Mention the issue of Chinese intellectual property theft and most people might think of software, pharmaceuticals, and pirated Nike shoes and Rolex watches.
An ongoing lawsuit in federal court in Milwaukee puts the issue in a more pedestrian but local context. Germantown-based Raffel Systems LLC says a Chinese furniture maker bought its high-tech cup holders for its theater-style seating and then started counterfeiting those components.
The jury is expected to receive the complicated case by the end of the week.
One thing is not in question: these are not your ordinary cup holders.
Raffel Systems cup holders incorporate lighting and switches to control the tilt and foot rest functions and are protected by numerous US patents. The company has its own Chinese affiliate manufacturer and provides control technology for bedding and furniture in the healthcare, hospitality and cinema industries.
One of its customers was Man Wah Holdings, which used them in “movement furniture” sold under the Cheers, Transformer, Pulsar and other brands in stores ranging from discount chains to Steinhafel’s, Macy’s and Costco.
Reports of issues with the cup holders started coming in.
In 2018, according to Raffel, he started hearing from furniture customers talking about chairs and lounges not working or asking for replacement cup holders.
Counterfeit cup holders have often failed
Some sent the defective parts to Raffel, who discovered that they were not actually Raffel products, although they looked identical, even down to the patent number stickers. They were fakes. In the fall of 2018, Raffel employees went out and purchased Man Wah chairs from area stores, took them apart, and discovered that some had the controllers resembling Raffel and some chairs with two cup holders had one real and one fake.
Shortly after, Raffel filed a complaint.
Man Wah denies patent infringement and has filed a counterclaim against Raffel. Man Wah challenged the validity of the six patents at issue, claiming that another Raffel employee was not properly credited as an inventor. He also accused Raffel of breaching his contract by suing Man Wah instead of first trying to resolve the dispute without litigation.
A judge ruled in 2020 that Man Wah failed to meet his burden over the other inventor — that he paid $60,000 — and that the patents were valid. The pending lawsuit is about what damages to award Raffel for infringing one of them, and whether Raffel is entitled to damages for trademark and unfair competition claims.
Raffel says he lost millions in sales of his products due to counterfeit parts and damage to his reputation when the fake switches failed. He claims that Man Wah deliberately infringed his patent and “trade dress” and will seek treble damages.
Man Wah denies any wrongdoing and has counterclaims against Raffel for breach of contract.
Last year, Raffel sued three other major retailers — Macy’s, Costco and Bob’s Discount Furniture — claiming they sold Man Wah furniture made with cup holders that infringed Raffel’s patents.
But US Magistrate Judge Nancy Joseph, who is presiding over the Man Wah trial, dismissed that complaint. She cited her ruling in the Man Wah case that her new redesigned cupholders did not infringe Raffel patents. These new brackets were used in furniture sold to defendants in the 2021 lawsuit.
“It would be patently unfair to allow Raffel to come forward now and sue for
infringement based on new cup holders at conclusion in Man Wah litigation
apparently removed uncertainty for parties and others as to the products they
were free to use,” Joseph wrote.
Raffel appealed to the 7th Circuit.
Raffel’s attorneys grew concerned during the first week of the trial when former Man Wah US subsidiary CEO Guy Ray failed to show up in Milwaukee. The plaintiffs wanted to question him about certain emails uncovered through discovery. Ray testified 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’ve done is the new supplier uses Raffel’s patent number and description of each room. Not only is this patent infringement, but it is fraud which, if Raffel wanted to prosecute, could be turned into criminal charges in addition to the civil charges already filed.”
Ray testified that he was unaware, prior to trial, that Man Wah had put “knock off” cup holders in thousands of moveable furniture units. He admitted he was very upset with the suit and what it revealed.
He denied knowing earlier that Man Wah was using substandard cup holders marked as Raffel products.
Ray admitted that Man Wah wanted to have at least two sources for all his components, to ensure supply and price competition, but disagreed with Raffel’s lawyer who asked, “It’s really a business plan to copy, right?”
Ray also admitted that Man Wah stopped using eMoMo cup holders after Raffel’s patent infringement lawsuit.
Raffel’s attorneys introduced another email from 2017, in which Ray warns someone in the China office that Ray doesn’t believe Man Wah’s Chinese manufacturing subsidiary can duplicate Raffel’s cup holders without being sued.