On January 10th, image-based barcode reading solutions provider Code Corporation of Salt Lake City, UT, announced that it had filed antitrust actions against Morris Plains, NJ-based engineering conglomerate Honeywell International (NYSE:HON) at both the U.S. International Trade Commission and in the Eastern District of Texas. Code, which is seeking an injunction on the importation and sale of barcode readers marketed by Honeywell for the healthcare industry, alleges that Honeywell engaged in a campaign to mislead distributors about the legitimacy of Code’s barcode reader products as part of an effort to monopolize that market.
Code’s ITC complaint, a suit alleging unfair practices in import trade under Section 337 of the Tariff Act, notes that Code began entering the market for barcode scanners in the healthcare industry back in 2003; in that year, Boston-based Brigham and Women’s Hospital became Code’s first customer in the healthcare sector. In 2012, Code released a third-generation barcode scanner for the healthcare sector, the Code Reader™ 2600, which has sold 150,000 units and may have been the best-selling barcode scanner product in the healthcare sector until Honeywell’s anticompetitive activity.
While Code entered the healthcare market through in-house development of its own barcode scanner technologies, Honeywell began making moves into the sector in 2007 with a series of corporate acquisitions, beginning with a $390 million purchase of automatic ID and data collection firm Hand Held Products in October of that year. In April of 2008, Honeywell agreed to pay $720 million to acquire Metrologic Instruments, a developer of both hardware and software for data capture and collection. A third acquisition announced September 2013, a $600 million purchase of data capture and information management firm Intermec, further increased Honeywell’s market power in the barcode scanner market.
Last January, Honeywell actually initiated a patent infringement suit against Code, asserting a series of six barcode scanner and optical reader patents against Code in the District of South Carolina. Honeywell’s suit targeted the sale of Code products like the Code Reader™ 2600 and statements from Honeywell executives at the time noted that the company has “zero tolerance” for IP infringers and that protecting its patents was “critical to ensuring a level playing field for all players.” In May, Honeywell initiated its own Section 337 complaint at the ITC against Code, again alleging that Code’s barcode scanner products infringed on patents asserted by Honeywell.
“Honeywell has already dismissed or retracted half of the patents which they said we’ve infringed upon in the ITC case,” said Code CEO George Powell, who adds that Code has been adamant that they have not infringed upon any of the patents-in-suit in either case. “The problem that we have is that they’re using this as a marketing campaign rather than expecting realistic legal remedies to ever come close to covering their costs on these actions.”” Code’s ITC suit alleges (and these allegations are largely repeated in Code’s Eastern Texas complaint for violations of the Sherman Act) that Honeywell has used threats of potential patent infringement to draw the business of distributors, resellers and software developers away from Code. Such anticompetitive activity began by at least March 2017 when a Honeywell employee circulated a talking points memo to officers of another company questioning Code’s viability as a company and arguing that Code has engaged in widespread infringement of its patents. Based on the Honeywell provided talking points at least one reseller asked Code’s customers, “If you are concerned in any way and if you would like to change to the legal patented technology, we can offer the Honeywell Xenon solution as an excellent competitive alternative.”
In return for disseminating Honeywell’s information about Code’s potential patent infringement, Honeywell informed participating businesses that they could expect an increase in business. The complaint alleges that companies induced into Honeywell’s misinformation campaign include a dominant electronic health records (EHR) company which certifies barcode reader systems for integration with EHR systems at 1,400 of the total 5,500 hospitals in America (third-party company names have been redacted from both suits). This has prevented Code from deploying an Android-based mobile computer system for healthcare barcode readers while opening up the market for an Android device built by Honeywell. Honeywell’s rhetoric against Code also stepped up following a meeting of its productivity products team around the same time that Honeywell filed suit against Code, after which Honeywell sales representatives began making statements that Honeywell will “bury Code” and “will put Code out of business.” In March 2017, a Honeywell sales rep allegedly expressed to a senior executive at one company that “we do so much business with you, we don’t know why you don’t just give all of the Code business to us.”
Through 2017, Code’s sales were down by 20 percent and the sales decrease is directly traceable to Honeywell’s activity instead of any product quality or concerns. Code alleges that Honeywell’s statements on Code’s infringing activities are false and have misled customers. Aside from the fact that Code doesn’t actually infringe upon any of the twelve patents asserted by Honeywell, four have already expired, preventing Honeywell from being able to obtain any actual injunctive relief on those four patents. The weak nature of the patents asserted by Honeywell in the case exists despite the fact that the company owns more than 3,000 patents related to barcode reading.
“It comes down to a big company bullying a smaller one,” Powell said, noting that Honeywell’s annual revenues are 1,000 times the revenues seen by Code despite the fact that both companies had been competing on a fairly even playing field within the healthcare sector up to Honeywell’s anticompetitive activities. “If you look at who’s really been in the healthcare barcode scanner market since the beginning, Code was there first followed by Honeywell through acquisitions of other players in the market.” Code has developed various features of its barcode scanner technologies, such as plastics which are more resistant to chemical cleansers used to destroy bacteria, to make its products particularly suitable to the healthcare sector. Another such feature noted by Powell is a night mode feature which causes the scanner to vibrate instead of beep during use, making it particularly useful for sensitive settings like neonatal intensive care units (NICUs). Code does face competition from companies other than Honeywell in the healthcare sector but many of those firms take barcode products meant for larger markets, such as retail, which are then reskinned for healthcare customers. “The great thing about the medical market is that it’s very demanding and requires a lot of innovation,” Powell said. “We’ve been able to create top-of-the-line barcode reading products for that sector.”
Code is not the first company to come out publicly with charges that Honeywell has used the threat of patent litigation to engage in anticompetitive industry practices. Last January, the president and CEO of MEK Chemicals Corp. argued that a Honeywell patent suit was brought against it to serve as “a roadblock to valid competition” in order to extend Honeywell’s monopoly over an industrial hydrocarbon for foam insulations past the expiration of Honeywell’s patents. Back in April 2012, Nest CEO Tony Fadell said that Honeywell was “worse than a patent troll” after Honeywell filed a patent suit in an attempt to keep Nest from entering as a competitor to the thermostat market. In September 2017, fire and life safety inspection firm Building Reports (BRC) sued Honeywell for intellectual property theft and illicit business conduct, including “hacking into BRC’s computer system without authorization, scraping BRC’s website to obtain BRC’s customer list, damaging BRC’s computer system in the process, and then using the fruits of these labors to solicit BRC’s clients.”
Although Code has not asserted any of its own patents in its recent legal action against Honeywell, Powell said that the company does own its own IP portfolio and is anticipating a variety of potential additional legal ventures if necessary. “I think the antitrust suit really underlines what the issue is and what we’re looking for remedy in this case.” Both the ITC and Eastern District of Texas suit seek injunctions against Honeywell’s barcode scanner products and the Eastern District of Texas suit further requests trebled damages at an amount to be proved at trial.
After the publication of this article, Honeywell spokesperson Mark Hamel provided the following quote on Code’s legal action: “Honeywell last year filed several federal actions against Code Corp. for infringing multiple Honeywell patents related to bar code scanning technology. Code’s legal filing yesterday repeats baseless claims it has made in the past and later withdrawn. Honeywell firmly believes Code’s latest filing does not have merit, and Honeywell will vigorously defend itself against this action.”
(UPDATED on 1/31 at 11:40 AM to include a statement received by Honeywell.)