What It Really Takes to Build a High-Tech Company, Sell It, and Get RichInventor and entrepreneur Hal Philipp offers a rewarding but cautionary true story
If you have used a touch screen today, washed your hands using a faucet that detects your hands without touching, or opened your car door without having to touch your key, you have probably used technology patented and marketed by inventor and entrepreneur Hal Philipp. Hal’s technology has been sold or licensed to Apple, Bang & Olufsen, BMW, Casio, Sanyo, Ford, General Electric, HP, Lexmark, Microsoft, LG, Philips, Samsung, Electrolux, Miele, Bosch-Siemens, Whirlpool, Xerox, and hundreds of others.
Like many in technical development, Hal is not one to toot his own horn. The joy of creation and the financial rewards of successful reduction to practice are enough. But because of our long friendship, I was able to pry Hal out of his reclusive hole for a five-part Mind Matters News podcast interview, recorded in his home and linked below. In the podcast, we learn about the experience of a young entrepreneur beating his own path through the jungles of invention, commerce, law, competition, licensing, and technical predators. Hal’s story confirms the need for entrepreneurs to work long hours and repeatedly recover from failure. But when Hal sold his company to Atmel (since acquired by Microchip) in 2008, the final fruits of success were sweet.
You will be surprised at the advice that Hal, who never borrowed from banks or raised venture capital, gives to budding entrepreneurs who want to follow his path. The advice is in the fifth and final Mind Matters News podcast.
The path to Hal’s success was not smooth. His patented technology was copied without permission by many, including an MIT Professor, a DOD contractor, and Apple. Patent litigation, we learn in the podcasts, is a big boy’s game. The bigger they are, the harder they hit. Small, undercapitalized companies stand little chance of winning big-bucks patent litigation.
Large corporations often use the patents of little people without reservation or permission. If a big company sues a small company, it can either squash the small business with its legal might or even buy the little company. We’d like to think there is morality and a sense of fair play in large companies. But the cost of using other people’s patents without permission is often seen as just another cost of doing business. When Apple infringed on Hal’s touch sensing patents, his business was finally big enough to fight back with patent litigation. Details are in the podcasts.
The road to the success that Hal Philipp enjoys today was laced with landmines. When money starts rolling in, entrepreneurs must expect lawsuits. Patent trolls representing the patents of questionably related technology threaten litigation if you don’t cough up the equivalent of ransom. In the podcast, you will hear how Hal went on the offense and sued one such troll in a way that would cost it big bucks if litigation continued. Faced with such a clever and unexpected chess move, Hal’s troll whimpered away, tail tucked. But not all predatory lawsuits can be avoided and they can easily destroy a small business.
I suffered minor collateral damage in the conflict that ensued from one of the business landmines Hal stepped on. For simply writing a letter in support of Hal, I was threatened with arrest and jail by a bully company that was suing Hal personally. It concerned a project I was not even working on. Budding entrepreneurs, remember this story when you start your own business: Success never comes easy and often requires repeatedly rising from the ashes of failure. The faint of heart should get a job with Lockheed.
“Fluke” is More Than a Mistake
After serving in WWII, John Fluke (1911–1984) started the John Fluke Engineering Co. in his basement, manufacturing and selling electric power meters. Fluke Corporation continues to sell test and measurement tools to this day. On John Fluke’s death in 1984, his son John Fluke Jr. assumed control and the Fluke company started preying on smaller companies. It wasn’t always successful. In one patent case, in particular, Fluke pulled back a bloody stump.
In the late 1980s, Fluke sued Talon Industries, a small California company for patent infringement on a microprocessor design. Talon was found not guilty in 1992. But when Fluke failed to pay Talon’s legal fees, as expected, Talon launched a malicious prosecution lawsuit the following year. In 1997, Talon won a $6 million judgment in the case, a verdict considered “unusual” in a field full of lawyers who make their living from litigation.
According to the Puget Sound Business Journal (February 5, 1990), Talon Industries was only one of many fledgling companies legally bullied by Fluke. While litigation is only a cost of doing business for large companies, it can be a deadly cancer for small companies. During the Fluke litigation, Robert Corby, Talon’s president and founder, told the Journal, “We’re just trying to survive… I think it’s a damn shame.”
