Ttool - For Students

REVISED OCTOBER 7, 2015
JAMES G. CONLEY 5-306-509(A)
Purchased for use on the BMAN73112 Innovation Management and Entrepeneurship, at Alliance Manchester Business School (MBS).
ttools (A):
The Value of a Patent to the Entrepreneur
Taught by Mabel Sanchez Barrioluengo, from 24-Jan-2023 to 24-Jul-2023. Order ref F467716.
Over dinner one evening in July 1999, husband and wife Tom Hazzard and Tracy Leigh1 sat
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with two of their angel investors and faced a daunting decision. One year earlier, the Hazzards’
small company, ttools, had released its first product: a writing tool for both touch-screen
computing devices, such as personal digital assistants (PDAs), and traditional paper, combining
the functionality of a stylus with that of an ink pen. The patented device was designed to
complement the recently released PalmPilot PDA.2
Educational material supplied by The Case Centre
Sales of the pen/stylus topped $10,000 with a 70 percent gross margin in the first week of its
Copyright encoded A76HM-JUJ9K-PJMN9I
release. However, in March 1999 Palm3 introduced a new pen/stylus device with a design that
seemed to infringe on ttools’ patent. Most of ttools’ sales had resulted from advertising in an e-
mail newsletter that Palm sent to thousands of its PDA customers. ttools thus faced a difficult
decision—to do nothing would be to cede its unique design to a large channel partner turned
competitor, but to pursue legal action and enforce its patent rights could compromise its
significant path to market controlled by Palm. The angel investors wanted this situation to be
resolved before investing further in the company. The future of ttools and the financial livelihood
of its founders were at stake.
Industry Background
PDAs were portable computers that helped users organize daily activities, contacts, tasks, and
memos. Rudimentary PDAs had been available since 1994; the PDA industry shipped more than
1 million units worldwide in 19954 and saw significant growth starting in 1996, when Palm
launched the Pilot 1000 (Exhibit 1) and Pilot 5000.5 The market in 1998 was dominated by Palm,
1
Hereafter, Tom Hazzard shall be referred to as Hazzard, Tracy Leigh shall be referred to as Leigh, and the couple shall be referred to
as the Hazzards.
2
U.S. Patent No. 5,913,629, issued June 22, 1999.
3
During the period discussed in the case, Palm was owned first by U.S. Robotics and then by 3Com after 3Com acquired U.S.
Robotics. In this document, Palm and its various corporate parents are collectively referred to as Palm except when otherwise noted.
4
Ken Polsson, “Chronology of Handheld Computers,” http://www.islandnet.com/~kpolsson/handheld/hand1993.htm (accessed March
2004).
5
Palm Inc., “Historical Timeline,” http://www.palmone.com/us/company/corporate/timeline.html (accessed March 2004).
©2015 by the Kellogg School of Management at Northwestern University. This case was prepared by Professor James G. Conley,
Feng Qu, PhD ’06, Geoff Nudd ’05, and J. Cooper Marcus ’05, and was revised by Komal Bajracharya. Cases are developed solely as
the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or
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TTOOLS (A) 5-306-509(A)
which had 70 percent of total market share (Exhibit 2).6 In 1999 sales of PDAs were projected to
grow rapidly (Exhibit 3).7
Because of their small size and portability, PDA interfaces were generally simple and easy to
use. Users operated PDAs via both buttons on the device and a touch-sensitive screen, which was
usually written or tapped on with a stylus. A stylus was a simple pen-shaped device with a plastic
tip that would not mark or damage the PDA touch screen (Exhibit 4). The stylus and PDA
screen, combined with handwriting recognition software, functioned like the mouse, keyboard,
and computer screen in a traditional desktop computing environment.
Development of the Pen/Stylus Device
The Hazzards were early adopters of the first PalmPilot PDA in 1996. Creative professionals

