A version of this article ran in the September issue of Bicycle Retailer & Industry News.
DENVER, Colo. (BRAIN) — Spot Brand is suing Gates Corp. alleging the Denver-based belt-drive maker hasn’t been paying royalty fees for the sublicensing of its patent for a frame feature allowing the installation of Gates’ seamless Carbon Drive systems.
Frank Scurlock, a former co-owner of Spot, received a patent for the “Drop-Out” feature in 2010. The patent was later assigned to Gates; Scurlock worked for Gates from 2009 to 2022.
The suit says Spot Brand reached an agreement with Gates in 2008 that would pay Spot 8% of Gates net sales of any products sold by bike companies who sub-licensed the Drop-Out design. It says Gates has allowed other bike brands to use the technology while not sharing “tens of millions” in licensing fees.
The suit is filed in Denver District Court. According to the suit, there are currently 30 bike brands offering more than 100 models of bikes using the Drop-Out technology. It says Gates has profited from use of the patent while Spot has lost its competitive advantage in the belt-drive bicycle market.
"The Royalty Agreement granted Gates an equal interest in the Drop-Out invention and the anticipated intellectual property rights Spot and Gates intended to acquire, and partially did acquire, to protect the Drop-Out invention. In exchange for its equal interest, Gates agreed to various contractual duties, including the duty to prosecute and maintain domestic and foreign patent protections for the Drop-Out," the suit reads in part.
"The Royalty Agreement also gave Gates the right to sublicense the patented Drop-Out designs to Gate’s Carbon Drive customers to ensure the compatibility of the customers’ bicycle frames with Gates’s Carbon Drive belt systems. The Royalty Agreement explicitly conditioned Gates’s right to sublicense the Drop-Out on Gates’s paying Spot a royalty on the sale of “Licensed Products” incorporating the Drop-Out. By allowing Gates to sublicense the Drop-Out, Spot gave up the competitive advantage of being the only belt-drive bicycle manufacturer who could utilize the Drop-Out in exchange for the promise of future royalty payments from a much broader swath of the industry."
In 2009 Scurlock and partners sold Spot to Wayne Lumpkin. The company is now owned and managed by Wayne's son Andrew Lumpkin and Wayne is not involved in the company or this suit. After leaving Gates, Scurlock co-founded Vapor Propulsion Labs, a distributor and North American engineering partner for Bosch e-bike Systems.
Gates has said the designs being used by bike companies do not infringe on the patent and were not sub-licensed by Gates, according to communications between Spot and Gates included in the lawsuit. A Gates representative told BRAIN the company would have no comment on the suit.
