In this Oct. 27, 2011 photo, a Gates Carbon Drive system is shown in Denver. (The Denver Post/ Hyoung Chang)
Twenty years ago, two companies — one in Denver, the other in Golden — set out to invent a better bicycle; a cleaner, more durable alternative to the chain-driven bikes of old.
Gates Corporation, the Denver company, invented a belt-drive system that it called Carbon Drive. Spot Brand, the Golden company, contemporaneously invented a way to install that belt-drive system on existing bike frames, which it called the Drop-Out design.
A symbiotic relationship was taking shape along Interstate 70. Seemingly.
But now, as the post-pandemic proliferation of e-bikes has sent demand for belt-drive systems surging, Spot has taken a fresh look at its partnership with Gates and discovered that while 30 bicycle manufacturers are selling 100 models that include Spot’s Drop-Out design, Gates has never paid a penny of royalties to Spot, according to a lawsuit it filed July 31.
“Based on our fact investigation to date, we have good reasons to believe that Spot’s damages are at least several tens of millions of dollars,” said Spot attorney Drew Unthank.
In 2008, Gates and Spot signed a royalty agreement. In exchange for an ownership stake in Drop-Out, Gates paid $25,000 to Spot, agreed to obtain patents for Drop-Out, and promised to pay royalties: Eight percent of the net sales of any bikes that include Drop-Out.
A water tower with the Gates Rubber Co. logo stands atop the manufacturing plant, since demolished, at 999 S. Broadway in Denver on Nov. 13, 2002. (Jerry Cleveland/The Denver Post)
Aside from paying that $25,000 up front, Gates has fallen short on all of its promises, Spot alleges. It filed for patent protections in the U.S. and Canada but not in Europe, “which is Gates’ largest market for Carbon Drive products,” according to last week’s lawsuit.
Most importantly, Gates hasn’t paid royalties. Whether it must depends on who you ask.
Since 2009, Gates has included the Drop-Out design in its promotional materials and encouraged manufacturers to use it, according to Spot. But Gates never charged clients for the use of Drop-Out or signed sublicensing agreements. Since the Gates-Spot agreement requires only royalty payments when Drop-Out is sublicensed, Gates hasn’t paid Spot.
“Simply put, Gates did not sublicense the Drop-Out patent and therefore does not owe Spot Brand any royalty payments,” its attorneys wrote to lawyers for Spot on Nov. 1, according to a copy of their letter that was obtained by BusinessDen in a records request.
“Gates never sold the Drop-Out or any article that infringes the patent,” they added in a March letter. “Gates merely sells its Carbon Drive system, which does not itself infringe.”
In the eyes of the company in Golden, that is a loophole that has led to unfair outcomes.
“Gates has generated substantial revenues selling its Carbon Drive systems to bicycle manufacturers that use the Drop-Out invention. Those manufacturers have generated even greater revenues on their sales,” Spot said, “… all while Spot lost its competitive advantage in the belt drive-bicycle market due to its competitors using its invention for free.”
The company has gone to significant lengths to prove that its Drop-Out invention is being used by Gates’ clients, acquiring design manuals for bikes and, in one case, disassembling an e-bike so that its hired expert could determine if it included a Drop-Out (it did, Spot said).
Andrew Lumpkin of Spot Brand bikes displays a belt-drive bicycle in 2014. (Burl Rolett/BusinessDen)
In May, Spot’s attorneys offered to settle the case confidentially in exchange for $25 million. Gates’ lawyers wrote back four weeks later declining the offer, their letters show.
“We demand that Spot refrain from contacting Gates’ customers and from erroneously informing them that they are a party to a license agreement with Gates, that they are infringers of the (Drop-Out) patent, or that Gates failed to collect royalties,” Gates’ letter states.
Spot is suing Gates for breach of their royalty agreement and breach of good-faith dealing. In addition to Unthank, its attorneys are Michael Williams, Meghan Frei Berglind and Sarah Graves, all of whom are with the Denver office of Wheeler Trigg O’Donnell.
“This case is very important to Spot, which gave up its competitive advantage in the belt-drive bicycle market in exchange for Gates’ promise to pay royalties,” Unthank said.
In addition to money, Spot wants a Denver District Court judge to force Gates to collect and pay out royalties, and to provide an accounting of the past royalties Spot is owed.
Gates is represented by the attorney Michael Dulin in the Denver office of Polsinelli. A Gates spokeswoman, Caitlin Steele, did not answer a request for comment this week.
Gates was founded in Denver in 1911 and remains based downtown. The company sold its 50-acre manufacturing plant at 999 S. Broadway to developers in 2001.
Spot first opened its doors in 1997, moved to Golden in 2006 and was purchased in 2009 by Wayne Lumpkin, the founder of Avid Brakes and inventor of the Drop-Out design.
