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X-IT and Kidde (A) Case Solution & Answer

X-IT and Kidde (A) Case Solution  

About X-IT:

X-IT Products LLC was founded by Andrew D. Ive and Aldo J. DiBelardino in the year 1996. The foundation of X-IT was based on the making and selling of a superior compact fire-escape ladder. In June 1997, the business operations were organized as the limited liability organization,to setthe standard quality in the fire protection market of the United States, i.e. worth $3.4 billion. The business operations of X-IT were started at nearly $250,000. Later, around eight angel investors like Harvard faculty and alumni were involved.The estimation of the annual sales by X-IT, was around 1 million units of fire-escape ladders.

The sales, marketing and general administration activities were managed from the home of Ive, in Manhattan. Whereas, Sailboarding was focused on manufacturing and shipment from Virginia. In 1998, the delivery of ladders was through Home Depot, K-mart, and Amway. X-IT filed for the U.S. patent and intellectual property protection on its compact fire-escape ladder and outsourced its manufacturing to a Chinese factory. The formal introduction of Emergency Escape Ladder was done at the August 1998 National Hardware Show. (Lane, 2002)

What are X-IT’s strongest legal claims against Kidde?

The strongest legal claims of X-IT against Kidde, mainly include the strategic approach of Kidde to enter into a confidentiality agreement. The claim is primarily based on the violation of the confidentiality agreement,which was executed between X-IT and Kidde on June 8th, 1999. Based on the agreement terms, information regarding the business, liabilities, assets, operations, and financial condition were to be exchanged and were to be kept confidential. The sharing of information was allowed to the employees,offering their services within Kidde, who were responsible to analyze the decision of acquiring X-IT. This meant that the information would be only used for the evaluation. But, the agreement terms were not satisfied by Kidde.

Charles Oslakovic – the external patent attorney of Kidde was the one to review the information regarding the X-IT’s patent. He was only allowed to provide the evaluation outcomes to Kidde regardung whether the X-IT’s intellectual property was strong or weak. But, he provided a detailed information about the patent to Kidde. This significantly provided Kidde with an opportunity to replicate and bring an improvement in the ladder’s design of X-IT. Similarly, it can also be argued that the same design of the packaging was used by Kidde for marketing its version of the X-IT’s ladder. However, the copyright protection of packaging design was not mentioned.

But, the production of ladder copies was done in association with a Chinese manufacturer – Fen wick Development. The improper dissemination of the application was based on the manufacturing ladder similar to the specifications of X-IT, i.e. at the rate of $13 per ladder. Due to this reason, the sales of the ladder had been greatly influenced, causing a decline from 13000 unit sales to around 8800 units from 1999 to 2000 respectively. Thus,

“Trade secrets are protected only against misappropriation, not against duplication or reverse engineering. This means that, in reality, a trade secret may be used by more than one business, on the condition that each made the discovery independently and that they all maintain its secrecy. According to the US Economic Espionage Act, theft of trade secrets is a crime.”(Louise Hallenborg, 2008)

But, the convicting evidenced for copyright infringement was the failure to change the packaging design which had the pictures of DiBelardino’s sister-in-law and nephew. This was possibly an approach to trick customers to think that it was the same product offered by X-IT. The illegal approach to use the information about the intellectual property right, and the patent was to copy the X-IT ladder design,because Kidde was rejected multiple times to buyout X-IT. It was so because the copied ladder manufacturing and copied packaging design with photographs, were aimed to confuse the customers so that Kiddle could steal X-IT’s market share. Thus, according to Section 43 of the Lanham Act:

“(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or”(Tysver, 2016)

What are the pros and cons of suing Kidde?

Although suing Kidde is considered to be an ethical approach to adopt, there are pros and cons associated with it.

Pros:

The evidence to sue Kidde is the presence of strong testimonies and a sufficient amount of documentation which represents the probability of winning the case. X-IT can request eyewitnesses who were present in the Hardware Show to appear as a witness in the court and testify. This would significantly assist X-IT in setting a strong base for the argument to prove multiple intellectual property infringement by Kidde. Similarly, to ensure the involvement of Kidde, X-IT can represent the signed confidentiality agreement. The approach of coupling claims, witnesses, and all documentation together would provide X-IT with credence to experience a winning exit from the case.

Considering the stolen intellectual property of X-IT, the financial position of the company was quite unhealthy. The decision to go forth with the case would provide an opportunity to better afloat and move further away from the financial state of bankruptcy. This can be done by the efficient utilization of the influx of funds that would be paid by Kidde against the damage it caused to X-IT. Ultimately, the opening of the case would provide X-IT with an opportunity to win the case and lead the business growth. The winning probability means that X-IT would not have to sacrifice its innovation. Thus, winning the litigation would push out Kidde out of the market and also deter other competitors to enter.

Cons:

Considering the current financial position of X-IT, the decision to open a case would be costly. There will be a requirement for X-IT to pay a higher amount of legal fees. Based on the case data, Kidde PLC had around $2 billion in annual revenues. This would make it easier for Kidde to hire professional representatives and pay other fees. In contradiction, X-IT was operating without funds which means that it was low on money. Thus, the failure to acquire the necessary funding would lead X-IT to overrun. Therefore, if Kidde would deal with the legal matter efficiently, it would continue to conduct its regular business operations. Whereas, X-IT would need to stop the product and resolve the funding issues first. Similarly, if Kidde wins the case, X-IT would surely lose its innovation and become bankrupt……….

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