by trade, he an industrial designer and she a textile designer, they appreciated ergonomically
sensible products like the PalmPilot.
Tom Hazzard loved the PalmPilot but was annoyed by the need to alternate between using a
pen for writing on paper and a plastic stylus for using the PDA touch screen. He searched the
Palm accessories catalog that had come with his PalmPilot and ordered the “Cross Digital Writer
Stylus Pen,” thinking that it would allow him to replace his stylus and pen with a single device.
When the device arrived, Hazzard was dismayed to find that it was simply a Cross pen with a
stylus in place of the ink cartridge.
For the next several months (Exhibit 5), Hazzard conceptualized a number of ways to
combine a stylus and pen into one device. He noted his musings, sketches, and designs in a dated
sketchbook. On a train ride back from New York City, Hazzard conceived his ultimate solution:
“You take the geometry of the fountain pen for the stylus, while leaving room in the center for the
. . . ink” (Exhibit 6).
Excited about his idea, Hazzard asked his longtime patent attorney, Steve Holmes, to do a
prior art search. According to Hazzard, a professional prior art search was essential: “No matter
how much I’ve searched on my own—they always find things that I’m not able to . . . .” For less
than one thousand dollars, the search confirmed he had a novel, nonobvious, and useful design to
combine an ink pen and a PDA stylus into one device.
The Founding of ttools

Hazzard originally intended to license his pen/stylus design to a manufacturer of pens.
However, the manufacturers that he approached, which included Bic and Pilot Pens, declined his
offer. They typically had competing products or in-process research and development efforts to
design such products. They were unwilling to abandon their investments, despite in some
instances acknowledging the superiority of Hazzard’s design.
6
ttools business plan, June 23, 1999 (original source unknown).
7
eTForecasts, “Worldwide PDA Forecast (1998–2008), September 2002 Release,” http://www.etforecasts.com/products/
ES_pdas.htm#1.1 (accessed March 2004).
2 KELLOGG SCHOOL OF MANAGEMENT

5-306-509(A) TTOOLS (A)
The Hazzards discussed the possibility of launching a company to sell the pen/stylus device.
Leigh explained, “I am always interested in Tom’s designs, but this concept had such obvious
market potential and a low barrier to entry that it made sense to start our own company.” To
Hazzard, Leigh’s support was paramount: “If you’re going to go into a venture with family the
way I did with ttools—and have a personal relationship you intend to keep—your entire family
has to be 100 percent behind you or it isn’t going to work.”
Prior to writing a business plan, the Hazzards approached Palm (then owned by U.S.
Robotics) to gauge the potential market response to the pen/stylus device and identify resources
that might help market the device. Hazzard arranged a meeting to present the pen/stylus to Palm
staff. He explained, “My patent attorney drafted a nondisclosure [agreement] specifically for the
meeting. I knew to have it signed by both the U.S. Robotics representative and on behalf of U.S.
Robotics/Palm and any future assignee.” At the meeting Hazzard displayed a physical prototype
of the pen/stylus. He recalled, “The response was, ‘Wow, I’ve never seen anything like this
before.’”

The Palm representative thought it would be a great accessory for the PalmPilot and invited
Hazzard to advertise in the InSync Online monthly e-mail to 50,000 Palm owners. Each of these
advertisements cost up to $5,000 each. But the payoff from this approach would later prove
significant; the Hazzards were able to acquire the mailing list of customers who placed orders
with ttools after clicking on the link provided in the InSync Online e-mails.
The ttools Business Plan and Patent