In this Oct. 27, 2011 photo, a Gates Carbon Drive system is shown in Denver. (The Denver Post/ Hyoung Chang)
Twenty years ago, two companies — one in Denver, the other in Golden — set out to invent a better bicycle; a cleaner, more durable alternative to the chain-driven bikes of old.
Gates Corporation, the Denver company, invented a belt-drive system that it called Carbon Drive. Spot Brand, the Golden company, contemporaneously invented a way to install that belt-drive system on existing bike frames, which it called the Drop-Out design.
A symbiotic relationship was taking shape along Interstate 70. Seemingly.
But now, as the post-pandemic proliferation of e-bikes has sent demand for belt-drive systems surging, Spot has taken a fresh look at its partnership with Gates and discovered that while 30 bicycle manufacturers are selling 100 models that include Spot’s Drop-Out design, Gates has never paid a penny of royalties to Spot, according to a lawsuit it filed July 31.
“Based on our fact investigation to date, we have good reasons to believe that Spot’s damages are at least several tens of millions of dollars,” said Spot attorney Drew Unthank.
In 2008, Gates and Spot signed a royalty agreement. In exchange for an ownership stake in Drop-Out, Gates paid $25,000 to Spot, agreed to obtain patents for Drop-Out, and promised to pay royalties: Eight percent of the net sales of any bikes that include Drop-Out.
A water tower with the Gates Rubber Co. logo stands atop the manufacturing plant, since demolished, at 999 S. Broadway in Denver on Nov. 13, 2002. (Jerry Cleveland/The Denver Post)
Aside from paying that $25,000 up front, Gates has fallen short on all of its promises, Spot alleges. It filed for patent protections in the U.S. and Canada but not in Europe, “which is Gates’ largest market for Carbon Drive products,” according to last week’s lawsuit.
Most importantly, Gates hasn’t paid royalties. Whether it must depends on who you ask.
Since 2009, Gates has included the Drop-Out design in its promotional materials and encouraged manufacturers to use it, according to Spot. But Gates never charged clients for the use of Drop-Out or signed sublicensing agreements. Since the Gates-Spot agreement requires only royalty payments when Drop-Out is sublicensed, Gates hasn’t paid Spot.
“Simply put, Gates did not sublicense the Drop-Out patent and therefore does not owe Spot Brand any royalty payments,” its attorneys wrote to lawyers for Spot on Nov. 1, according to a copy of their letter that was obtained by BusinessDen in a records request.
“Gates never sold the Drop-Out or any article that infringes the patent,” they added in a March letter. “Gates merely sells its Carbon Drive system, which does not itself infringe.”
In the eyes of the company in Golden, that is a loophole that has led to unfair outcomes.
“Gates has generated substantial revenues selling its Carbon Drive systems to bicycle manufacturers that use the Drop-Out invention. Those manufacturers have generated even greater revenues on their sales,” Spot said, “… all while Spot lost its competitive advantage in the belt drive-bicycle market due to its competitors using its invention for free.”
The company has gone to significant lengths to prove that its Drop-Out invention is being used by Gates’ clients, acquiring design manuals for bikes and, in one case, disassembling an e-bike so that its hired expert could determine if it included a Drop-Out (it did, Spot said).
Andrew Lumpkin of Spot Brand bikes displays a belt-drive bicycle in 2014. (Burl Rolett/BusinessDen)
In May, Spot’s attorneys offered to settle the case confidentially in exchange for $25 million. Gates’ lawyers wrote back four weeks later declining the offer, their letters show.
“We demand that Spot refrain from contacting Gates’ customers and from erroneously informing them that they are a party to a license agreement with Gates, that they are infringers of the (Drop-Out) patent, or that Gates failed to collect royalties,” Gates’ letter states.
Spot is suing Gates for breach of their royalty agreement and breach of good-faith dealing. In addition to Unthank, its attorneys are Michael Williams, Meghan Frei Berglind and Sarah Graves, all of whom are with the Denver office of Wheeler Trigg O’Donnell.
“This case is very important to Spot, which gave up its competitive advantage in the belt-drive bicycle market in exchange for Gates’ promise to pay royalties,” Unthank said.
In addition to money, Spot wants a Denver District Court judge to force Gates to collect and pay out royalties, and to provide an accounting of the past royalties Spot is owed.
Gates is represented by the attorney Michael Dulin in the Denver office of Polsinelli. A Gates spokeswoman, Caitlin Steele, did not answer a request for comment this week.
Gates was founded in Denver in 1911 and remains based downtown. The company sold its 50-acre manufacturing plant at 999 S. Broadway to developers in 2001.
Spot first opened its doors in 1997, moved to Golden in 2006 and was purchased in 2009 by Wayne Lumpkin, the founder of Avid Brakes and inventor of the Drop-Out design.
