Code sues Honeywell at ITC and EDTX for attempting to monopolize barcode reader market

By Steve Brachmann
January 26, 2018

Code sues Honeywell for attempting to monopolize barcode reader, barcode scanner market

Code Reader™ 2600

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.”

Code Reader™ 4300

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.)

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 20 Comments comments.

  1. Kevin January 26, 2018 5:32 pm

    “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.”

    uhh… welcome to being a tech company? haha Cant imagine things will go well for Code who having been in the industry since “2003” only has a single granted patent to its name… filed in 2016. Not sure its wise to attack a large company who can very easily invalidate their only patent. Seeing as how theyve been in existence 15 years, hopefully they didnt sell any devices disclosed in their patent in the first 13 years of business… doubtful.

  2. Paul Johnson January 26, 2018 9:08 pm

    But isn’t asserting a patent an anti-competitive activity by definition?

  3. Anon January 27, 2018 8:58 am

    Paul,

    No. While I “get” the surface appearance of your question, it has long been understood that patents promote innovation, and through that promotion, promote competition. One must take the entirety of the patent system in mind and NOT merely look at the first section of “limited times” exclusivity. The ENTIRE bargain includes a surrendering of ALL rights after the limited times, and that surrender – as well as the incremental improvements possible prior to (as well as after) is the deeper-than-surface understanding that informs whether activity is competitive, or rather, rises to be anti-competitive.

  4. Kevin January 27, 2018 12:29 pm

    Right… So i think it would be necessary for Code to show somethung much greater than boo hoo im being sued by a large company for patent infringement to establish that they are being anticompetitive. Like you said, simply asserting a patent isnt anticompetitive (in the legal sense) unless they can show thay the litigation is entirely a fraud.

    I just dont see anything else that code is asserting… Their argument seems to be “we dont infringe. If you dont believe us at face value and sue anyways that means you’re being anticompetitive”…. Nonsense.

    They point to previous instances of the suit with Nest and the recent suit with brc but Honeywell essentially won the patent suit with nest through settlement. And google appreciated it because it knocked off a hundred million off nests purchase price. The brc one is a bit too early tho.

    But its gonna require alot more than “a reader that vibrates rather than beeps” (paraphrase) to keep one of the largest manufacturers of… Anything…out of the Us market. Code should be sueing whoever advised them to bring this lawsuit… It will cost them their company in the end I think. (Haha hopefully it wasn’t a moderator here that represents them =/ )

  5. Gene Quinn January 27, 2018 1:37 pm

    Paul-

    You ask: “isn’t asserting a patent an anti-competitive activity by definition?”

    Is preventing someone from trespassing on your property anti-competitive?

    Is preventing someone from taking and using your car anti-competitive?

    The Supreme Court has consistently for 150 years said that patents are property rights equivalent to property rights in land. The Patent Act also specifically says that patents are invested with the same rights as personal property. So if preventing someone from using your property is anti-competitive then asserting patents would be anti-competitive. Since asserting property rights is not anti-competitive then asserting patent rights isn’t either.

    In fact, patents are pro-competitive. The blocking function a strong patent plays causes competitors to find innovative ways around the patent right and that is why we have the march of innovation and technology. In a system where patent rights are weak there is little incentive to innovate. That is why as patent rights in the U.S. have eroded we have not seen any paradigm shifting innovations that have created new industries or revitalized old industries. That is astonishing given we are coming off a Great Recession. Throughout history recessions have caused innovation to leap forward.

  6. Anon January 27, 2018 1:57 pm

    Gene,

    Thank you for adding: “The blocking function a strong patent plays causes competitors to find innovative ways around the patent right and that is why we have the march of innovation and technology” (very much worth repeating).

    A strong patent system has both a carrot and stick approach. A carrot (directly) to the inventor and a stick to BEAT UPON those who would merely copy (or to be PC, to whose who want to use what “should be” in the commons).

    The phrase “Necessity is the mother of invention” certainly applies to the paradigm of strong patents. Rather than any (Supreme Court-like) “may” retard progress, the act of blocking serves as an innovation jump start that SPURS progress.

    If only the Supreme Court took the time to understand how innovation actually worked, they may see the damage they do in the name of “progress” for their agenda against strong patents.

  7. Night Writer January 28, 2018 11:25 pm

    People also forget about improvement patents. Another way to go after a company with a really strong patent portfolio is get patents that are improvements of their products.

  8. Anon January 29, 2018 7:46 am

    Night Writer,

    The “fence-in” tactic that you mention is all the more reason why the party “to be fenced in” should be employing a “buffer zone” approach by themselves innovating at the edges.

    There is a new article on the site concerning strategic management, and one aspect thereof is the offered thought of saving money by pruning back on patent efforts. Your comment here reminds me that saving a dollar today may be (may being of course an operative word that requires some critical evaluation) losing tens – or thousands – of dollars tomorrow.

    It really is not enough to simply ask what business one is in today. ESPECIALLY with patent assets that are tools for a forward looking time scope.

    In essence, what may be an improvement (the subject of any such improvement patent) may not be as straightforward as one may think.

    Several books on innovation theory address this (Innovation Management by Troft comes to mind).

  9. Roger Heath January 29, 2018 5:18 pm

    The “fence-in” tactic.

    I have spent about as much time contemplating the etiquette of IP as I have “innovating”. Particularly pertaining to a sub micro-entity such as myself.

    A naïve innovator is a happy innovator.

