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Suing Your Customers: A Winning Business Strategy?

Here's a cautionary tale excerpted from an article at Knowledge@Wharton (free registration required, but there are a number of good articles as a bonus):

In 1903, when Henry Ford launched the Ford Motor Company, his third attempt at making cars, automobiles were high-priced, custom-made playthings for the rich. What's more, the major manufacturers had figured out a way to keep it that way. They had acquired a strategic property right... called the Selden Patent and it gave its owners the exclusive right to sell a very basic invention: self-propelled vehicles powered by internal combustion engines. Many people in the car business thought this patent was an outrage.... But the U.S. Patent Office had issued the Selden Patent and a group of powerful incumbents had purchased it and formed an association to enforce it. Litigation, then as now, was very expensive—especially for start-up companies with limited working capital. Nearly every car company fell into line to pay royalties to the Association for the privilege of making and selling cars.

Except Henry Ford. The association did not want another competitor in Detroit and it did not like his idea of driving prices down to where average people could afford a car. So it refused to license him. For Ford, it was either exit the industry or fight the Selden Patent in court. He decided to raise a legal war chest and fight the incumbents. The litigation lasted from 1903 until 1911 and along the way, the association launched hundreds of lawsuits against Ford?s customers to scare them away from his showrooms for buying "unlicensed vehicles."

Most ordinary people of Ford's era had been content to stand by and watch the automobile makers slug it out over the Selden Patent. It was just an industry cat fight. But when the big "money men" started suing ordinary people who were just trying to buy a cheap car, public sympathy shifted against the incumbents. People rallied to Ford's side against the bullies. Editorials weighed in against the industry's heavy-handed lawsuits, and Ford helped his own case by purchasing litigation insurance for his customers. By the time the patent litigation was over—Ford won on appeal in 1911 when the court ruled that the Selden Patent covered only cars made with a special type of engine nobody was using anymore—Ford was a hero, and the largest car manufacturer in America.

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