A few days ago, Kee Action Sports issued a press release that stated that the company had acquire the intellectual property portfolio (patents, trademarks) of bankrupt Smart Parts Inc.
Like any other story connected to Smart Parts, the controversy, bickering, speculation and emotional venting began almost immediately on the boards, Facebook and in the blogs.
68Caliber is intimately familiar with this subject, having previously served as the media outlet for White Hats LLC, a corporation formed in late 2009 for the purpose of acquiring the Smart Parts assets; the public reaction to Kee’s announcement did not come as a surprise as the exact same thing took place when White Hats LLC issued its own press releases. (White Hats LLC ultimately determined that purchasing all of the Smart Parts assets – not just the IP – was not a good fit for its future goals and withdrew its offer to purchase several months ago.)
The hyperbole flung across the web regarding this subject by paintballers typifies the kind of discourse that passes for intelligent discussion in this industry: a tremendous amount of uninformed, mean-spirited, deliberately misleading, agenda-driven drivel, lies, obfuscations, speculations and plain outright idiocy. Posters present themselves as insiders with special access and then utter the most outrageous, ridiculous claims of facts, ones that wouldn’t pass muster in front of a kindergarten audience – if that audience bothered to think about it for half a second.
‘Dishing the dirt’ is a time-honored tradition wherever two or more human beings gather together (and seemingly a favorite hobby amongst paintballers) which will never be eliminated. However, there is also something to be said for reading and listening with just a tad bit of skepticism.
There’s also something to be said for going to the source. The paintball industry is a famously open one, offering access to the top names and companies on an unheard of level of intimacy between the captains of industry and the great unwashed consumer public; most decision-makers are available on Facebook, through their websites, in forums and at various events and seminars.
The point is, sometimes all you have to do is ask. Which is precisely what 68Caliber did almost immediately following Kee’s announcement.
Why some people insist on foisting their own (uneducated, ill informed, non-logical, sometimes even crazy) viewpoints without even going through the motions of asking the source is beyond our abilities to comprehend. You might not get an answer, you might get an answer that isn’t the one you wanted to hear, but at the very least your own speculations would be elevated above the morass of sewage foisted upon us by the thousands of so-called experts with an imprint of veracity.
Our best guess as to an explanation for this behavior is that there must be a lot of folks out there who are so desperate for attention that they prefer being a celebrity idiot to non-celebrity status.
But we’ll leave that rant right now in favor of getting to what you came here for – some answers. Answers from the source.
First though, a bit of background and history:
Kee is a legacy corporation, formed from the acquisition of the various companies and brands that once made up Brass Eagle (itself a formerly publicly traded company formed from Brass Eagle, JT USA, Worr games Products and others), National Paintball Supply and Pursuit Marketing Inc. It is the industry’s largest distributor (and manufacturer) and represents paintball in the ‘real’ business world, run along corporate lines, invested in and funded by dollars from outside the industry. Internally, the company is run by folks who come not from paintball but from the business world, though the experience and talent level working in key positions within the company have a strong foundational industry background.
Kee offers some of the most recognizable brands in the industry – BT, JT, Empire, RP Scherer, Evil, Invert, Diablo and more.
The company has also been largely responsible for the industry’s promotional efforts outside of paintball, including the first-ever paintball company sponsorship of the Boy Scouts of America.
What individuals see in Kee more often than not is a non-industry intruder into their favorite sport, a company that seems bent on buying up everything paintball for some us yet unknown, but no doubt nefarious purpose.
In reality what they are seeing is an expression of the maturation of the industry: paintball has become big enough, strong enough and profitable enough to warrant the attention of people who’s business is business. What Kee seems to be engaged in is a measured and considered “roll up” of an “industry segment”, something that has taken place with numerous other industries since at least the 1980s. The concept is a simple one: acquire strong brands that represent a solid cross-section of a particular industr, realizing economies of scale along the way.
Smart Parts was, since at least the middle 1990s, the complete opposite of a Kee-style entity. Privately owned and controlled by a family that had first achieved fame and notoriety on the playing fields of paintball. If you were a tournament player during the late 80s through the early oughts, you not only saw Smart Parts at every event trade show, you saw the owners on the field.
Smart Parts was a strong aftermarket company, competing well with dozens of others, until the mid-1990s when the company acquired the first of what would eventually become the largest intellectual property portfolio in the industry.
Controversy surrounded the company’s move to patent “electronic paintball guns” as it was perceived as an attempt to control the entire industry through law suits, threats of lawsuits and the control of technology which many perceived as already being in the public domain.
In an apparent bid to expand, Smart Parts Inc arranged for a multi-million dollar bank loan in 2008; the economy then tanked and Smart Parts quickly found itself in default, ultimately filing for bankruptcy in 2009.
