One of the most high-profile patent disputes in the world of mountain biking has skidded to a halt. While it cost both parties millions in legal fees, the final settlement brings with it fresh commercial opportunities. Here, we break down the bitter seven-year legal battle between Fox Factory Inc (Fox) and SRAM, which showcased the immense value in patent rights for seemingly small innovations and how these can lead to lucrative revenue streams.
A brief history
The saga began when SRAM secured patent rights for details relating to a chainring (effectively a toothed cog, connected to bike pedals, which drives the rear wheel of a mountain bike via the chain). The advances that SRAM managed to protect were small relative to existing technology, yet the subsequently released product (now commonly known as a ‘narrow/wide’ chainring) was hugely successful. The shape of the teeth helps to secure the chain, reducing the likelihood of it unintentionally bouncing off while riding. This soon became industry standard, encouraging many other companies to swoop in, with SRAM successfully licensing its patented technology to those looking to benefit from selling a product that every mountain biker wanted.
Fox — a large entity, operating at a similar level to SRAM — was not one of these licensees. Upon its release of a similar product, SRAM sued Fox for patent infringement. As expected, Fox counterclaimed that SRAM’s patents were invalid — and the US Patent and Trademark Office agreed when asked for its opinion. Separately, Fox also sued SRAM for the infringement of multiple patents relating to its own suspension and wheel axle technology… and so the legal disputes continued.
After several long years, SRAM and Fox have now reached a settlement. While the details remain confidential, it’s believed that SRAM will continue to hold its patents for the narrow/wide chainring, with Fox paying SRAM for the ability to sell its own version of the product. Similarly, SRAM can continue selling its suspension and axle products that may fall under Fox’s patents, without fear of being sued. It appears that the initial judgement of the US Patent and Trademark Office regarding the strength of one or more of SRAM’s patents encouraged both parties to try to reach an agreement without the significant cost of going through the courts.
The benefits of patent rights
This story highlights a few major benefits of patent rights, including:
Protecting minor improvements to existing technology
Firstly, SRAM’s original patents were secured for enhancements to the shape of the teeth on the chainring cog — not for an original cog or chainring itself. This shows how patents can be used to protect even minor improvements to existing technology, providing that they are novel and non-obvious.
Opening new revenue streams
SRAM was only able to achieve such commercial success and license its technology to other companies based on its original patent rights. Without these, SRAM would not have been able to demand licence fees and control the market for chainrings.
Cross-licensing
Without the strong patent rights of both parties, no cross-licensing agreement between SRAM’s chainring technology and Fox’s suspension and axle products would have been possible, making a mutually beneficial settlement more difficult to achieve.
Deceptively valuable patents
While earlier settlement negotiations could have saved SRAM and Fox a significant amount of time and money, the patent rights they have held and enforced — based on seemingly minor innovations — have helped them both to achieve a significant share of a highly competitive marketplace. Thanks to their settlement and the strength of their patent rights, both companies can now exploit their technology without the threat of impending legal action.
This story shows that often the most commercially valuable patents don’t relate to the most complex technology.
If you are innovating in this space, or would like more information, get in touch with me for a free initial chat about your IP.