In early 1998, during the height of the dot-com boom, the Hazzards wrote a business plan,
founded their company, and named it ttools. Hazzard noted, “PalmPilots were still in the early
adoption phase of their history, approaching 3 million users. The customers were still primarily
early adopters—not afraid to buy product on the Internet and not afraid to be solicited to buy
accessories.” ttools planned to sell the pen/stylus to Palm and/or partner with them to distribute it.
In May 1998 the Hazzards self-financed a utility patent application on the pen/stylus device
and trademarked the Throttle® name.8 They spent approximately $10,000 to process their patent
and trademark applications and considered the money well spent. Hazzard noted:
A good patent attorney is worth more than their weight in gold. . . . Steve is a great
patent attorney. He has big clients and has both prosecuted and litigated patents and
trademarks. You want a litigator to write your patent, because they know how it will be
attacked in court. . . . Also, you need one that has complete understanding of engineering
and design so that they can write your patent succinctly but give each claim full
advantage and future protection.
The Hazzards researched pen manufacturing and soon learned it would be cheapest to
purchase the components and assemble the devices themselves. Most of the components were
available “off the shelf,” with custom tooling required for only two plastic parts and each tool
costing about $15,000. The standard components cost $0.66 per pen, while the custom
components cost $0.31 per pen. Total materials cost, including packaging, was approximately
8
Trademark Registration No. 2323100.
KELLOGG SCHOOL OF MANAGEMENT 3

TTOOLS (A) 5-306-509(A)
$2.00 per pen. A one-page instruction manual that came with the package mentioned a 30-day
refund guarantee if satisfaction was not met (Exhibit 7). The Hazzards set the retail price at
$9.95.
The Hazzards developed a website with the help of a friend in exchange for a small equity
position, and the friend agreed to expand the site as ttools grew. ttools was set to launch its
website and release the Throttle pen/stylus in August 1998. The webmaster worked months in
advance to ensure that the site received top ranking in Internet search engine results.
With the business plan in hand, a patent application filed, and a custom tooling order ready to
be placed, the Hazzards began seeking $70,000 in start-up capital from friends and family. In
return for providing much of the necessary capital, Hazzard’s mother received a 10 percent equity
stake. The Hazzard family was thus firmly invested and involved in the success of ttools.
Taking the Throttle to Market
The first advertisement for ttools’ Throttle pen/stylus appeared in the September 1998 edition
of Palm’s InSync Online e-mail newsletter, which subscribers received just after Labor Day. The
ad included a link to the ttools website, which immediately saw a huge influx of visitors. The site
allowed visitors to order the pen online and pay with a credit card. Online sales topped $10,000 in
less than one week. Considering the 70 percent gross margin and much better than expected sales,
Hazzard remembered, “We were ecstatic!”
The placement of the Throttle’s advertisement in InSync Online proved to be crucial to ttools’
business. The mailing list from the initial orders provided the Hazzards with a minimum number
of guaranteed purchases. These customers would also receive promotional coupons by mail that
they could use to purchase other ttools products. Online shopping was still new at the time, so
using traditional mail to reach out to customers on a regular basis was deemed more effective
than e-mail.
ttools also benefited from independent media reporting on the Throttle. The community of
PDA users was small but eager to report on new developments in devices and accessories.
Reviewers demonstrated how they used their Throttle stylus/pen with their PalmPilot (Exhibit
8).9 Leigh noted that every time a positive review on ttools’ stylus/pen was published, such as in
PalmGuru, their sales revenue saw a significant boost.
Sales rose at a brisk rate in the following weeks. The Hazzards hired temporary employees
and recruited friends and family to work in exchange for equity on assembling, packaging, and
shipping the Throttle. After two years of planning and hard work, the Hazzards were delighted by
their success.
9
Julie Strietelmeier, “Throttle Review,” The Gadgeteer, March 3, 1999, http://the-gadgeteer.com/1999/03/03/throttle_review.

5-306-509(A) TTOOLS (A)
Trouble on the Horizon

One month after the Throttle launched, ttools received its first indication of impending
difficulties. For months leading up to its first advertisement, the Hazzards had been trying to
convince Palm to include its pen/stylus devices—including a higher-end version and another that
could be completely stored inside the stylus port of the upcoming Palm III PDA—in the catalog
of accessories that Palm included with every PDA it sold. Having its products in that catalog
would allow ttools to reach a larger target customer audience.
In October 1998 Palm returned prototypes for the next version of the Throttle pen with no
explanation. Concerned, Hazzard called to find out why. According to Hazzard, Alan Urban, a
Palm accessory marketing manager and the person responsible for choosing the items displayed
in the catalog, told him that the samples were being returned to avoid any impropriety because
Palm was developing “something similar.”

