PopSockets pops for plenty to protect its brand

BOULDER — Facing challenges on multiple fronts, David Barnett is a man caught in the middle.

Barnett, chief executive of PopSockets, the Boulder-based company that makes grips that attach to the back of cellphones and other mobile devices, came to a U.S. House Judiciary antitrust subcommittee hearing at the University of Colorado Boulder law school auditorium on Jan. 17 to accuse dominant online platform Amazon of “strong-arming” it and failing to remove products that impersonated his company’s wares.

Meanwhile, PopSockets remains enmeshed in protracted lawsuits against some online sellers for allegedly selling its products at cut-rate prices and marketing knockoff products that infringe on its trademarks.

At least one of those sellers is vigorously fighting back.

“I’m up there complaining about these strong-arm tactics, but we’re being accused of it by sellers,” Barnett said. The third-party seller “believes what he’s doing is not illegal and we’re contending it is.”

Barnett was a philosophy professor at CU Boulder in 2010 when he gave birth to PopSockets. Annoyed with his iPhone headphone cord always getting tangled in his pocket, he came up with a mechanism for the back of his phone that would solve the problem. With help from a Kickstarter campaign and local investors as well as an insurance payout he received after a wildfire destroyed his home, he founded a company that has sold units numbering in the hundreds of millions, and which Inc. magazine would call the second fastest-growing privately held company in America. Ernst & Young Global Ltd. named Barnett National Entrepreneur of the Year in 2018, the year in which the growing company moved from a 25,000-square-foot space at 3033 Sterling Circle to 46,000 square feet of leased space in the Flatirons Park development at 5757 Central Ave.

Employing more than 200 people, PopSockets recently was named to BuiltInColorado’s list of best midsize places to work. In late January, at an event hosted by Denver-based ICC: Innovate CoachConsult and sponsored by ColoradoBizMagazine and USI Insurance, PopSockets was named the best company to work for in Colorado in the large-business category. It has launched a charitable giving platform called Poptivism and partnered with Fort Collins-based cell phone accessory maker OtterBox to launch an Otter + Pop product line that matches OtterBox cases with PopSockets’ grips.

But with the success came the headaches.

At the hearing, Barnett said Amazon attempted to “bully” PopSockets to lower the price of products it sells on the platform by threatening that if it didn’t, Amazon would source products from third-party sellers instead. He also testified that Amazon threatened to send excess inventory back to his company — at PopSockets’ expense. He described phone calls from Amazon as “bullying with a smile.”

Amazon has responded that PopSockets is free to sell its wares somewhere else, but Barnett said that’s not realistic. He testified that sales of PopSockets on Walmart’s online platform are “1/38th of the sales we had on Amazon when we had a relationship” and that sales through Target account for even less.

“I didn’t go into that hearing with any agenda,” Barnett told BizWest. “I just came in with the goal of describing my story and letting Congress decide whether that constitutes illegal behavior.

“Imagine going to Costa Rica and learning there’s one marketplace bigger than any other,” he said. “Then you learn it’s privately run and dictates pricing and other terms. Congress needs to look at whether that’s healthy for the people.

“Think of Amazon wearing two hats — a retailer that buys wholesale and that runs a marketplace. That’s two different issues. As a retailer, they’re just so big and powerful; it exerts an unnatural pressure to sell to them regardless of the terms, or how they treat a customer.”

Amazon requires some brands to sell to it directly so it can guarantee customers that it’s offering the lowest prices, and thus had refused to let PopSockets sell through a distributor. In response, PopSockets in 2018 decided to stop selling directly to Amazon. Instead it would sell through its own website and on Amazon through a Lehi, Utah-based distributor called iServe. Amazon, however, blocked iServe from selling PopSockets devices on its platform, and Barnett realized unaffiliated sellers of his merchandise, with whom PopSockets has no relationship, could still sell PopSockets gadgets on Amazon — at less than its manufacturers’ suggested retail prices, a practice Barnett called “trademark dilution.”

“There’s a threat that their actions are diluting our strength of brand,” he said. “Imagine if (Italian fashion company) Versace sold stuff on Amazon for 50 cents. It would make customers say, ‘Wait a minute, I thought Versace was a luxury brand,’ and have negative feelings about the brand.”

“It was a lack of a real partnership,” Barnett said. “We’re testing our relationship with Amazon again, though, trying to see what it’s like to try to work with them again.”

Barnett also told the hearing that PopSockets’ brand is harmed by the “enormous amount” of copycat products being sold on Amazon by third-party vendors, claiming that his company was fending off more than 1,000 fake and pirated items a day. Part of the new trade agreement President Donald Trump signed with China in January includes a provision aimed at curbing the sale of counterfeit goods sold on Amazon and other online sites.

“Amazon itself had sourced counterfeit products and was selling it alongside our authentic products,” Barnett told the hearing.

Dealing with that problem proved costly for PopSockets, Barnett told BizWest. “The issue with Amazon and counterfeit tactics is mostly resolved,” he said. “We eventually gave Amazon $1.8 million in retail marketing dollars. Ultimately after a year and a half, I was willing to pay them $1.8 million in exchange for their marketing team working to identify the fakes.”

Add that to the money PopSockets has spent to fight its own legal battles against third-party sellers.

“Unfortunately, it’s gotten very expensive,” he said. “We spent $7 million last year on legal fees to fight really tiny companies” because Amazon doesn’t do enough to police its marketplace. “We work with over 60 law firms around the world. These lawyers work to develop our intellectual-property protections, our trademarks and patents — and defend them.