The company’s assets had been put up as collateral for the bank loan and once the company filed for Chapter 11, those assets became the property of the lending institution, a leading national bank.
In late 2009, several prominent members of the paintball community became aware of the bankruptcy filing; the group, consisting of several highly-regarded individuals and companies within the industry (collectively having nearly 150 years of involvement) put together a company called White Hats LLC and began working with the bank and other corporate entities within paintball to acquire the assets of Smart Parts. Following more than a year of negotiations (and engaging with several other companies including Kee Action Sports), White Hats LLC ultimately made the decision that all of the Smart Parts assets (not limited to the intellectual property) were not worth the asking price and the company withdrew its offer.
Which brings us relatively up to date.
Following Kee’s announcement (and GOG’s announcement: GOG is the new company formed by the former owners of Smart Parts), the internet lit up with questions, concerns and speculation.
The three biggest issues raised (and still being discussed today) are: How is Kee going to handle their IP – in an industry friendly way?; will Kee be making Smart Parts products and supporting existing product?; and is this a bid for world paintball domination?
A couple of days ago, 68Caliber put together a series of questions for John Robinson, the CEO of Kee Action Sports, seeking answers to all but the last question. That one is a non-starter: World Domination is not achievable, even if that is the goal.
68Caliber: The announcement from Kee regarding Smart Parts only mentioned the intellectual property portfolio – patents, trademarks. Did Kee acquire any of the other assets of Smart Parts or just the IP?
John Robinson: KEE only acquired IP. KEE assumed no liabilities nor did we assume any responsibility for products in the marketplace produced by Smart Parts or utilizing the Smart Parts technology either pre or post transaction.
68Caliber: The list of patents can be viewed here. Note that “assume no responsibility” is a standard phrase indicating that legally speaking, Kee is not liable for the past. This does not necessarily mean that Kee will not be offering support, service, parts & etc., in the future. It does mean that the company is not obligated to do so. Regardless of Kee’s intentions in this regard, it will take time for the company to absorb its acquisition and make future plans. Emails and calls to Kee for replacement parts or service of Smart Parts product at this time would be a futile exercise.
68: Some of the patents in the portfolio have passed their maintenance fee date(s); will Kee be attempting to get those patents reinstated or let them go by the wayside?
JR: KEE believes that the maintenance fees most pertinent were paid up. There are a couple of instances of maintenance fees being paid by the bank post Chapter 7 filing. That said, KEE will be conducting a complete review of all IP and making case by case determinations as to the go forward strategy and maintenance of each item.
68Caliber: At regular intervals, fees must be paid to keep patents active. Non-payment usually results in abandonment and non-enforceability of the patent. Fees can amount to tens of thousands of dollars per year. It is within Kee’s best interest to determine the utility of each patent and decide whether to keep it active or not.
68: Prior to your acquisition, the Gardners implied to various and sundry that they had already licensed themselves/GOG to manufacture various product that was covered by the IP; has Kee worked out a licensing agreement with Gardners/GOG, or is that not necessary due to the foregoing?
JR: As you are probably aware, most of the license agreements have confidentiality terms. We intend to hold up our side of these undertakings and that limits how much I can say about particular deals. However our attitude to licensing others, and dealing with existing licenses is discussed in my answers to these questions.
68: Shortly after the possibility of a White Hats acquisition was announced, potential WH investors had discussions with the Gardners (former owners of Smart Parts) regarding their possible involvement. Those individuals were informed that such a sale would not affect GOG, since the company was already licensed.
68: The Gardners also implied that they had either offered or had signed “blanket licensing agreements” with several other companies. In light of this, is Kee going to have a broad enough market to license into to make the acquisition worthwhile?
JR: First and foremost in our decision to acquire the IP was a focus on keeping the portfolio inside the industry. Beyond that, different organizations apply value in many different ways. For KEE, we believe the combination of keeping it inside the industry plus our internal valuation made the decision to pursue the IP an easy one.
68Caliber: Patent mining and other similar legal but questionable practices have become commonplace. Typically, IP is acquired on the cheap and threats of legal action against small companies, financially unable to defend themselves, are used to generate income. Such activity does nothing but drain an industry of cash and innovation. Kee’s acquisition genuinely helped avoid this fate. The statements regarding blanket licenses were heard from both the Gardners and other sources.
68: A number of companies, both big and small, saw the Smart Parts bankruptcy as an opportunity to make and offer product that had originally been covered by the IP. What are Kee’s plans (if any) for addressing this and perhaps reigning in this activity?
JR: It is important to not only protect our interests in the IP, but to continue to support those companies who respect IP through license agreements.