Hazzard reminded Urban that the Throttle pen/stylus had a utility patent pending, and that
Palm was viewing ttools’ prototypes under a nondisclosure agreement. Hazzard suggested again
that Palm consider partnering with ttools. Urban’s response was not encouraging—according to
Hazzard, it was essentially, “Yes, we know you have filed a patent; we may very well be
infringing, but until your patent issues, we don’t know that it exists. If there is overlap, we’ll deal
with it then.”
Furthermore, Hazzard learned that Palm had contracted leading design firm IDEO to develop
the next-generation Palm PDA, the Palm V. IDEO claimed to have developed a pen/stylus device
of its own, similar to ttools’ device, to complement the Palm V.
From informal conversations with Palm, ttools learned that IDEO would manufacture the
pen/stylus and Palm would act as a reseller, with the device highlighted in the catalog. Hazzard
learned that IDEO had filed a design patent application on its pen/stylus in October 1998.10 He
determined that the inventor listed on IDEO’s patent application was an intern whom IDEO had
hired well after the date on Hazzard’s design sketches and notes. Hazzard also determined that
IDEO had indemnified Palm for any infringement claim related to IDEO’s design work.
In March 1999 ttools’ patent attorney, Steve Holmes, called to report that IDEO’s pen/stylus,
now called the Palm V Dual Action Stylus and offered for sale by Palm, was featured in a photo
spread in Wired magazine (Exhibit 9). Holmes suggested that IDEO’s design quite clearly
infringed on ttools’ pending patent. ttools’ PR agent had spent months courting Wired in an
attempt to get all three of ttools’ devices featured in this photo spread, but only one was shown.
After publication, the PR agent followed up to find out why Wired had not shown the other two
models. She was told by the Wired editor that the ttools devices were too visually similar to the
Palm device.
In April 1999 Hazzard and Holmes asked the United States Patent and Trademark Office
(USPTO) when the ttools pen/stylus patent would be issued. They determined that the examiner
who had their file was almost to the point of review. Holmes stayed in close communication with
the examiner in an effort to expedite the patent issuance. Hazzard explained, “The patent
examiner can be your greatest ambassador or a huge impediment.”
10
IDEO design patent, http://www.ipthought.com.

TTOOLS (A) 5-306-509(A)
In early May ttools received a notice of allowance from the USPTO that the patent was about
to be issued. On June 8, 1999, the USPTO issued ttools Patent Number 5,913,629 for a “writing
implement including an input stylus.”11 Immediately thereafter, ttools contacted Palm to begin
license negotiations. ttools made several offers via phone, letters, and e-mail over the following
two months. It offered a royalty-free license in exchange for Palm’s including ttools’ devices in
its catalog for free or including a ttools device with every Palm III and V PDA sold. Palm was
unreceptive to these proposals. Hazzard recalled, “3Com’s attitude was, ‘We created the Palm,
and we therefore created your accessories business. Be grateful for the business you have—don’t
bother us.’”
ttools Faces a Difficult Decision
The Hazzards were shocked at Palm’s response. They felt they “had acted with complete

