Mother of Invention?

Laurie Cairns is having trouble enforcing her patent for online fulfillment of in-pack codes. Cairns and her attorney have approached 15 to 20 consumer products and technology companies whose on-pack/online promos appear to use the Internet-based fulfillment process she patented, but few have stepped up to the negotiation table to discuss licensing fees. Cairns has signed only two agreements so far, with a beverage company and a quick-service restaurant.

“It’s been difficult to even start good-faith negotiations with parties using this technology,” says Rob Greenspoon, a partner at Niro Scavone Haller & Niro, the Chicago law firm representing Cairns. “It’s a terrific invention that’s being used pervasively throughout the promotion industry. She wants to share the technology,” but marketers either don’t respond or stop responding to negotiation requests. “It’s striking that in this industry, a brick wall has gone up,” Greenspoon says.

Promotion lawyers began worrying last year that the patent (No. 6,173,267) could cost marketers millions of dollars to run on-pack/online instant-win sweeps, a tactic that’s become especially popular with packaged goods companies (December 2002 PROMO). Cairns’ licensing proposal — sent by her attorneys when they first approached the 15 to 20 firms — included a fee per game piece. That’s what concerned promotion practitioners: A typical on-pack promo involves millions of packages, and paying by the game piece (rather than a flat fee only) could run up the tab.

The worry is exaggerated, says Cairns: “We’ve been fair and reasonable. [The cost] is not onerous, and it won’t prohibit people in the marketplace.”

Cairns’ opening standard licensing agreement “is structured so companies who benefit more pay higher royalties,” Greenspoon says. “Her first impression was that consumer product companies would be more interested in a per-game piece framework since that’s reflective of the value you get from the technology.” Still, Cairns will consider upfront payment of a flat fee for a non-exclusive license, and “any company we haven’t yet contacted who contacts us for a license would get preferential treatment. They get a discount if we don’t have to police the marketplace to find them,” Greenspoon says.

After Cairns’ own investigation found they were allegedly using her technology, her attorney approached the 15 to 20 companies. “It’s often tough to police patents, but it’s easier…with this patent because infringement happens online,” Greenspoon says.

No one has complained directly to Cairns or her attorney about the patent or fee structure, Cairns says. Marketers who don’t want to negotiate a license with Cairns personally can still get the technology by buying an e-stakes program from BrandCentric, the Chicago-based marketing firm Cairns founded in 1998. A patent license is bundled with e-stakes programs; five national e-stakes campaigns have run between 1998 and May 2003, Cairns says. The Chicago Transit Authority used e-stakes for an online sweeps three years ago (February 2000 PROMO).

At least two law firms have been searching for prior art to dispute the patent. They argue that the fulfillment process is widespread and was used before Cairns applied for her patent in February 1998. A third firm presented prior art four months ago, but Greenspoon argued that it was “so far removed” from Cairns’ process that it doesn’t apply. There’s been no response since, Greenspoon says.

Winston & Strawn, Chicago, continues to search for prior art. “We are still in the process of advising clients who have concerns about promotions in relation to the patent,” says partner Steve Durchslag.

Cairns’ patent covers sweeps promos that put game pieces with unique codes in product packages “marked with an Internet address and a password” that players use to input the code and personal data (such as an e-mail address or phone number) to see instantly if they won. Winning cards are mailed to the marketer for verification. The patent also covers rebates and discounts for non-winners, online games, follow-up marketing to players and research as part of online sweeps. It specifies that codes are compared to a list of winning codes or “subject to some computation, random selection, or other means for determining a winning or non-winning status,” per the patent.

The patent was issued in January 2001. Cairns and her attorney began approaching marketers in April 2002 and have been disappointed by the lackluster response.

“There’s been no decision made” on whether to sue marketers for patent infringement, Greenspoon says. If Cairns files suit and courts find marketers guilty of willful infringement, companies could be forced to pay for any use of the process as far back as the January 2001 issue date, and pay triple damages, per Greenspoon.

“I came up with this technology well before the industry embraced it, and have made a significant personal investment to build it,” Cairns says. “I’m open to having the industry use my technology. I’m not just out there trying to collect licensing fees. I’m trying to support the patent.”

Gillette Promo Exec Arrested for Fraud

A federal grand jury in Boston indicted the former executive in charge of Gillette Co.’s retail promotions on 15 counts of mail and wire fraud and one count of money laundering in April. Gino Deluca, former director of Gillette’s permanent merchandising systems department, is accused of receiving almost $600,000 in kickbacks from vendors in exchange for Gillette contracts, according to news reports. Deluca was responsible for promotion and display of Gillette grooming products at retail stores. Gillette terminated Deluca, a 20-year Gillette veteran, last August and approached the Justice Department with the case, per Gillette spokesperson Eric Krause.