“I was lucky enough that PopSockets took off the way it did so I could afford to fight these battles. I have lots of friends who couldn’t.”

In December, PopSockets filed a suit in U.S. District Court in Denver against the operators of Amazon e-storefronts The Savings Center and Crystal Deals, naming three New York residents as defendants. Citing dozens of examples of negative product reviews left by customers who have purchased unauthorized PopSockets, the suit contended that “defendants have sold products through their Amazon storefront that are of poor quality, improperly packaged, and missing components.” The suit claimed that the e-stores had sold more than $100,000 worth of products since July.

Last April, PopSockets sued an online store hosted on Amazon.com, accusing it of infringing on its trademarks. Named as defendants were Plano, Texas, resident Lora Suzanne Wilcox and 10 individuals identified as John Does 1-10. This suit also cited online reviews in which customers complained of receiving damaged, counterfeit or otherwise low-quality products, flaws the company said its network of authorized sellers would have caught.

In February 2019, the suit said, PopSockets discovered products bearing its trademark being sold by the defendants under the storefront name “Planoseller2,” which the company eventually identified as being operated by Wilcox. When PopSockets sent correspondence to Wilcox at her home address, it alleged, the defendants “changed the name of their Amazon storefront from ‘Planoseller2’ to ‘TexasDeals2,’ apparently in order to elude PopSockets’ enforcement.

PopSockets accused the defendants of trademark infringement, unfair competition, false advertising, common-law trademark infringement, common-law unfair competition, deceptive trade practices and tortious interference with existing and/or prospective contracts and business relations.

However, Bradley Wilcox, Lora Wilcox’s husband, has pushed back, filing suits, complaints and appeals of his own.

“I can object to their use of those online reviews as hearsay because there’s no authenticity behind them unless you can give me the name of the witness and how to contact them,” Wilcox said. “For all I know, PopSockets could have written those reviews themselves and used them in their litigation.”

In an email to BizWest, Wilcox described PopSockets as “a trademark bully. You can’t go after sellers who purchase the product legally from a legit retailer via retail arbitrage as they are protected by the Right of First Sale Doctrine,” he wrote. That doctrine limits some rights of the owner of a copyright or trademark by enabling entities who bought a product legally to resell those products at their own prices.

PopSockets is represented by Denver-based law firm Groves Law LLC and Vorys, Sater, Seymour and Pease LLP of Cleveland. Vorys’ website says it has “represented nearly 200 brands, several of which are billion-dollar, consumer-product companies. Our approach is to combine several legal disciplines with technology and thoughtful strategies to help companies protect their brands and grow their businesses.”

Wilcox, however, sees Vorys as playing a key role in a concerted effort to drive small online resellers out of business, and said he and several other sellers were preparing to file complaints under the Racketeer Influenced and Corrupt Organizations, or RICO, act against PopSockets, Vorys, attorney Matthew Groves and iServe, which has rebranded as Pattern and bills itself as “the world’s leading growth intelligence organization for e-commerce.” In 2014 iServe created a brand-monitoring software called TriGuardian, which was rebranded as Predict last June. The software aids companies that sell their products online by “combining MAP (Minimum Advertised Price) compliance technology with rules-based advertising capabilities as an all-in-one e-commerce intelligence platform.”

Wilcox claimed that Vorys “targets small sellers, most of whom roll over like a dog because they don’t have the money to hire legal counsel or don’t know the law.”

Wilcox wrote to BizWest in an email that, “once you understand the insider relationship between Vorys, TriGuardian and Pattern/iServe and how they engage in anticompetitive behavior, fraud and price fixing, then everything will make sense as will the racketeering element.”

Wilcox alleged that TriGuardian runs an algorithm that “goes out and looks on Amazon and gives PopSockets a listing of sellers and inventories. They’ll find out I have 50 listings. Now I’m a target. Then they go to Vorys and say, ‘They’ve got a lot of listings. Let’s go to PopSockets and say we can get rid of these sellers for you.’ So PopSockets retains Vorys, and Vorys makes test buys to get my name and mailing address when the product comes, and then sends me a cease-and-desist letter by FedEx that orders me to stop selling PopSockets. I ignore the letter, and a month later, I get a letter from Vorys telling me they’re suing me.

“So I remove the listings. Once they get rid of all those listings, Vorys gets together with iServe/Pattern, and they go to PopSockets and say, ‘Now, how about we become your exclusive seller on Amazon. We’ll knock any other third-party sellers off and sell your products.’

“So if I go in and list a new PopSockets item for sale,” he said, “iServe is going to tell me they’re an agent of PopSockets and I have to take my product down. I think that’s wrong. Sellers can’t tell other sellers they can’t sell; that should violate Amazon’s terms of service.”

Barnett denied that iServe/Pattern plays the role Wilcox alleged — “Amazon stopped that,” he said — and added that the legal actions PopSockets takes are based on the 1946 Lanham Trademark Act, which prohibits a number of activities including trademark dilution.

Barnett said PopSockets has pursued similar legal actions around the world, and also received a “general exclusion order” from the International Trade Commission, which “allows Customs agents to confiscate at the border shipments of fakes, whether they’re going by the PopSockets name or not.

“That’s why Amazon decided to start enforcing against the knockoffs,” he said.

In an interview last year with reporter Rebecca Jennings at Vox.com, Barnett said he saw his first counterfeit PopSockets item in 2016.

“I was pretty upset,” he said, “and then I talked to people in the field of brand protection who said, ‘Oh, wow, you should be flattered.’ They were excited for me.

“I have yet to be flattered.”

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