integrity.” They had designed a good product, brought it to market successfully, and taken all the
right steps with their intellectual property. Palm’s actions aided and abetted the sale of an
unlicensed and competing product manufactured by IDEO. IDEO’s device was being advertised
in the catalog, and Palm could stop running ttools’ ads in the InSync Online e-mail newsletter at
any time. Without the advertising provided by Palm, ttools had no realistic way to reach potential
customers.
As of July 1999, ttools had three pen/stylus designs (two in prototype phase), a signed
nondisclosure agreement from Palm, an issued patent, and “fairly clear infringement” of that
patent, according to its lawyer. ttools had sales of approximately $150,000 during the preceding
twelve months and had approximately $1,500 in cash on the balance sheet. 3Com, Palm’s parent
company, had sales of nearly $5.8 billion in the preceding twelve months and had $4.5 billion in
assets on the balance sheet. ttools had six new investors ready to fund production of its two new
pen/stylus models, but they were holding back until resolution of the dispute.
At the dinner table in July 1999, the Hazzards and two of their investors considered three
basic options: compete against Palm, negotiate with Palm, or pursue a patent infringement legal
action against Palm and IDEO.
Compete
Under this course of action, ttools would cease negotiations with Palm and focus on
marketing and selling pen/stylus devices. Palm had given no indication that the ttools ad would be
pulled from the InSync Online e-mail newsletter, so ttools could continue to receive this
important publicity, at least for a time. But ttools would have to prepare an alternative to reach
out to customers for its Throttle. ttools already had a mailing list from its initial order placement
of the Throttle. The challenge for the company would be to grow its customer base from that
mailing list, which cost advertising dollars. ttools could focus on its value proposition when
coming up with a marketing strategy. For instance, ttools’ pen/stylus devices were cheaper and in
some ways superior to the IDEO-designed devices, so customers would still have good reasons
for choosing them. This option had no direct cost—ttools would continue with “business as
usual” and hope to gain success through superior pricing and product features.
11
Patent No. 5,913,629, http://www.ipthought.com.

5-306-509(A) TTOOLS (A)
Negotiate
Discussions with Palm regarding expanding marketing and distribution of the ttools’
pen/stylus devices had come to a standstill when ttools attempted to get Palm to recognize its
patent and sign a licensing agreement. ttools could return to Palm and try to secure a distribution
agreement without further mention of the patent or licensing agreement. Though the IDEO-
designed pen/stylus was similar to ttools’ devices, there were some differences (mostly in price
and materials), which could make the ttools device a plausible addition to the Palm-branded line.
At that time Palm was uninterested in distributing ttools’ devices, but perhaps with time and
persistence it would change its position. The licensing and patent issues that ttools was raising
were likely impeding progress on distribution negotiations. This option also had no direct cost
and ttools could continue to sell its products online.
Litigate
Though Holmes had indicated that IDEO’s design clearly infringed on ttools’ patent,
pursuing a legal challenge posed business risks for ttools. Its opponent had relatively limitless
resources to fight a lawsuit, and a loss for ttools would mean financial ruin for the Hazzards.
Though those at the dinner in July 1999 may not have had access to specific statistics regarding
patent litigation success (Exhibit 10), Holmes certainly had a general sense of the costs and risks
of litigation.
To avoid the unauthorized use of its patented technology and the associated appropriation of
its innovation, ttools needed to do something quickly. Its investors wanted a clear resolution of
the situation.

TTOOLS (A) 5-306-509(A)
Study Questions
1. Evaluate the three options at the end of the case, as well as any other options that may exist.
2. Consider the options ttools has by virtue of its issued utility patent. Is this an important asset
at this point in the evolution of its business? Why or why not?
3. Which path forward would you recommend the Hazzards choose? Explain your reasoning.

17%
Sharp
5-306-509(A)
9%
Psion
2%
HP 3%
Other
69%
Palm
KELLOGG SCHOOL OF MANAGEMENT

Exhibit 1: PalmPilot 1000
Exhibit 2: PDA Market Share, 1998
9
TTOOLS (A)
10
Shipments (millions)
TTOOLS (A)
8.9
1999
Exhibit 4: PDA Stylus

11.7
2000
Exhibit 3: Projected PDA Sales
11.4
2001
16.8
2002
25.2
2003
40.6
2004

5-306-509(A)
TTOOLS (A) 5-306-509(A)
Exhibit 5: Invention Conception Timeline

Palm/IDEO’s pen/stylus
appeared in Wired magazine
Demo to Palm - NDA signed with ttools’ device
First Palm Pilot introduced March 1998 March 1999
March 1996
First Throttle pen sold Patent issued to ttools
Hazzard designed pen/stylus device July 1998 June 1999
May 1996 - April 1997
1996 1997 1998 1999 2000

