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J.H. Reid – Risks


If The Chicago Lounge™ proves successful, it is possible that one or more of the current indirect competitors could try to introduce a similar product, or that offshore competitors may try to introduce a competing product. From a manufacturing standpoint, it would be easy for a company making upholstered furniture to copy The Chicago Lounge™. JHR has and will take a number of measures to make copying unattractive. First, five patents on various aspects of The Chicago Lounge™ have been obtained. Each chair sold will have the patent numbers clearly listed, either on product literature, or on the “law label” (the “DO NOT REMOVE UNDER PENALTY OF LAW” label) to advise competitors of the fact that the product is patented. Additionally, the statement: “The concept, design, structure, and many of the features of The Chicago Lounge™ are the result of years of work, and constitute intellectual property. It is the intent of those with rights to this property to vigorously protect it.”

There are encouraging trends in the furniture industry that make patent infringement unattractive. Recently there were two major infringement cases against furniture companies with very large awards. There is also now an organization in the industry called the Center for Design Integrity, which seeks to police the industry from knock-offs.

Large companies might be especially concerned about patent infringement, since the potential for punitive damages could be great. Additionally, a company considering designing around a patent covering The Chicago Lounge™ might have a difficult time, since there are at least 5 patents covering the chair, the seat, the lumbar support system, the upholstery system, and the frame of the chair, Even if a designer could design around one patent, infringement of any patent is still an infringement. Also, if one patent or a portion of a patent were ever held invalid by a court, the rest of the patent or patents would still be valid. There are more than 100 claims covering The Chicago Lounge™, and an infringement of any one of these constitutes patent infringement. This is the reason so many patents were sought. JHR also has the additional advantages of 1) being the first on the market, 2) the use of the name The Chicago Lounge™, and 3) a quality product. The quality product is important because, imitators generally tend to go for the lower end of the market.

On the issue of the possibility of a patent being held invalid, it should be noted that this is rare. Prior to the issuance of each patent, a patent search was conducted by the Patent and Trademark Office to determine if any similar inventions were patented. Next the patent application is examined by a patent examiner, who is a patent attorney. Under law, a patent is held to be valid unless shown to be invalid in a court of law. It might further be noted that two of the patents underwent an international patent search as part of an international patent application. This reduces the probability that someone might find a prior art reference that would make the patents invalid.

If an infringement did occur, the infringing company would quickly receive a firm letter from Willian, Brinks, Hofer, Gilson, & Lione, one of the top patent law firms in the country. This is the law firm that Mr. Albecker consulted with repeatedly during the patent application and prosecution process. JHR would make a decision whether to license the rights to the infringer, (which is frequently done to the relative satisfaction of both parties). If this does not persist, a patent infringement suit could be brought.

Product Liability Suits

After years of testing, no one has gotten seriously injured using or abusing The Chicago Lounge™. Because it is close to the floor, a person can hardly fall off it, therefore the risks are perceived to be minimal. As a prudent measure, JHR has budgeted for, and will obtain product liability insurance.

Limited Industry Experience

Mr. Albecker has worked in construction and for ServiceMaster Management Services, but has not worked in the furniture industry. Over the years, he has made a serious effort to learn about the industry through reading, subscribing to industry publications, attending numerous industry shows, visiting factories, attending seminars on woodworking and furniture manufacturing, and talking to people in the industry. Suppliers, friends and even competitors have given important insights. There will also be an effort to bring people into JHR that do have pertinent industry experience. It should be noted that while Mr. Albecker has limited industry experience, no one in the industry knows more about The Chicago Lounge™. People with industry experience have shown that they do not always understand the technical requirements of The Chicago Lounge™.

Limited Operating History

JHR has only sold a few chairs through an art fair, and then struggled to produce the chairs. The art fair experience convinced Mr. Albecker that there is a definite market for the product, and some hard lessons learned in the production process forced a serious rethinking of the manufacturing. The learning that came from that production experience should enable JHR to produce the chairs profitably in the future. Additionally, the price has been increased to give JHR a greater margin of error to make the chairs profitably. It should be noted that the prices set are well within the price range of the target store for merchandise of similar quality. Informal polling of people indicates that most feel that the price of the chair is not out of the market.

It might be further pointed out that Mr. Albecker has never been arrested, nor has he ever personally filed for bankruptcy or been associated with a business that filed for bankruptcy. Personal credit reports will verify that he has an excellent credit rating. Additionally, Mr. Albecker has run a construction company for more than seven years, and has familiarity with getting jobs done.

J.H. Reid Corporation
Table of Contents Appendices
1. Executive Summary
2. Business Overview
3. Marketing Plan
4. Risks
5. Operations Plan
6. Management
7. Financial Plan
8. Offering
Cost of Manufacturing
United States Patent
Manufacturing Process
Income Statement
Cash Flow Statement
Balance Sheet
Break Even Point
All information herein is confidential and belongs to J.H. Reid Corporation

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