In a legal setback for the 115-year-old Denver company, a judge has ruled that Gates Corp. cannot countersue a bikemaker in Golden that accuses it of not paying royalties.
Judge Ian Kellogg’s decision Feb. 17, which chastised Gates at times for trying to “clog efficient judicial machinery,” is the second one to side with Spot Brand recently. It means that Spot can now move ahead to a trial, where it will ask jurors for tens of millions of dollars.
The relationship between Spot, in Golden, and Gates was once symbiotic. In the 2000s, Gates invented a belt-drive system for bicycles that it called Carbon Drive and Spot invented a way to install that system onto existing bike frames, which it called the dropout design.
The more recent proliferation of e-bikes sent demand for belt-drive systems surging and led Spot to question why it wasn’t profiting accordingly. It found that while 30 manufacturers are selling 100 bike models with the dropout design, Gates has never paid it royalties.
Gates maintains that it doesn’t have to. The original dropout was flawed, so a new dropout had to be invented, and Gates properly paid royalties on that second design, it says.
Judges are not seeing it Gates’ way. In September, U.S. District Judge Gordon Gallagher dismissed Gates’ claim that Spot’s patent for the dropout was invalid. On Feb. 17, Kellogg in state court dismissed Gates’ claim that the royalty contract was invalid.
“Spot appreciates the courts’ rulings dismissing Gates’ key defenses and looks forward to proceeding to trial,” said Spot attorney Drew Unthank of Wheeler Trigg O’Donnell.
Gates Corp., whose lawyers did not respond to requests for comment, had made an unusual argument to Kellogg: That even though Gallagher had remanded the case to Kellogg, the case should instead be sent back to Gallagher in the federal court.
“To grant Gates’ motion to dismiss … would be unprecedented,” Kellogg wrote in response.
Lawyers for Gates and Spot will now schedule a time for Denver jurors to hear the case. Kellogg refused to delay a trial any further while Gates appeals Gallagher’s decision to a higher court, despite Gates’ prediction that it is sure to succeed in that federal appeal.
“Gates’ predictive powers have proven less than perfect,” the judge teased, before listing three times since the case began that the company’s forecasting has proven wrong.
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