  10. Anon January 29, 2018 6:04 pm

    Mr. Heath,

    Your comment leads in with a reference in quotes to a tactic I noted, but the rest of your post does not seem to make sense or is connected to the quoted item.

    What is your point?

  11. Roger Heath January 29, 2018 6:56 pm

    “Anon”

    The litany of disadvantages to an innovator is chilling. Leonidas had a better chance against the Persians.

    The “buffer zone” approach encroaches on (I assume) further issues of obviousness and the related defensive and offensive costs.

    An individual cannot readily determine when the “buffer zone” effort has ventured into obviousness or defend against a “fence-in” tactic due to obviousness, without overwhelming expense because IP is an elephant playground.

    You inquired before about my trade secret choices. If I disclosed without any IP there is no value to a partner or investor to build a buffer to permit usage (open source, I believe you would say). I doubt that I could use my own innovations within a few months.

    Even with IP, China would be the big winner. Without IP America would gain nothing.

    “That’s the way it is” but it stifles breakthrough innovation.

    If you can’t follow me that’s OK. Maybe that is why I excel at my own work.

  12. Roger Heath January 29, 2018 7:17 pm

    BTW

    I am thinking that significant individual IP in America is dead, even toxic.

    I wonder If I avoid American IP application (I am a citizen) and file for IP protection in China and select other nations if I’m not coming out ahead for America.

    China is proving to be a lot more IP civil and would wind up doing 99% of the manufacturing (although I would have emphasized American manufacturing given a chance).

    I know that the government prohibits some IP disclosure to foreign eyes but I don’t know if it is a blanket prohibition.

    If I knew it was lawful I could be out of trade secret in short order.

    You can bet though, that no one is going to stick their neck out and say yea or nay.

  13. Roger Heath January 29, 2018 7:25 pm

    Summary: A Chinese anything is worth more than an American nothing.

    Rebuttals?

    Anything?

  14. Anon January 29, 2018 7:59 pm

    Rebuttals require you to post in at least some manner of common understanding. I believe that you are taking this “trade secret” thing a bit far and your communication suffers as you remain saying nothing of import.

    Whether or not you excel in anything is simply not ascertainable in the facts you present. All that appears here is an empty boast.

    As to export and export controls, yes, I would suggest that you be careful – as ignorance of the law is no excuse.

  15. Paul Johnson January 29, 2018 9:24 pm

    Gene,
    The irony of all of this is that I’m pro patent. I was actually playing devil’s advocate and showing that you can structure an argument however you want if it includes a value judgment. Patents actually do grant monopolies, which is by definition anti-competitive, but the entire system is designed to promote innovation, which stimulates economic growth.

  16. Roger Heath January 30, 2018 12:57 am

    “Anon”,

    You cannot worry about trade secrets as empty boasts and suggest that they are contrary to benefiting society just because you may never know their nature.

    Ignorance of the law is no excuse, but you can’t put the paste back into the tube. Stripping away the IP in the US hardly matters if the IP isn’t applied for and would be destroyed in biased and unlimited litigation.

    Thank you for your concern.

    Let me rephrase: Generally, If I avoid American IP application (I am a citizen and the IP is totally private) and file for IP protection in China and select other nations are there statutes I should know about?

    Will other nations reject such applications by agreement?

    Great topics.

  17. Anon January 30, 2018 7:16 am

    Mr. Heath,

    Your arrogance gets the better of you(again).

    Why would you presume that I may never know the nature of trade secrets?

    By the way, I know that nature far better than you, having studied the concept from multiple angles of being a tech, being a manager of tech, and providing legal counsel to both techs and managers of techs.

    Your “rephrasing” simply does not avoid the culpability issue with export controls. You do realize that when you file for IP protection in China, you no longer have the “paste in the tube” eh? (you share publicly anywhere and you lose that trade secret status everywhere) That “culpability” regarding violating export controls is not the concern of any other nations rejecting your application. That would most likely be the least of your concerns.

  18. Anon January 30, 2018 7:18 am

    Mr. Johnson,

    Patents actually do grant monopolies” is NOT an accurate statement.

    It just is not.

    The concepts of exclusivity and monopoly may indeed have some overlap, but they are both legally and non-legally distinct and separate items. It is error (both legally and non-legally) to make the two equal to each other.

  19. Damien January 31, 2018 4:26 pm

    “An individual cannot readily determine when the “buffer zone” effort has ventured into obviousness or defend against a “fence-in” tactic due to obviousness, without overwhelming expense because IP is an elephant playground.”

    Da fuq are you guys talking about… Normally a person prosecuting a patent has obtained a bar certification from the USPTO, however they allow inventors to attempt prosecution without, at their peril. The bar certification, and prosecution in general, requires knowledge of the MPEP, most of it the average inventor or innovator knows nothing about… so its not surprising that an individual with no expertise in the area can figure that out… get a lawyer.

    Also… prosecuting patents is not that expensive. The MOST ive ever seen spent on a single application going through a reputable law firm is like 20k. Most are less than 10k. If you dont have 10k to support your innovation, then a patent isnt whats going to prevent you from being successful.

    I mean cmon… we have micro entity status now. Just how cheap do you want it?

  20. Damien January 31, 2018 4:35 pm

    “Patents actually do grant monopolies” FALSE. The word monopoly or monopolies literally never appears in any patent statute. In exchange for a patent you receive the RIGHT TO EXCLUDE. That right certainly can help you establish something similar to a monopoly but after tempering how far injunctive relief may be used in these infringement suits, patents cannot really be said to grant monopolies anymore, even if we are just speaking generally.

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