The drone wars have reached Minnesota.
A tiny Bloomington company called QFO Labs last week asked a federal judge to block a large French company from selling its popular drones at Best Buy, Target and Amazon, arguing the foreign manufacturer ripped off its design.
The move is the latest salvo in a legal battle between QFO Labs and Parrot Inc., a leader in the fast-growing drone industry. And it reflects a pitched battle for business in the turbulent market, which has seen companies crash and burn even while consumer demand for the low-flying products has continued to spike.
According to the Consumer Technology Association, drones will be one of the nation’s hottest gifts this Christmas season, with 15 percent of Americans planning to purchase a quadcopter or other small drone. Especially popular: drones that take pictures and video. Gartner Inc., a tech research company, expects the consumer drone business to reach $6 billion this year, up from $700 million in 2014.
Given those numbers, it’s no wonder the owners of QFO want a piece of the action.
“We would love the chance to develop the gaming part of the market,” said Jim Fairman, QFO’s president and chief operating officer. “The opportunity is there. And golly, it would be fun.”
Parrot representatives did not respond to requests for comment. The company has filed claims against QFO in federal court and the U.S. Patent and Trademark Office, seeking declarations that at least 10 of its consumer drones do not infringe on QFO’s patents.
Though QFO developed a drone prototype in 2002, the company didn’t introduce its first product until 2013. Fairman said the long delay stemmed from simple economics. The sensors needed to fly drones were so expensive in 2002 that a unit cost $2,500 to make, far too expensive for the hobbyists who like to buy quadcopters, which typically start around $100.
“We had this great idea, but it was ahead of its time,” said patent attorney Brad Pedersen, a part-time inventor who also serves as QFO’s CEO. “So I went back to being a lawyer and the other guys went back to the companies they were working for.”
It wasn’t until other manufacturers jumped into the market and began selling drones that sensor prices fell enough for QFO to try again. In 2011, a year after Parrot launched its first drone, Pedersen obtained his first of three patents for what he called a “homeostatic flying hovercraft.”
The thing that distinguished Pedersen’s drone from the rest of the market was its controller. Instead of a joystick, which is standard for most drones, Pedersen and fellow inventor Peter Spirov came up with a hand-held controller called a Mimix, which uses a tilt-to-fly system.
That is, the drone mimics the operation of the remote, diving when it is aimed down or banking when turned to the side. A thumb control is used to make the vehicle go up or down. The Quad Fighter, which fires an infrared laser and makes futuristic action noises, is aimed squarely at toy buyers. Some customers use them for aerial dogfights.
To finance product development, Pedersen first turned to Kickstarter, but the company failed to reach its fundraising goal of $230,000. So he went looking for other investors, eventually raising more than $1 million in private equity. For manufacturing, the company turned to China, where most drones are made. By Christmas 2013, QFO also had a retailing partner: Brookstone, which is known for its wide selection of cutting-edge gadgets.
“We sold 10,000 units in six months,” Pedersen said. “We were on the shelves right next to Parrot.”
The partnership didn’t last long. Within a year or so, Brookstone replaced QFO’s $99 Quad Fighter with a similar model made by Parrot. The only major difference between the two drones, Pedersen said, is that Parrot’s toy drone is operated through an iPhone, not a specialized remote. Both companies’ drones, Pedersen maintains, rely on QFO’s patented tilt-to-fly operating system.
“I think Parrot makes a wonderful product,” Fairman said. “The problem is they are infringing on our patents.”
With annual sales of $270 million last year, Parrot is the second largest maker of consumer drones in the world, according to Goldman Sachs. The French company controls about 15 percent of the consumer market, vs. about 70 percent for industry leader DJI of China.
The companies are poised to ride a huge boom in sales. In 2017, consumers are expected to buy 3.4 million drones, up from 128,000 in 2013, according to the Consumer Technology Association. Sales are expected to reach nearly 8 million units by 2020.
In Parrot’s federal lawsuit, the French company said it began discussing a possible licensing agreement with QFO in January 2016. Pedersen said he was interested in working out a deal because QFO was unable to find another retailer willing to carry its quadcopter after Brookstone backed off. Part of the problem was a lack of inventory.
“We didn’t have enough cash” to order a second batch, he said.
After talks collapsed, however, QFO and Parrot sued each other over the validity of QFO’s patents. In its lawsuit, Parrot said QFO’s attempt to enforce its patents “poses a substantial risk of injury” to the company and its distributors, such as Best Buy and Target.
So far, the patent board has denied two of Parrot’s five petitions against QFO, while trials on two surviving cases are tentatively set for later this month. “They are basically trying to use their economic wherewithal to push us out of the market,” Pedersen said. “But we feel confident about our chances.”