Patent Dispute in Knife Rights Has a Bitter Edge

They can skin a deer, cut through metal and safely shave off a man’s beard. But the one thing these knives can’t do is cut through layers of an acrimonious legal dispute between their El Cajon-based manufacturer, Buck Knives, and its former business partner, Phrobis Cos. of Carlsbad.

The crux of the dispute is the patent rights to three hot-selling sporting knives that are manufactured by Buck. Those rights are the subject of two bitter lawsuits, a $19-million antitrust and patent suit filed by Phrobis against Buck and a $13-million suit filed by Buck alleging breach of contract and fraud by Phrobis.

At stake is a significant portion of the $350-million domestic knife market, of which Buck, with $40 million in annual sales, is one of the nation’s leaders. The knives, known as the XLTi titanium lockblade, the FieldMate sawback-edged knife and a commercial version of the Army’s M9 Field Knife bayonet, are priced between $45 and $130.

Phrobis, founded in 1982 by Charles (Mickey) Finn, does not manufacture knives or anything else, but conducts research and development on a variety of survival tools and weapons. Finn, a former delicatessen owner, has been a weapons consultant and adviser to the Navy, Army and other government agencies.

Phrobis’ attorney, Robert Wrede, who filed the antitrust suit against Buck Knives in U.S. District Court in September, said the issue that the courts must decide is whether Buck was engaged in “a pattern of anti-competitive conduct that was designed to destroy Phrobis as a viable competitor.�

“What Buck did,� he alleged, “was hold itself out as the source of all these inventive products. The real problem is they were usurping (Phrobis’) reputation unto themselves for their own economic advantage.�

Charles Buck, who 10 years ago became president of the company his grandfather started in 1945, flatly denied those charges.

“There’s absolutely no grounds for that argument,� he said. “I would help (Phrobis) become a competitor. There’s so much room out there that there’s no reason to keep someone out of the marketplace.�

When Charles Buck and Phrobis founder Finn entered into a business partnership in 1984, neither man foresaw the problems to come. Finn had an idea for an underwater knife that could be used by the Navy SEAL teams. Needing a way to manufacture it, Finn called Charles Buck, whose 450-employee plant in El Cajon is now capable of turning out 12,000 knives a day. Soon thereafter, the two men entered into the agreement.

The result of that initial business venture was BuckMaster, a 12 1/2-inch hollow-handled survival knife capable of cutting through wood, metal and ice, which sold for $160. The knife was an immediate success. About 50,000 BuckMasters sold in 1985, the knife’s first year on the market, thanks in part to the prominent role a similar survival knife played in Sylvester Stallone’s popular Rambo movie “First Blood.�

The following year, Buck agreed to manufacture another knife designed by Finn, a super-strong folding knife with a 3 3/4-inch blade and a high-tech handle made of lightweight titanium.

But it wasn’t until their third and most lucrative deal, a $15.6-million contract to produce 315,600 12 1/4-inch bayonets for the Army, that the partnership between Buck and Finn began to fall apart.

Finn’s company, Phrobis III Ltd., had won a bid against five competitors to supply the Army with a modern multipurpose bayonet, and had chosen Buck as the subcontractor to manufacture it. But the partnership began to unravel after Charles Buck and Finn disagreed over the proper price for the bayonet.

Buck officials now claim that Finn, in order to win a larger profit margin for himself, misled Buck into lowering its price as the manufacturing subcontractor.

But Phrobis attorney Wrede alleged that Buck officials simply became greedy. After promising to make the knives at an agreed-upon price, he said, Buck demanded a higher payment, leaving Phrobis with no choice but to accept it or back out of its contract with the Army.

Despite the growing dispute between Buck and Phrobis, the Army received all of its bayonets. Charles Buck claims, however, that Phrobis never paid for 15,600 of the knives and thus owes his company $613,689.

On Sept. 13, Phrobis filed a lawsuit against Buck, detailing more than a dozen complaints of its own dating back to the companies’ earliest business ventures.

Among the complaints are allegations that Buck’s FieldMate, XLTi and commercial M9 bayonet are all based on Phrobis designs in violation of Phrobis’ patent rights. The lawsuit also claims that Buck delayed bringing Phrobis’ knives to market in a timely manner, to make more money on its own knock-off versions of those knives.

Seeking $19 million in damages, the Phrobis lawsuit also accuses Buck of fraud, economic duress, breach of contract, unfair competition, trade libel, monopolizing the knife market and interfering with Phrobis’ business opportunities.

Buck responded to the charges by filing an 84-page counter-complaint against Phrobis declaring Phrobis’ patent rights invalid and unenforceable. The FieldMate, which Phrobis claims is a knock-off of its own BuckMaster, “is nothing like the Buckmaster,� Buck’s attorney, Alexandra Mahaney, said. The licensing agreements on the other knives, she added, are invalid. The $13-million countersuit--comprising $3 million in compensatory damages and $10 million in punitive damages--also accuses Phrobis of breach of contract, fraud, intentional misrepresentation and antitrust violations.

Both lawsuits face several months of discovery proceedings. No trial date has been set.