Deluca oversaw $40 million in annual contracts and is accused of directing more than $20 million worth of business to three Canadian vendors as well as a San Diego-based shop in 2001 and 2002 in exchange for kickbacks. The companies were identified in news reports as Canadian-based Top Marketing, Interesting Display and Ideas Inc. and Dascal and Associates. MGM Graphics is based in San Diego.

The indictment also contends that Deluca instructed his staff to deal with vendors who were offering him kickbacks, which ranged from electronic appliances and vacations to condos and vehicles. Deluca has pleaded not guilty. If convicted, he faces up to five years in prison and a $250,000 fine on each of the 15 counts of mail and wire fraud. He also faces up to 10 years in prison and a $250,000 fine on the money-laundering charge.

Complaints Prompt AOL to Sue Spammers

America Online filed five separate lawsuits in April against more than a dozen alleged spammers after receiving 8 million complaints from its subscribers.

AOL alleged that the spammers sent an estimated 1 billion e-mails ranging from steroids and mortgage offers to pornography. AOL 8.0 subscribers click a “Report Spam” button to lodge a complaint.

The lawsuits, filed April 11 and 14 in federal court in Virginia, are the first in reaction to “Report Spam” complaints. That makes the suits noteworthy, but a mere five suits are still just “a drop in the bucket,” opined law firm Hall Dickler Kent Goldstein & Wood, New York City, in its newsletter ADLAW. “It is highly unlikely that any number of suits will stop spamming. An effective solution belongs with the software developers, not with judges.” AOL also issued hundreds of “cease and desist” letters to spammers, but the suits are AOL’s first since May 2001. New York City-based AOL has filed 20 suits against 100 alleged spammers, and recently won a $6.9 million judgment.

FTC: E-mail Subject Lines Often Lie

A random sample of 1,000 pieces of unsolicited e-mail has found that 66% contained false “from” or “subject” lines or message text, according to the Federal Trade Commission. The messages fell into eight categories: investment/business opportunity; adult; finance; product/services; health; computer/internet; leisure/travel; education; and other. Some 20% of the spam came from investment/business opportunity offers such as work-at-home, franchise, chain letter and other non-securities offers. Fifty-five percent of the spam samples analyzed by the FTC staff came from a combination of adult, finance and investment/business opportunity.

Alarmingly, nearly half of the messages with false “from” information suggested that it was from someone with a personal relationship with the recipient. More than one-third of the adult offers appeared to misrepresent the content of the message in the subject line. Messages involving health (48%) and leisure/travel (47%) generated a significant percentage of falsity. Sexually explicit images were found to be contained in the body of the message in 17% of spam advertising porn sites. The study also found sparse compliance with recently enacted state laws requiring senders to begin each subject line with “ADV” to indicate an advertisement, the FTC said.

Boise Cascade Sues Staples Over Marketing Slogan

Things are getting heated in the office products category as Boise Cascade sued Staples in April, claming that its marketing slogan was stolen. Boise Cascade filed suit April 2 in U.S. District Court in Boise, ID, claiming that the Staples phrase, “Staples. That was easy,” infringes on its slogan “Boise. It couldn’t be easier,” which received a trademark last summer, according to news reports. Boise Cascade has been using the phrase in its Boise Office Solutions division to market products since 1998. The Staples slogan debuted with a new ad campaign in February. The lawsuit asks that Staples discontinue using the slogan, to destroy materials that incorporate it and to pay yet-to-be-determined damages.

Tobacco Upstart Rallies Smokers

Political protest, or guerilla marketing? Freedom Tobacco, a startup that sells “microbrewed” cigarettes, is prowling New York City bars and nightclubs encouraging smokers to sign a petition allowing them to smoke in public if bar owners consent. The petition’s sponsor, The Right to Smoke Coalition, was founded by Freedom Tobacco CEO Patrick Carroll (March 28 Xtra). An online version at rtsc.org has garnered thousands of signatures, claims Carroll, who will forward all signatures to lawmakers. Freedom’s marketing shop, New York City-based Interference, Inc., hands out petition cards in clubs. Freedom originally tapped the shop to launch Legal cigarettes in Manhattan clubs and bars in March.

FTC Cracks “Pre-Registration” Scams

The Federal Trade Commission filed a complaint last month against two Internet sites claiming to “pre-register” consumers on its national Do-Not-Call list. The complaint was filed against Ken Chase, DBA Free Do Not Call List.org and National Do Not Call List.US. Consumers who subscribed to the service pay between $9.99 and $17.99 per year. The FTC is seeking a temporary restraining order. Beginning in July, consumers can register for free with the FTC to have their phone numbers listed (March PROMO).