oger Nowak is one of

those people who curse and think. An inventor. One product of his thinking is a particular kind of plastic funnel--conceived, developed and produced by Nowak more than eight years ago in his home workshop in West Boylston, Massachusetts. In addition to his know-how, Nowak invested his time, energy and money in making several models of and improvements on the product; a funnel designed to serve as a combination pouring device and cap for a quart can of oil. The funnel, patented in 1973 as Funnelcap*, includes an offset neck for getting at hard-toreach places and a tight seal that allows for safe storage when the entire contents of the can are not used at one time.

Sounds simple enough. The need is certainly there. Anyone who's had to leave a halfempty can of oil in the trunk of his car will verify that. But no one had thought of it before. At least, no one had thought of it for long enough to design a model and spend time and money producing and perfecting it. And no one had marketed it.

Until late in 1970. That's when Nowak's daughter, Barbara Wyatt, began selling her father's funnel device. For about a year and a half the business did fine. Sales totaled 20,000 in that first year, over 200,000 in 1971 and over a million in 1972. By that time Wyatt had made her first national sale to Walgreen Drug Store and had managed to gain additional national distribution through Western Auto and J.C. Penney.

Nowak, who was working as an independent inventor, was more interested in designing more new products than in producing and marketing them. But his daughter was 4/SMALL BUSINESS

Issued in August of 1973, it was clear that the device was commercially successful and Funnelcap seemed well on the way to becoming one of the rare small businesses that manage to survive beyond a second birthday.

Last year, FunnelcaP* sold fewer than 10,000 funnels. Western Auto, Walgreen and J.C. Penney are no longer customers. Instead of the 40 people involved in manufac turing and marketing in 1972, Wyatt now employs only two people on a subcontract basis. Funnelcap is insolvent and it is only on the basis of personal loans and Barbara Wyatt's willingness to work without salary for nearly the past four years that the company continues to operate at all. As the owners the Wyatts are also out more than $75,000 in legal expenses, spent on a lawsuit to protect their patent from infringement by a large corporation. But the money and time were not enough to keep Barbara Wyatt from losing the Funnelcal* patent and nearly losing her business.

How did a business that showed such early promise come to suffer so dramatic a decline? The story is not an uncommon one. "If we'd

"eager to have something that their competitors didn't. But I gradually learned that the chain store buyers don't make their own decisions. I can remember the first time I went to Zayre [department store] headquar ters. I was excited about the prospect of selling my funnel to a big chain and when I got in there, all the buyer wanted to know was who else I had sold to. Frankly, I had thought his account was so important that he'd be a nice one to start with. But after a while I realized how the selling game works. They don't want to be first.

They always want to know who else you've sold."

Wyatt had already made a sale to Pep Boys [manufacturers and distributors of auto acces sories], "who, it turned out, is a leader in the field. The name meant something to him. But even with that it took several follow-up calls before I made even a token sale to Zayre and they never were repeat cus tomers."

In 1972, however, she sold several hundred thousand funnels to Western Auto and began to think her product had made it. "I got a lot of inquiries from the chains and I kept expecting to make other sales to big companies-Sears or Ward but they weren't quite developing and I began to wonder why. I knew we had the only funnel like it on the market. Yet, it wasn't really selling as well as I thought it should be."

In 1973, she found out why. "It was about a month and a half before the Annual APAA [Automotive Parts & Acces sories Association] Show in Chicago. One of our customers called and said, 'Gee, Barbara, I see you've got prob lems.' I didn't know what he was talking about until he told me a company in California was making a funnel like ours."

In fact, when the Wyatts got to the APAA show they saw that two other companies were displaying similar products: the California company her customer had told her about-Hollywood Accessories-and a smaller company, Allison Company in New Jersey. Hollywood Accessories, whose catalogues and sales literature described it as "A Division of Orion Industries," put a signi ficant dent in the sales the Wyatts had expected to make at the show. "It's a big com pany with an even bigger parent [Orion]. They have all the automotive accessories and they already sell to most

FEBRUARY/MARCH 1979

of the accounts I was trying to get. So naturally, the funnel was just one more item to check off on their order forms. We were just a small company. The buyers didn't know who I was, how established I was, how reliable I was. Not many were willing to take the chance, even though I'd been provid ing them with samples of our product long before these other two companies ever started making it.

Ironically, Hollywood was one of the companies that had written to Wyatt asking for sample funnels and prices, which she sent them in March of 1971. (In a letter to Wyatt, Hollywood had replied that the funnels were "overpriced".) "At the show we confronted them with the fact that they were infringing on our patent," Peter Wyatt recalls. Barbara's father had referred the Wyatts to a patent attorney in Chicago, Berton Scott Sheppard (of Wolfe, Hubbard, Leydig, Voit & Osann). Before they went out to the APAA Show, the Wyatts made an appointment to see Sheppard and discuss their situation.

"He advised us that it appeared to be a case of infringement and he prepared a letter to Hollywood explaining that we had a patent and that we considered their products an infringement," Peter explains. "We mailed the letter to their business address and at the Show the next morning I hand-delivered a duplicate original to Hollywood's representatives at the Show. [Bill Hyatt, vice president for marketing and Bud Gibbons, president). We were open to the possibility of a licensing agreement with them. At that point we were hoping somebody with a big marketing organization like theirs would want to market it for us. There was no way we wanted to sue anybody."

Barbara remembers that FEBRUARY/MARCH 1979

-Barbara Wyatt

Gibbons told him that the licensing decision was out of his hands and in the hands of Hollywood's lawyers.