This series of events was in the background when Hal’s company, Philipp Technologies, contracted with Fluke to develop a fast handheld oscilloscope, using implicit sampling. I remember being impressed at the time by the ingenuity of Hal’s design. When the development contract between Hal and Fluke was not renewed, Hal expected Fluke to return his prototypes, that is, his intellectual property. But Fluke did not return them.
Fluke dug in its heels, lawyers got involved and the litigation turned nasty. After a wave of negative publicity about the conflict hit the media, Fluke sought a gag order on Hal. The case dragged on. Soon Hal’s financial resources were depleted.
Two Lawyer Jokes
Hal’s agreement with Fluke had dictated that any conflicts would be settled by binding arbitration. To avoid ballooning court costs and negative publicity, companies often choose arbitration by a lawyer, who hears the facts and makes a binding decision. By the hearing date, Hal’s company was running out of money and he needed surgery. Not only that but his father lay in a Pittsburgh hospital, dying of cancer. Distracted by pain and grief, Hal had to act as his own attorney. As the saying goes, he had a fool for a client. Even so, the evidence Hal presented was undeniable. The arbitrator ruled that, contrary to Fluke’s claims, Hal did own all of the disputed intellectual property. It sounds like a clear victory. Right?
No. It was a clear but costly victory. The arbitrator also awarded Fluke a refund of the development fees they had paid Hal. That is, under the legal concept of “recision,” because the dispute concerned the development contract itself, the parties go back to where they started. Hal retained the patent rights and all the prototypes and Fluke got its money back. It was an unfair ‘split the baby’ kind of decision. As Hal put it, “I won the battle but lost the war.” He admits that he might have avoided this ruling if he could have afforded adequate legal advice.
While Hal appreciated getting his intellectual property back, Philipp Technologies was now broke. He had no funds to pay back Fluke’s “development fees.” Hal had already spent his entire savings on the litigation and he had no other sources of immediate income. He’d already been reduced to letting all of his staff go and closing the company’s doors.
In every case of litigation I have touched as a litigant or hired expert, both sides emerged with serious battle scars. Abraham Lincoln had it right: “Discourage litigation.” Hal won the battle with Fluke but lost the war. The technology was his as he claimed, but his company was now broke and unable to reimburse Fluke as ordered.
The next step for Fluke was to try and go after Hal personally for the money. They wanted the one asset Hal still retained—the patents. Fluke could claim Hal’s patents if they succeeded against him in court. And Fluke wanted the legally awarded pound of flesh.
Hal did at least one thing right. He owned the patents; his company did not. He’d licensed the patents to his company so they remained in his personal name. By going after Hal’s company, Fluke came up empty-handed. But now Fluke was attempting to “pierce the corporate veil” by coming after Hal personally.
In order to continue their litigation, Fluke needed to serve Hal with papers. Just as in the movies, the papers had to be served personally. That is, a process server representing Fluke lawyers walks up to you, slaps some papers on your chest, and says “You’re served.” You’re then legally obliged to do what the papers say.
But if no one can find you, you can’t be served with legal papers, so you can avoid whatever they are demanding that you do. At the very least, this buys time. Hal figured it was a good time to fly back to Pittsburgh to help out his mother after his father’s death. And he was under no obligation to inform Fluke’s lawyers of his whereabouts.
With a Little Help From My Friends
While this fiasco was unfolding, I was working with Hal on a project relating to time-frequency displays— aimed at producing a better spectrogram. I had also consulted for Fluke, analyzing a proposed coding algorithm devised by one of their engineers. Hal and Fluke were both in the greater Seattle area during the time that I was a prof at the University of Washington in Seattle. There were many other local ties. John Fluke Sr. had graduated from the University of Washington with an electrical engineering degree in 1935. His son, John Fluke Jr., was also an alumnus and Fluke Manufacturing was a generous patron of the University of Washington.
During the conflict, I talked to Hal and, remembering Christ’s dictum “Blessed are the peacemakers,” offered to write Fluke’s Chairman of the Board, David Potter, on his behalf. I had hoped that my status as a full professor at the university would earn me a hearing. But I received a scathing response from Fluke, saying that the company was only trying to collect from the unreasonable Hal Philipp.
And then the weirdness started.
