A textile manufacturer creates an innovative synthetic fleece fabric prized by the fashion community for its warmth and light weight. The company brands the product and obtains trademark protection for its brand name. Unfortunately it does not seek patent protection for the manufacturing process. Competitors are soon able to make the same fabric and sell it under a different brand name. The stiff competition ultimately drives the manufacturer into bankruptcy.
That manufacturer was Malden Mills of Lawrence, Massachusetts.
The company obtained trademark protection for Polarfleece and Polartec, but neglected to patent the manufacturing process for these unique fabrics. A traditional legal compliance program would not have caught that error because no law requires the patenting of inventions. The law merely provides the opportunity. It is up to the company or the individual to recognize the opportunity, seize it, and use it strategically.
What’s particularly heartbreaking about the Malden Mills story is that it happened to a company whose owner was heralded for his altruism. It was due to his actions in the wake of a tragic fire that destroyed three factory buildings and a sizable chunk of his manufacturing capacity in 1995. The operations meltdown put 2,400 jobs at risk in an economically depressed area of the state just two weeks before Christmas.
Instead of cashing in his insurance, moving his operations overseas to take advantage of lower labor costs, or retiring to Boca, the owner dug deep into his own pocket and kept everyone on full salary and health insurance benefits while rebuilding the plant at warp speed. At the end of January Polartec fleece was once again starting to come off the production line.
Unfortunately, the insurance proceeds from the fire did not cover all of the costs associated with rebuilding the factory or the salary and benefit continuance program. It caused Malden Mills to borrow heavily. The crippling debt load combined with increased competition in the marketplace ultimately pushed the company into bankruptcy.
Had the company owned the Polartec process patent, the company’s history might have been written differently. The power of patents and the near monopoly they confer would have given Malden Mills the option of stopping competitors from using the process or requiring them to enter into a license agreement and pay royalties. Either path would have eased the competitive pressures and possibly forestalled bankruptcy. One could have enjoined the competitors and stopped them cold in their tracks. The other would have generated some sorely needed cash flow.
The story of Malden Mills is a cautionary tale that illustrates the strategic value of patents and their role in the sustainability of your business.