When GoPro (NASDAQ:GPRO) launched its ice-cube sized Hero 4 Session this summer, I noted its striking resemblance to the Polaroid Cube. The two cameras, which are roughly the same size, both have round edges and a big button on the top, and lack dedicated displays.
C&A Marketing, the company that produces the Cube, also noticed those similarities and sued GoPro for allegedly copying its design. C&A has asked a U.S. District Court to halt sales of the Session and for GoPro to pay it an unspecified amount which would include all profits generated by the camera.
Both GoPro and C&A have been granted patents for their cameras. In March, the EU granted GoPro a patent for the Session, and the U.S. granted it a patent for the plastic housing. GoPro is still waiting on the U.S. patent for the entire camera. The U.S. granted C&A a patent for the Cube in May. It's unclear if C&A's claims have merit, but it definitely represents another roadblock for GoPro's troubled camera.
What does this mean for GoPro?
Last quarter, weak sales of the Session forced GoPro to lower its price from $400 to $300, which resulted in a $19 million writedown. That writedown, along with sluggish sales of the Session, caused GoPro to miss the low end of its previous sales guidance by $30 million. CEO Nick Woodman admitted that two factors hurt the Session -- its initial price (the same as the popular Silver) and "underfunded marketing."
In response, GoPro plans to boost its marketing efforts and return to TV ads after a one-year hiatus. This strategy will likely cause sales and marketing expenses, which already jumped 40% annually in the first nine months of 2015, to continue climbing.
GoPro would be hurt, but not crippled, if it halted sales of the Session and paid all of the camera's profits to C&A. The Session is only one of GoPro's six cameras, and the company's top-tier Black and Silver cameras still account for over half of its shipments and revenue. It's unclear how much revenue the Session has generated so far, but we already know it wasn't a hit product.
Design cases are tough to win
GoPro investors should remember that design-related cases are hard to win. Back in 2011, Apple (NASDAQ: AAPL) sued Samsung (NASDAQOTH: SSNLF) for allegedly copying several things, including its designs, style, and user interface. Samsung countersued and claimed that Apple violated some of its hardware patents. The following year, Samsung was ordered to pay Apple $1.05 billion for violating six patents.
Yet subsequent appeals significantly reduced that amount, on grounds that "aesthetic" elements like the shape of the case and app icons shouldn't be considered patent violations. Nonetheless, the ruling still required Samsung to pay Apple all the profits from sales of Galaxy devices that infringed on the other patents. Earlier this year, Samsung filed a plea to reduce or drop that charge, claiming that it would "invite overprotection and overcompensation of design patents."
If the C&A vs. GoPro case follows a similar path, the similarity of plastic cases probably won't be enough to convince a court to halt sales of the Session. Moreover, the market is full of similar-looking cube-shaped action cameras from smaller companies like SJCam and Fuhu. GoPro could also argue that the internal hardware is different, since the Session shoots higher quality photos and videos at much wider angles than the Cube.
The trial doesn't matter, but innovation does
As a GoPro investor, C&A's lawsuit doesn't bother me, since design-related cases are usually tougher on the plaintiff than the defendant. Instead, what bothers me is that GoPro seems to be becoming a follower rather than an innovator.
GoPro introduced the Session nearly a year after Polaroid launched the original Cube. It only started developing spherical VR film rigs after smaller companies started selling similar products. GoPro's next big product will be its quadcopter, which will arrive more than three years after market leader DJI Innovations launched its first Phantom quadcopter.
These delayed market entries suggest that GoPro is more interested in playing it safe than recapturing the first mover's advantage that it enjoyed with action cameras. If that's the case, it could fall behind the tech curve and lose ground to hungrier competitors.