One day my wife Monika noticed a man sitting in a car parked at the curb on the cul-de-sac where we lived. She observed this for several days. I realized that, because of my letter to Potter, Fluke knew that Hal and I were friends. It seemed that Fluke had looked up my address and was casing my house for Hal’s possible appearance. If he appeared, the man would jump out of the car, walk up to Hal, present him with papers and say, “You’ve been served.” It was a waste of time. Hal was already in Pittsburgh.
Then one day I received a phone call from a reporter. She told me she was doing an in-depth story on the way Fluke was beating up small companies. She was disgusted with Fluke and wanted to interview me in person about my experience in the matter. It would be great, she said, if she could also talk to Hal. She explained that she had tried to reach him with no success.
I said I thought her story was a great idea, one that might really help Hal. I put her on hold and called him at a secured number to tell him the good news. His response was immediate:
“She’s no reporter.”
It dawned on me: a sting operation. The “reporter” wanted Hal and me to meet her for an “interview” so that Hal could be served.
I ended the call with Hal and reconnected with the fake reporter. I asked for her name, which she gave. Who did she work for? She was freelance. What other articles had she written? She said she’d be happy to send me a list but she mostly wrote stories on business.
I then dissolved her façade with a single question.
“Do you mind if I record our conversation?” I asked.
I had no equipment at hand but the bluff worked. Her response was immediate and emphatic. Absolutely NO recording!
Reporters often record conversations themselves when they do interviews. So her negative response didn’t make sense. I was now convinced of Hal’s judgment: “She’s no reporter.” Partially due to disgust at my own naiveté, I abruptly hung up.
Finding out you are being played can be infuriating. Dissing a failed predator, though, is exhilarating.
Then something happened out of the blue. I was served a subpoena to appear in court to answer Fluke’s questions. Technically, my wife received it on my behalf but that is permitted for subpoenas. The subpoena stated that I would be deposed under oath and gave the place and time I was to appear. I knew where Hal was staying and they seemed to want to apply a legal crowbar to pry the information from me under penalty of perjury.
The proposed deposition time and date conflicted with an out-of-town conference I was committed to attend. I wrote to Fluke’s lawyers, explaining the circumstances, and skipped the deposition. At the time, I was working with an intellectual property attorney, Russ Tarlington, on the claims for one of my own patents. I casually mentioned to Russ that I had skipped Fluke’s subpoena date.
He went bug-eyed with concern, telling me, “You don’t ignore subpoenas! You can get into big trouble.” He offered to call Fluke’s lawyers on my behalf. After they chatted, he told me that I had one more chance. If I did not respond to the next subpoena, Fluke would send the Sheriff to arrest me and put me in chains.
All this because I wrote a letter in support of Hal. Good grief.
At this time Hal’s Pittsburgh phone number received voice mail only. I called and told him about the deposition, which meant that I was going to turn his posterior in. (My language was more down-to-earth.) He called me back and said not to worry. I had no choice. He would take care of things on his end.
At the deposition, I told the deposing Fluke lawyer, Donald L. Logerwell, Esq., that I had warned Hal about the deposition a few days earlier and that I would be under oath and spilling my guts to Fluke about Hal. And so I did. I also told him where Hal was, staying with his mother in Pittsburgh.
This was my first deposition. I had not yet learned that, during hostile questioning, you only answer the questions asked. You volunteer nothing. The same rule applies during an IRS audit. Later, as an expert witness in patent litigation, I mastered short direct answers during hostile depositions. Lawyers on my side had taught me to be more zippy-faced.
During that deposition, Logerwell asked me again and again about technology under development at Hal’s company. What was the technology? Could I identify technical people Hal employed? Who were the companies he was working with? I was even asked if I owed Hal money. I didn’t. But if I did, I suspect Fluke would claim it as their own.
The deposition ended. The court reporter packed up and left. Fluke lawyer Logerwell, in a tailored suit, monogrammed shirt, and cuff links, put his hand on my shoulder and said, “Thanks for your cooperation,” in feigned sincerity. “Understand we have no desire to inconvenience you. I hope that you will not use this to disrupt our fine relationship with the University of Washington.”
Inconvenience me? Subpoenas!? Bullying me with threats of jail!? I told Logerwell that I was disgusted and left.