68: As in all things legal, it would probably be best for any manufacturer producing product that would have been covered under a Smart Parts license to consult with an attorney regarding continued production. Kee has a vested and legitimate interest in protecting their property. The answer to this question seems to indicate that Kee will respond favorably to those who wish to do things the ‘right way’ and will also take appropriate action(s) where this is not the case.
68: Does Kee have a general philosophy or approach to how it intends to handle the IP? The general perception is that Smart Parts used their IP to achieve an “unfair” competitive advantage – driving numerous companies out of business (AKA, AGD, others) and prevented innovation due to the potential for litigation. Will Kee be making “affordable” fees available to competitors?
JR: There is a balance here that we have to diligently to manage. That balance includes three distinct areas:
1. Making decisions that are consistent with our objective to grow our industry which means being willing to support and foster product development activity within our industry that is compelling to the end consumer. Competition through great product is important to any industry.
2. The economic reality that we invested resources into the acquisition and those resources should generate a reasonable return.
3. The relationships and legacy deals that are currently in place with our industry’s manufacturers.
68: A lot of IP is issued to designers that are variations on existing patents, expansions or improvements – technology that is useful only in conjunction with technology owned by others (such as a Kee patent); how will Kee be handling such? In other words, will Kee be encouraging such activities or attempting to keep all such development in-house?
JR: I am a big believer in embracing good ideas, whatever their source. Kee has a history of working with inventors who have brought us good ideas. We of course have a strong internal product development team, but we also are committed to continuing to look at technologies brought to us. We welcome the opportunity to work with inventors to bring those technologies to market. The understanding of how to commercialize an idea and successfully launch it is a core strength of our Company and one we would like to share with those who have great ideas, but maybe not the resources to bring those ideas to market.
68Caliber: We take this to mean that if someone has a genuinely good concept and wants to work with Kee in developing it and bringing it to market, they’ll find a positive reception.
68: Does Kee have any plans to place any of its IP into the public domain for ‘open-source’ types of development?
JR: I believe you will see us become more active in this area, especially as it relates to safety oriented technologies.
68Caliber: Very interesting! “Open source” has been proving itself in the computer and digital world for some time now. It is encouraging to see Kee beginning to engage with the concept.
68: How does Kee see the acquired IP fitting in with its existing product line? Will it be using it (where appropriate) to improve/enhance Kee offerings or does Kee intend to re-issue various Smart Parts designs under their own name (Shocker, for example)?
JR: Ultimately time will tell, but current discussions are all centered around the acquired IP opening up opportunities to incorporate or enhance existing offerings. It’s certainly one less constraint in the new product development process.
68: Will Kee be distributing GOG product? Rumors abound. One of them is that GOG has worked out a “deal” with Kee prior to Kee’s acquisition, perhaps agreeing to manufacture product or even using the Smart Parts China manufacturing facility to make their own product. Any truth to such?
JR: There are currently no manufacturing deals in place with GoG. Prior to and throughout this process KEE and GoG leadership have built and maintained a solid relationship. Much like other manufacturers, KEE will always explore ways in which we can build relationships and explore strategic opportunities not only for our companies’ interests, but those consistent with our focus on growing the sport.
68Caliber: Looks like there will not be a line of Kee-based former Smart Parts products – but the door remains open for Kee to distribute GOG product, which is essentially the same product under different names.
68: Forgetting SP for the moment: if someone wanted to license a KEE patent, would it be available for license? Would the fees allow for production at competitive prices?
JR: We will always be willing to listen to such proposals. The second part of the question is a little harder to answer as it requires everyone to agree on the term “competitive prices”. I will say this. KEE is committed to growth in our industry. We believe competition supported by new, innovative products that are compelling to the consumer is a big piece of that growth. With those thoughts in mind, we are absolutely committed to partnerships that meet those simple criteria.
Thank you John – 68Caliber and its readers greatly appreciate the time you took to answer these questions and wish Kee good luck in its future endeavours.
In summary: 68Caliber believes that chances are pretty good that after a few months, some SP product replacement parts may be finding its way into the pipeline; we believe that chances are good that Kee will be distributing GOG product; we also believe that Kee will be handling its IP in the same exact manner that it has handled it up till now; focused on protecting its legitimate interests but not engaging in wholesale warfare against the rest of the industry. In fact, so much IP in one place may very well make it easier and less expensive for competitors to enter and/or remain in the marketplace.
DISCLOSURE & EDITORIAL MATTERS:
For clarity and correctness sake, a copy of this article was provided to John Robinson of Kee Action Sports prior to publication; Mr. Robinson’s review of the materials here was for the sole purpose of ensuring that his answers were accurately portrayed and did not address editorial content.
Kee Action Sports is also the distributor within the paintball industry of the editor’s book – A Parent’s Guide To Paintball.