At the same time, it was becoming apparent to Barbara Wyatt that FunnelcaP would have a rough time marketing its own product without estab lishing its patent rights. "When I approached Sears with our funnel I said, 'Look, we have the patent.' But their attitude was, 'You tell us that, but other people are making it and selling it, too. If you want us to buy from you, you're going to have to protect that patent. Considering the attitudes of Hollywood's executives and Sears' buyers, we concluded that if we wanted to reach the mass market we really had no choice but to go

to court against Hollywood." Just before the 1974 APAA Show, Funnelcap filed a suit against Orion Industries (which they believed to be Hollywood's parent company) for patent and trademark infringement. (In their sales literature, Hollywood referred to their product as a "funnelcap.") As the legal work got under way, Peter and Barbara Wear got a step-by-step lessons in the technicalities of patent litigation and the particular pitfalls of suing a big corporation. Gradually they realized that suing for infringement was not going to be as clear-cut an action as they thought it should be.

"Hollywood's first response was a countersuit," Peter explains. "Then they initiated a venue fight insisting the trial should be held in California Evidently this is chapter two of many legal fights. If they had won it, it would have meant that instead of driving to Delaware [the Wyatts filed their suit in Delaware District Court because that is where Orion Industries is incorporated), we'd have to fly ourselves and any witnesses to California As it was, it cost us $14,000 in legal fees just to answer their suit in California."

When Hollywood cross-filed it was in the name of Cal Custom Accessories and not Hollywood Accessories or Orion Industries. "We'd never heard of Cal Custom Acces sories. Come to find out moST of the employees of Hollywood hadn't heard of it either," Barbara notes, "but according to the countersuit Hollywond was then a subsidiary of Cal Custom Accessories. When we checked them out, we learned that it had only been incorporated in June of 1973. It must have been created primarily for tax purposes. They have these layers of companies -Hollywood, Cal Custom Accessories, Orion, Allen

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Group. They're all affiliates or divisions of each other."

In their countersuit Cal Custom Accessories did more than assert that the Funnelcap patent was invalid. It included eight additional cross-actions for affirmative relief, accusing the Wyatts of trade libel, libel, inducing breach of contract (between Cal Custom Accessories and its customers) and interference with trade. They claimed their customers were demanding indemnity contracts to protect them against any patent infringement claims brought against Hollywood. Sheppard was forced to spend considerable time and expense prepar ing responses to those charges, only to see Cal Custom Acces sories voluntarily dismiss them on the opening day of the trial. Peter Wyatt concludes that, "It was just one more ruse to delay the litigation and try to force us out because we're small and could only afford so much time and paperwork.

"While all this stalling was going on they also succeeded in confusing the marketplace," he continues. "Their funnel looks so much like ours-in color, shape, even the design and illustrations on the labelthat it could easily be mistaken for ours in a store. The only difference is theirs isn't as good. In the beginning it didn't even fit securely on the cans so the can was not tightly sealed. Anyone who bought one of theirs and thought ours was the same product would never come back for seconds."

Sheppard advised her not to contact any of Hollywood's customers until after the pretrial hearing in July of 1975. "I really felt that there was something wrong with this," Barbara says. "They're a big company; they have their sales people visiting these merchandisers regularly. How am I supposed to get my product across? All I can do is provide samples and try to explain why ours is better. But then I was told-by my own attorney -that I wasn't to bring up any of the legal stuff or any references to the quality until after the pretrial hearings. In the meantime what happened? They moved in and made the sales to some of these key mass merchandiser accounts that I felt I'd been getting close to." Later in the pretrial research

their price lists or any of their correspondence with buyers. And I was still naive enough to think that we had a case that could win and that we'd have to have these merchandisers' records to do it. We ended up subpoenaing the records from Western Auto, Sears, K-Mart and J.C. Penney."

And they ended up uncovering more than they'd planned to: Western Auto's records showed that Hollywood agreed to supply funnels to Western Auto at a special price that was tied to Western Auto's purchase of another Hollywood product. The records also indicated that Hollywood's price to Western Auto for its funnel was lower than the prices they charged to comparable customers

J.C. Penny and K-Mart.

After the 1974 APAA Show the Wyatts had broadened their patent infringement suit to include deceptive trade practice and unfair competi tion. In light of what they learned about the HollywoodWestern Auto agreement, they thought they had an even stronger unfair competition case, since that agreement was apparently what prompted Western Auto to drop Funnelcap* as a supplier.

In his final brief, Sheppard charged that Hollywood's pricing was discriminatory since its low price to Western Auto "was not designed to 'meet competition,' it was a 'special' low price intended to beat competition and drive FunnelcaP* out of the mass merchandise market.... When the Robinson-Patman 'price discrimination' Act was adopted one of its objectives was to prevent large and powerful merchandisers from moving in with lower prices and driving the smaller 'mom and pop' type operators out of business. That is exactly what is involved here where Hollywood moved in on Western Auto, Funnelcap's largest customer, with a discriminatory price."

Their case was heard in the United States District Court for the District of Delaware in December, 1975. The court's final opinion was issued on September 1, 1976. Judge Stapleton ruled that Hollywood's "second generation funnel does not literally infringe" on the FunnelcaP* patent. [By second generation, the judge meant Hollywood's second version of its own cap which had been redesigned to eliminate a lip that is part of the Funnelcap design.]

In addition, the judge held that the Funnelcap patent was "invalid" on the grounds that Nowak's device would be "obvious at the time developed

FEBRUARY/MARCH 1979