Tracker makers Fitbit and Jawbone may argue themselves right into oblivion
A patent battle between Fitbit and Jawbone could result in U.S. bans “It’s a pretty aggressively litigated case”
Last year, Jawbone sued Fitbit, the leader in the fitness-tracker market, over claims that Fitbit had hired away Jawbone employees who took sensitive information with them. The lawsuit was filed in California state court as Fitbit was preparing for its
initial public offering, which took place in June. Since then the dispute has escalated into a war over patent claims that’s landed before the U.S. International Trade Commission, a federal agency that has the power to block both companies’ products from being imported into the U.S. from manufacturing sites in China. “Any litigation from the International Trade Commission is high stakes because the only remedy the ITC offers is banning products from the U.S. market, which can be devastating,” says Bloomberg Intelligence analyst Matt Larson. “It’s a pretty aggressively litigated case.”
As the California case proceeded, Jawbone went to the trade commission in July, claiming Fitbit had infringed six patents, including ones involving power management, protective coatings, and tracking users’ sleep or activity levels. In anticipation of mandated March 25 settlement talks in the patent case and hearings before the trade commission in May, both sides are heating up their rhetoric.
Privately held Jawbone alleged in a March 14 California court filing that Fitbit is “systematically plundering Jawbone employees and their competitor’s critical trade secrets and intellectual property.” Jawbone claimed Fitbit recruiters contacted about 30 percent of its employees to try to “decimate” the company. Several workers who left downloaded information onto thumb drives in their last days of employment, Jawbone alleges.
Fitbit, in response, described Jawbone’s allegations as “desperation” brought on by its declining market share. Fitbit has also filed its own trade case against Jawbone, claiming infringement of three patents it says relate to the monitoring devices. That case is scheduled to be heard by the commission in August.
Fitbit says Jawbone’s patents simply cover the concept of things like monitoring sleep or energy usage, not inventions worthy of legal protection. “Throughout this litigation, Jawbone has engaged in a pattern of making sensational and baseless claims and actively generating publicity in an effort to deflect attention away from its inability to succeed in the market,” Fitbit said in an e-mail. “We prefer to
continue to dem-emonstrate the merits ofof our legal position in court.”
Jawbone’s initial complaint in California named five former workersers who, Jawbone says, took more than 300,000 internal documents, including designs and marketing plans, to Fitbit. Jawbone says it’s since learned of another former employee who sent confidential company information to her Fitbit e-mail account. “Fitbit can characterize our respective legal actions as it so chooses,” Jawbone said in an e-mail. “But the real issue at hand is that the defendants were improperly in possession of more than 300,000 documents that are the property of Jawbone.”
Fitbit has claimed it has no need to steal ideas from Jawbone. The company has asked the California judge to throw out the trade-secrets suit, saying it had nothing to do with any documents retained by Jawbone workers.
In the trade case, Fitbit has gotten the commission to whittle Jawbone’s claims down to two patents from six. The company is trying to invalidate the remaining two before the claims are heard by the trade commission in May. If Fitbit succeeds in getting all the patent claims tossed, that would leave just some trade-secret allegations for the commission to rule on, including that Fitbit’s manufacturer, Flextronics International, used design information it learned when it was working for Jawbone.
Should the commission decide against either Fitbit or Jawbone— or both—and impose import bans, they can appeal to the U.S. Court of Appeals for the Federal Circuit in Washington, the nation’s top patent court. The companies can also try to persuade the Obama administration, which automatically reviews trade
commission rulings, to overturn it on public policy grounds, but such efforts rarely succeed.
Jawbone is no longer among the top five most popular tracking devices.
Apple, Samsung Electronics, and Xiaomi have introduced competing products. That’s also threatening Fitbit. “The market sees Fitbit in this category going against Apple at the top, Samsung in the middle, and Xiaomi in the bottom,” says Steven Wardell, an analyst at Leerink Partners, who has a hold rating on the company. “There’s investor anxiety about the long-term future.”
The bottom line The U.S. International Trade Commission could stop imports of Fitbits and Jawbones amid competing patent claims.
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