Did a Chinese manufacturer rip off a Germantown company's high-tech cup holder, costing millions in lost sales? A jury will decide.
Mention the issue of Chinese theft of intellectual property and most people might think of software, pharmaceuticals and pirated Nike shoes and Rolex watches.
A trial underway in Milwaukee federal court frames the problem in a more pedestrian but local context. Germantown-based Raffel Systems LLC claims a Chinese furniture manufacturer bought its high-tech cup holders for its theater-style seating and then began counterfeiting those components.
The jury is expected to get the complicated case by the end of the week.
One thing is not in question: These aren't your run-of-the-mill cup holders.
Raffel Systems cup holders incorporate lighting and switches to control reclining and footrest functions and are protected by numerous U.S. patents. The company has its own Chinese affiliate manufacturer and supplies control technology to bedding and furniture in the health care, hospitality and cinema sectors.
One of its customers was Man Wah Holdings, which used them in "motion furniture" sold under the brand names Cheers, Transformer, Pulsar and others at stores ranging from discount chains to Steinhafel's, Macy's and Costco.
Reports of problems with the cup holders began to roll in.
In 2018, according to Raffel, it began hearing from furniture customers about chairs and lounges that didn't work or asking for replacement cup holders.
Knockoff cup holders often failed
Some sent the defective parts to Raffel, which discovered they weren't actually Raffel products, despite looking identical, even down to the patent number stickers. They were fakes. In fall 2018, Raffel employees went out and bought some Man Wah chairs from area stores, took them apart, and found that some had the Raffel-looking controllers and some chairs with two cup holders had one real and one fake.
Soon after, Raffel sued.
Man Wah denies it infringed on any patents and filed a counter-claim against Raffel. Man Wah challenged whether the six patents at issue were even valid, claiming that another Raffel employee wasn't properly credited as an inventor. It also accused Raffel of breaching its contract by suing Man Wah instead of first trying to resolve the dispute without litigation.
A judge decided in 2020 that Man Wah didn't meet its burden about the other inventor — which it paid $60,000 — and that the patents were valid. The current trial is over what damages to award Raffel for infringement on one of them, and whether Raffel is entitled to damage for related trademark and unfair competition claims.
Raffel says it lost out on millions in sales of its products due to the fake parts and damage to its reputation when the fake switches failed. It contends Man Wah willfully infringed its patent and "trade dress" and will ask for triple damages.
Man Wah denies any wrongdoing and has counterclaims against Raffel for breach of contract.
Last year, Raffel sued three more big retailers — Macy's, Costco and Bob's Discount Furniture — claiming they were selling Man Wah furniture made with cup holders that infringed Raffel's patents.
But U.S. Magistrate Judge Nancy Joseph, who is presiding in the Man Wah trial, dismissed that suit. She cited her ruling in the Man Wah case that its redesigned new cup holders did not infringe the Raffel patents. Those new holders were used in the furniture sold to the defendants in the 2021 lawsuit.
"It would be patently unfair to allow Raffel to now come forward and sue for
infringement based on the New Cup Holders when the finding in the Man Wah litigation
seemingly cleared up the uncertainty for the parties and others as to what products they
were free to use," Joseph wrote.
Raffel has appealed to the 7th Circuit.
Smoking gun emails?
Raffel's lawyers got concerned during the first week of trial when the former CEO of Man Wah's U.S. subsidiary, Guy Ray, didn't appear in Milwaukee. The plaintiffs wanted to question him about some emails uncovered through discovery. Ray did testify Monday, via Zoom, from his home in North Carolina.
Shortly after Raffel sued Man Wah in November 2018, Ray wrote to a colleague in China, "the dumbest thing we did, was have the new supplier use raffel patent # and description on each piece. not only is that patent infringement, but it is fraud which if raffel wanted to pursue, could be escalated to criminal charges in addition to the civil charges already filed."
Ray testified he hadn't been aware, prior to the lawsuit, that Man Wah had been putting "knock off" cup holders in thousands of units of motion furniture. He admitted he was very upset about the suit and what it revealed.
He denied that he knew earlier that Man Wah was using inferior cup holders marked as Raffel products.
Ray admitted that Man Wah wanted to have at least two sources for all its components, to assure supply and price competition, but disagreed with Raffel's lawyer who asked, "It's really a corporate plan to copy, isn't it?"
Ray also admitted Man Wah stopped using eMoMo cup holders after Raffel's lawsuit over patent infringements.
Raffel's lawyers introduced another email from 2017, in which Ray warns someone in the China office that Ray doesn't think Man Wah's Chinese manufacturing affiliate could duplicate Raffel's cup holders without getting sued.
Contact Bruce Vielmetti at (414) 224-2187 or bvielmetti@jrn.com. Follow him on Twitter at @ProofHearsay.
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This article originally appeared on Milwaukee Journal Sentinel: Germantown firm says Chinese company ripped off its cup holder design
