Legal Tussle Over Talking Books

LeapFrog sues Fisher-Price over interactive talking books
Can you spell l-a-w-s-u-i-t?

LeapFrog Enterprises, maker of the wildly popular LeapPad educational toy line, has sued Mattel Inc.'s Fisher-Price for allegedly violating its patented talking book technology.

Anything but a nursery tale, there's b-i-g money at stake. Talking books are expected to be hot sellers this holiday season.

The Emeryville, Calif.-based toy company filed suit Friday in federal court in Wilmington, Del., claiming Fisher-Price is violating its 1998 patent on interactive learning books for toddlers and preschoolers.

LeapFrog has grown into the third-largest U.S. toymaker behind Mattel and Hasbro with its trailblazing LeapPad series, an electronic book-like system that teaches reading skills phonetically and, according to the NPD Group, was last year's best-selling toy line.

Fisher-Price launched a competitive product, the PowerTouch Learning System, in August. The PowerTouch product can be operated with the touch of a finger instead of the stylus pen required by LeapPad.

Margaret Whitfield, toy industry analyst with Brean Murray & Co., said her research indicates PowerTouch is already doing well at retail stores. But she expects both PowerTouch and LeapPad products will experience robust holiday sales. "It's a market big enough to absorb both," she said.

No court dates have been set yet, but the lawsuit seeks a court order to stop Fisher-Price from selling PowerTouch. LeapFrog also asks for unspecified damages for being "irreparably injured."

Until Fisher-Price's recent entry, LeapFrog had been "virtually unchallenged" in the electronic interactive book category that it created with LeapPad's debut in 1999, said Chris Bryne, an independent toy industry consultant.

"It took a company the size of Mattel to even mount some competition here," Bryne said.

LeapFrog said it commanded about a 75 percent share in that preschool toy segment last year, according to Securities and Exchange Commission documents. And LeapPad products accounted for 48 percent of LeapFrog's net sales of $532 million in 2002.

Fisher-Price spokeswoman Laurie Oravec said Tuesday that the East Aurora, N.Y.-based company went through "a significant amount of effort" to make sure the product did not violate any relevant patents and even applied for two patents of its own for the "automatic page recognition" and "finger-touch activation" features in its PowerTouch product.

"We do not believe we are infringing the LeapFrog patent," Oravec said.

LeapFrog's 1998 patent is for "an interactive learning device having electronic circuitry for generating an audible sound in response to touch contact with the device," according to the lawsuit.

The patent cited in the lawsuit is one of 37 that LeapFrog had as of Dec. 31, 2002, according to Securities and Exchange Commission documents. The company also has 76 more pending approval.

"LeapFrog values its intellectual property assets and is committed to vigorously defending them," spokesman Phil O'Shaughnessy said Tuesday, declining to comment further.

Michael Milken, a central figure in an investment debacle that rocked Wall Street in the 1980s, controls a majority stake in LeapFrog along with his brother, Lowell, and Larry Ellison, the chief executive of software giant Oracle Corp.