Hazzard attempted to license
design to pen manufacturers Palm returns ttools’ prototype Hazzards must make decision
October 1998 July 1999
March 1997 - April 1998
Patent application filed, ttools formed

May 1998
Exhibit 6: Original ttools Throttle Pen

11
12
TTOOLS (A)
Exhibit 7: The Throttle Manual Included with the First Stylus/Pen, TT-01

5-306-509(A)
5-306-509(A)

Exhibit 8: Palm Users Displaying ttools’ Throttle Attached to the PDAs
Source: Julie Strietelmeier, “Throttle Review,” The Gadgeteer, March 3, 1999, http://the-gadgeteer.com/1999/03/03/throttle_review.
13
TTOOLS (A)
14
TTOOLS (A)
Wired Magazine
Palm’s pen/stylus
designed by IDEO
New ttools pen/stylus
Exhibit 9: Comparison of Wired Magazine Photo Spread with ttools’ Design
ttools’ patent
Figure 2 from

5-306-509(A)
5-306-509(A) TTOOLS (A)
Exhibit 10: Patent Litigation Facts and Statistics
 Legal fees and expenses for litigation through trial for cases in which $500,000 to
$1 million is at stake total an average of $500,000 for each side.
 Legal fees and expenses for litigation through trial for cases in which $1 million to
$10 million is at stake total about $1.3 million for each side.
 The average time to resolution of patent suits is 1.1 years.
 Seventy-six percent of patent suits settle while 17 percent are transferred or thrown out
on pretrial motion.
 Patentees prevail 58 percent of the time at trial. Due to pretrial losses, the patentee’s
overall success in litigation is only about 49 percent.
 Patentees win 68 percent of the time before a jury if they file suit first, whereas they win
only 38 percent of the time before a jury if the accused infringer files first.
 Fifteen percent of cases are thrown out by judges before trial, roughly half for invalidity.
 At trial, patentees face a 33 percent chance that their patents will be invalidated.
 Forty-four percent of published decisions that validate a patent are appealed.
 Thirty-seven percent of infringement-related verdicts are appealed and the Federal Circuit
overturns 20 percent of them.
Source: S. Vermont, “Risk and Reward—More Patent Facts and Stats,” in From Ideas to Assets: Investing Wisely In Intellectual Property,
ed. Bruce Berman (New York: John Wiley & Sons, 2002).

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REVISED OCTOBER 7, 2015

JAMES G. CONLEY 5-306-509(A)

Usage permitted only within these parameters otherwise contact info@thecasecentre.org

Distributed by The Case Centre North America Rest of the world

case centre www.thecasecentre.org

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The Founding of ttools

2 KELLOGG SCHOOL OF MANAGEMENT

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The ttools Business Plan and Patent

KELLOGG SCHOOL OF MANAGEMENT 3

4 KELLOGG SCHOOL OF MANAGEMENT

Trouble on the Horizon

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KELLOGG SCHOOL OF MANAGEMENT 5

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6 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT 7

8 KELLOGG SCHOOL OF MANAGEMENT

KELLOGG SCHOOL OF MANAGEMENT

Exhibit 2: PDA Market Share, 1998

Exhibit 4: PDA Stylus

KELLOGG SCHOOL OF MANAGEMENT

TTOOLS (A) 5-306-509(A)

Exhibit 5: Invention Conception Timeline

1996 1997 1998 1999 2000

Patent application filed, ttools formed

Exhibit 6: Original ttools Throttle Pen

KELLOGG SCHOOL OF MANAGEMENT

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Exhibit 10: Patent Litigation Facts and Statistics

KELLOGG SCHOOL OF MANAGEMENT 15

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