 agreement with Bensons and the later 2004 agreement with World Wide. This was resolved by a 2007 ruling in a German regional court – following a dispute between Bensons and Esselte Leitz – that declared the 2004 Esselte/World Wide agreement as “legally void” and affirmed that Bensons was “the owner of the exclusive rights for unlimited use of the invention covered by [the 695 patent] in the territory of the USA”
Cut out the middleman
In 2008, Bensons signed an exclusive market and license agreement in the US with RR Donnelley. This gave RR Donnelley the right to “use, offer for sale, sell and import” the patented ring metals in exchange for a 28% gross margin. RR Donnelley’s product needs related to this agreement were met by World Wide as by this time Bensons, having outsourced its Malaysian production to World Wide Stationery, did not have any manufacturing facilities of its own.
Things began to heat up two years later, resulting in RR Donnelley and World Wide signing a direct supply agreement, effectively cutting out the ‘middleman’ Bensons. In June 2010 Bensons sent a letter to World Wide threatening to take legal action if it (World Wide) continued to import and sell its products into the US. To cut a long story short, this sparked a series of lawsuits and counter claims in a legal scrap that dragged on for over two years and which resulted in the recent Ohio decision in favour of Bensons.
World Wide attacked Bensons on two fronts. First, it tried – and failed – to convince a judge that its products – namely One-Touch, EZ-Touch and EZComfort – did not infringe on the 695 patent. Secondly, it attempted to void Bensons’ eligibility to enforce its patent claims by arguing that the US firm did not have the manufacturing capability to meet market demand.
But World Wide hadn’t counted on Bensons being able to fall back on the 2002 supply agreement between the two parties to prove the contrary. Here is a short extract from the court documents:
World Wide now asks Bensons: “How are you going to meet the market demand for the patented ring metals when you do not actually manufacture anything?” Bensons’ glib reply: “Through you guys.”
In fact, Bensons was able to show that its 2002 supply agreement with World Wide was valid and it was able to meet product demand thanks to the company it was in dispute with! (At the time, it also demonstrated that Ring Alliance would have been able to supply the necessary products).
With World Wide having failed with these two lines of argument, the case went before a jury. At stake were Bensons’ claims that World Wide had “wilfully” infringed on the 695 patent and that the US firm was entitled to damages for lost profits, although for legal reasons Bensons’ financial claim only went back to March 2010.
In a 1 October 2012 filing, it was revealed that the jury had sided with Bensons on all counts, declaring the 695 patent as valid, that World Wide had infringed on the patent, that this infringement was wilful, and upholding Bensons’ right for damages.
Bensons didn’t have things all its own way, however. It had argued for damages to be calculated according to a royalty rate of 20%, meaning it would have received over $6 million. World Wide’s damages expert had concluded that a reasonable rate would have been between $0.02 and $0.03 per unit, putting damages at a maximum of $884,000. In the end, the jury decided on $0.05 per unit and awarded Bensons just under $2 million.
RIH Chairman Gerald Martens told OPI he was pleased that the ruling went in Bensons’ favour, but felt the damages awarded didn’t reflect the true value of the products sold. In fact, a quick calculation based on figures in the court documents suggests that World Wide was making an extremely healthy profit.
“Based on indicative offers from various 695 ring binder mechanism producers in Asia, and RIH’s own production facilities in Eastern Europe, World Wide profits must have been in the range of 40-50%,” stated Martens.
It was also revealed that in the period after March 2010, World Wide sold almost 40 million units covered by the 695 patent, a number described by one industry insider as a “staggering amount for a premium product”. Traditional stationery products may be in secular decline, but there is clearly money to be made in certain niche areas.
The legal process in this case isn’t over yet.
The jury’s “wilful” ruling means that the damages could be trebled. A decision on this is expected sometime in November. World Wide is also expected to lodge an appeal, which would take several months to resolve. The company told OPI that it would not be making any comment until all legal proceedings in this case had been finalised.
“In the meantime,” Martens continued, “Bensons has a duty to take over responsibility [for supplying the market] and will therefore start its own production in Asia by the end of the year. RIH will make sure that the patented 695 metals will continue their success story. This upcoming change will benefit both product and pricing development and will finally enable an open and competitive marketplace in the US.”
In another twist, Bensons also filed a patent infringement lawsuit against Staples in September, alleging that the reseller’s Better Binder (described as “the iPhone of the binder world” by one industry executive) infringed on patent 695. Apparently, the mechanisms for these products – also made by World Wide – are not included in the 40 million units from the World Wide v Bensons lawsuit.
If World Wide is unable to make a successful appeal, the supply of ring binder metals into the US could be turned on its head. It has been suggested that the firm makes much of its profits from its high-end products, enabling it to offer extremely aggressive pricing on the more commodity-type mechanisms. If it is unable to sell these premium products into the US, then its ability to remain as a one-stop shop for large resellers and major OP brands that it supplies could be seriously questioned.