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He said, he said

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As two men sit quietly in a
county courtroom, each is convinced he’s proven his case. The two men, who also
happen to be farmers, had verbally agreed to do business together. One brought
an invention to the table and the other had the ability to manufacture and
distribute the product. When one party decided to end the agreement, each man
attempted to protect his investment. A lawsuit follows, and now they find
themselves in the courtroom.

In a society where legal
battles seem commonplace, what sets this scenario apart is that this example
cuts to the core of a long-standing belief: A man’s word is his bond. But when
it’s simply that – just words – memories cloud when things don’t work out.

When the court system has to
render a verdict based on one man’s word over another, the call on one side or
the other can prove easy to some and difficult to others.

Getting Into The Specifics

Inventiveness in farming has a long, rich history. Whether
it’s big or small, ideas are born of necessity on the farm. While many farmers
may not consider themselves inventors, it’s not unusual to see a gadget or two
on any given farm that someone has devised to make life a little easier.

“Through years of farming,
you realize what you would like to see in a machine, so you try to create what
you need to fill a need,” says Doug Gengenbach.

In 1998, a bad windstorm
blew corn down on Gengenbach’s farm in Eustis, Nebraska. “The damage was so bad,
I could look across the field and see fence posts that were about a half a mile
away,” he recalls. “When we tried to harvest the downed corn, we could only go
about 100 feet, and we’d have a pileup on the head. The corn just wouldn’t go
through the picker head.”

After many frustrating days
of repeatedly trying to clear the head, Gengenbach developed the DG Paddle
Reel. The implement is designed to attach to the corn head of a combine to make
it easier for farmers to harvest downed corn. Rotating metal paddles are
attached to the axle of the implement, and the paddles help feed the cornstalks
into the combine.

In 1999, Gengenbach found a
manufacturer to make the reel. The following year he applied for a patent and
defined his device as a “sweeper apparatus for a corn head attachment.”

When his relationship with
the original manufacturer soured, Gengenbach began shopping for another company
to make and distribute his device.

In March 2005, Gengenbach
approached Hawkins Manufacturing in Holdrege, Nebraska. Gengenbach said he had
conceived, invented, developed, and patented a corn reel. At that time,
Gengenbach entered into an oral agreement with Tim Hock, president of Hawkins
Manufacturing. The pair agreed that based on Gengenbach’s patent, Hawkins would
manufacture, market, and distribute the product through a dealer network and
split the profits from the sale of the corn reel. The company would provide an
annual accounting of the profits to Gengenbach.

Marketing the device as the
DG Paddle Reel, Gengenbach helped Hawkins market and make improvements to the
device.

“When he first brought the
corn reel to us, we told him it had to be changed in order for us to ship the
product to dealers,” says Hock. “With input from our draftsman and Doug, the
device was completely redesigned as far as components go so it could be broken
down and shipped more easily.

“One issue was weight,”
continues Hock, “and we looked for ways to make it just as strong but not as heavy.
Additional improvements were made in 2006. We invested an awful lot in
improving the original product.”

The troubled started brewing
in late 2005 when demand for the product was high.

“When we get storms, that’s
when we sell reels,” says Gengenbach.

“In September 2005, we could
not keep up with the demand because there were a lot of orders due to Hurricane
Katrina. And that bothered Doug because he felt he was losing money,” explains
Hock.

The product proved to be
just as popular the following year when high winds leveled corn in Nebraska and
parts of Iowa. Once again, it was difficult for the manufacturer to keep up
with orders.

“We sold almost three to
four times as many corn reels in 2006 as we did in 2005. We couldn’t
manufacture the product fast enough, and Doug felt we weren’t giving him the
attention he deserved,” says Hock.

Gengenbach admittedly was
not happy. “The first and second year Hawkins couldn’t get the product out the
door quick enough,” Gengenbach says. “The manufacturer wouldn’t order any of
the supplies or components until money came in on the reel, which meant we were
behind all of the time.”

Their oral agreement did not
specify minimum sales or the term of the agreement, however.

At the end of 2006,
Gengenbach informed Hock that he had decided to end their relationship and was
taking his invention to another manufacturer.

“In December 2006, Doug told
me he was done working with our company and that he needed to be in control of
the whole thing,” says Hock.

In January 2007, the parties
entered into another oral agreement. They settled their dispute about monies
owed for sales in 2005 and 2006, and Hawkins paid Gengenbach $80,000.

End Of The Story? Not Quite

Based on the new agreement, Hawkins agreed to manufacture 20
to 40 standard DG Paddle Reels based on orders submitted by Gengenbach for
$2,448.84. In April 2007, Gengenbach ordered one reel and received it for
$2,448.84. After that point, no additional orders were placed. A short time
later, Gengenbach says he learned Hawkins was marketing and selling a product
called the Hawkins Corn Reel.

Gengenbach contends that
when their verbal agreement ended, Hawkins would no longer manufacture and
distribute the device. Hock disagrees and believed the oral agreement only
covered the paddle reel claimed in Gengenbach’s patent.