Tarnished Gold at the Rainbow’s End
Shortly after this, Hal moved from his mother’s house to a small apartment in a nondescript part of Pittsburgh, in anticipation of Fluke’s next move. His mother informed him that she’d been noticing someone parked in the street close by. Fluke had apparently retained an investigator to track him down in Pittsburgh. Apparently, even Fluke found subpoenaing and deposing a mother about her son’s whereabouts was reprehensible as an alternative.
Obviously, all of this was costing Fluke a lot of money in top-drawer lawyers and hired investigators, probably a lot more than the arbitrator’s “recision award” was worth. The question is, “Why?” I suspect that, in Fluke’s own estimation, Hal’s patents were worth a fortune. I also suspect that there was also touch of vindictiveness at Hal for not playing ball by giving Fluke the patents for a song at the end of the contract. Recall that Fluke was also successfully sued by Talon Industries for malicious prosecution.
Fluke never found Hal in Pittsburgh and in the aftermath, he lived a relatively normal life there, trying to rebuild a patent licensing and consultant business. Later, he moved to Florida, where he married. Fluke’s investigators eventually found Hal in Florida and deposed him. In the three years after he left Seattle, however, he was able to rebuild his finances and could now afford a decent defense. He retained a top Seattle law firm which appealed the matter to a judge. The judge threw out Fluke’s entire case on the grounds that Fluke had no legal basis to go after Hal. Furthermore, Fluke was barred from appealing this decision. So by 1994, after years being Fluke’s prey, Hal was free of its tentacles while retaining all of his patents.
Victory… yes. But at what cost?
Something is wrong with an American legal system that leaves a litigant twisting in the wind even after a clear legal victory. Hal became discouraged about US corporate business ethics and the American legal system. In late 1996, long after the Fluke case was in his rear-view mirror, Hal packed up his patents and moved to Great Britain, a land with fewer lawyers. There, he began to rebuild, from scratch, without outside investment or loans of any kind, his now multi-million-dollar business, Quantum Research Group Ltd.
As you will hear in the podcast, Hal still encountered a great many individual and corporate predators. Man is fallen and conniving jerks seeking a free lunch are everywhere. But Hal’s business and finances were now big enough to legally play with the big boys. That included going after Apple for patent infringement.
The Moral of the Story
In a sense, I was an observer on the sidewalk, hit by a flying tire after a head-on car crash. Hal was driving one of the crashed cars and was not the driver at fault. He climbed from the wreckage seriously wounded, retrieved his personal belongings, and got into another car. There were numerous other collisions and fender benders on his road to success. But perseverance and a strong character won the day.
One day Hal realized that, even if you win the rat race, you’re still a rat. So he decided to cash out while still young and enjoy the remainder of his life with his family. It was over a decade ago that he sold his business to Atmel for a pretty penny and he has not looked back. I visited Hal and his family in his beautiful home where we recorded the five-part Mind Matters News podcast about his journey. His story will inspire you.
“Build a better mousetrap, and the world will beat a path to your door.” Today, this is far from true. Small entrepreneurs fall in the shadows of large corporate giants like Google, Microsoft and Amazon. So what does it take to bring a clever idea to market? We talk to Hal Philipp, the inventor and entrepreneur who made touch screens inexpensive and whose technology is today used all over the world.
Mind Matter News Podcasts with Hal Philipp
Episode 1 | Hal Philipp: Inventor of the Modern Touch Screen
Boxing robots and automatic door openers too
with Robert J. Marks, April 11, 2019
Episode 2 | Hal Philipp: Formula One Racing Tech & Keyless Cars
Accidentally founding an ideal business
with Robert J. Marks, April 25, 2019
Episode 3 | In Patent Disputes, the Bigger They Are, the Harder They Hit
Hal Philipp on litigation and why owning a patent is only a license to sue
with Robert J. Marks, May 2, 2019
Episode 4 | I Sued Apple for Patent Infringement Hal Philipp on Tangling with Apple and Selling His Company with Robert J. Marks, May 9, 2019
Episode 5 | Advice for Budding Inventors and Entrepreneurs: Hal Philipp Shares His Experience with Robert J. Marks, May 16, 2019
H. Philipp and R.J. Marks II “Microprocessor based light bridge sensors,” Industrial Optical Sensing, SPIE vol.961, pp.28-34, 1988 (The Society of Photo-Optical Instrumentation Engineers, Bellingham, WA)