“We had a large amount of
inventory after 2006, and we didn’t know what to do. Between raw materials and
the finished product, we had about $60,000 worth of inventory on hand,” says
Hock. “And we wanted to stay in the corn reel business if we could.”

After Gengenbach terminated
the agreement in December 2006 and again in January 2007, and because the
manufacturer had a considerable inventory, Hock contacted a patent attorney to
find out what his options were.

“We wanted to make sure we
weren’t infringing on Doug’s patent,” says Hock.

After consulting with the
attorney, Hawkins designed around Gengenbach’s patent and produced a
noninfringing corn reel in 2007 and 2008. Their eight-row version sells for
$5,700.

“We went through the proper
channels and did the right thing,” adds Hock.

That same year, Gengenbach
found a new manufacturer and developed an improved version of his product,
which is marketed as a Crop Sweeper. This device was upgraded from the DG
Paddle Reel in a number of ways including a newly designed paddle made of
plastic and the availability of an aluminum version to reduce weight. An 8-row
steel unit starts at $8,818.

The two men who were once
business partners are now competitors for the same market.

Lawsuits Begin

In September 2007,
Gengenbach filed a complaint in the Phelps County District Court of Nebraska,
alleging seven causes of action against Hawkins and Hock, including three
relating to breach of oral contract and another for an injunction under the
Uniform Deceptive Trade Practices Act.

In the complaint, he based
his breach of contract action on allegations that in 2005, Hawkins agreed that
it would never manufacture the DG Paddle Reel after the termination of the
agreement, and that in 2007, Hawkins agreed that its existing inventory would
be used only to make DG Paddle Reels for Gengenbach’s orders.

In October 2008, Hawkins
filed a declaratory judgment action in the U.S. District Court for the state of
Nebraska for noninfringement related to claims 1 to 18 in Gengenbach’s patent.
The court ruled in favor of Hawkins and stated that its corn reel did not
infringe on the original patent because it didn’t use the spacers claimed in Gengenbach’s
patent (Claim 18), didn’t use triangular supports (Claim 17), and didn’t
connect the paddle vanes to the hubs (Claim 1). Because these were independent
claims and infringement is avoided, all other claims were also avoided.

The precedent was set when
the federal circuit court of appeals handling patent appeals held in
Kimberly-Clark Corporation v. Johnson & Johnson (Fed. Cir. 1984) that it is
perfectly legitimate to design around a patent and to manufacture, market, and
sell a noninfringing competing product.

Gengenbach’s complaint,
however, went all the way to the Nebraska Supreme Court.

A key point that surfaced
during the Phelps County trial was the fact that Gengenbach’s original claim
that he invented the corn reel was called into question. It was discovered that
the Hiniker Company in Mankato, Minnesota, had manufactured and sold corn reels
to Massey Ferguson many years before Gengenbach’s alleged invention.

When the Phelps County
District Court ruled in favor of Hawkins on all counts of Gengenbach’s
complaint against Hawkins, Gengenbach appealed. On July 13, 2010, the Court of
Appeals for the state of Nebraska upheld the Phelps County District Court
decision. 

Read the court’s judgment
in this case.

It’s All About Principle

With so much on the line,
why even fight the battle? Why not settle out of court and simply let it go?

For both men, it comes down
to one word: principle.

“I had an agreement with
those folks, and knew I couldn’t let them just take my idea and manufacture it
as their own,” says Gengenbach.

Fighting for what you
believe in can be powerful motivation. “We had to fight to stand by our
principles and say no, we didn’t do anything wrong,” says Hock. “We also put an
awful lot of investment into improving the reel that Doug originally came to us
with. We felt that with all of the major improvements that went into the
product, we had every right to share in the profits, especially when we shared
in the expense of making it a better product.”

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After hundreds of thousands
of dollars in legal fees, does anyone really walk away a winner?

“When you get involved with
litigation, it always has negative effects no matter who is right or wrong. The
hardest part in all of this is whose side do you take. Who is the big guy and
who is the little guy?” questions Hock. “This is not one of those situations
where it’s big vs. little. We are not big. We are a small manufacturer who has
been trying for 30 years to do what is right for the American farmer. And
that’s still what we’re doing.”

Most people want to believe
they can still trust in someone’s word. “It’s a trust thing, and you trust
everyone,” says Gengenbach.

The reality is, no matter
who you’re dealing with – whether it’s a farmer, a friend, a local
manufacturer, a family member, or a complete stranger – GET IT IN WRITING.

“What may have started as a
friendly endeavor can turn ugly in a short period. To limit the risk, it is
absolutely necessary that the parties have a written understanding,” says
Jonathan P. Sanstead, intellectual property attorney, Pearce & Durick in
Bismarck, North Dakota. “Written agreements set forth a meeting of the minds
between the parties. Thus, if a dispute arises, the parties can always return
to the written agreement to determine what exactly the parties had agreed upon.
Conversely, an oral agreement is rarely the same in both parties’ minds. When a
dispute arises, the parties have conflicting versions as to what had been
initially agreed upon.”

That is one point both Gengenbach
and Hock can agree on. “The lesson here is no matter what, always get it in
writing,” says Hock.  

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