When Denver’s Gates Corp. in 2008 debuted a belt-drive system to replace century-old chains on bikes, the company promised a “game changer” for the cycling industry.
But the chainless revolution – which the company helped launch for motorcycles in the 1980s – needed big help from bike-makers. While traditional bike chains can easily separate to slide into a bike frame, the belt-drive system needed a frame that could separate to accommodate the carbon belt.
One of the first bike companies to step up with a new frame to accommodate the Gates belts was the family-owned Spot Brand in Golden. The company designed a frame with what it called “Drop-Out” technology that fit the Gates “Carbon Drive” belt system.
In 2008, Spot Brands and Gates Corp. inked a licensing and royalty agreement that gave half of the Drop-Out invention to Gates so it could license the technology to other bike manufacturers. Gates said it would protect the patent on the design and pay Spot 8% of its net sales of any products sold by bike companies who licensed the Drop-Out design.
A couple weeks ago Spot sued Gates Corp., saying the Denver-based company has not paid any royalties while the company has expanded its belt technology into more than 1,000 bike models. The lawsuit says Spot is owed “millions of dollars in unpaid royalties.”
“Gates’s benefit was achieved at Spot’s expense because Gates deprived Spot of the economic benefits of the Drop-Out while keeping for Gates alone the economic benefits of the growth of the belt-drive bicycle market,” reads the lawsuit filed in Denver District Court, which claims Gates owes Spot millions in unpaid royalties.
By 2011, Gates had 54 bike brands using the belt drive on 92 models and the company said the number of Gates belt-driven bikes was growing by 50% a year. The Gates Carbon Drive is now available on 135 brands of bikes offering 1,000 models. The belt-drive system has proven very popular among e-bike brands.
Bike industry veteran Frank Scurlock in 2009 sold Spot Brand bikes to its current owner – Andrew Lumpkin, whose family founded the Avid bike brake brand in the early 1990s. Scurlock then joined Gates as business development manager for the company’s nascent belt-drive system. The U.S. Patent and Trademark Office lists Scurlock as the inventor of the Drop-Out design and Gates Corp. is assigned the patent.
In its lawsuit, Spot says it has identified 30 bike brands building more than 100 models of bikes that use the Drop-Out invention. Gates has made “substantial revenues” selling its belt-drive system to bike brands that use the Drop-Out technology, reads the lawsuit. And those manufacturers “generated even greater revenues than Gates” on bikes with the Drop-Out “all while Spot lost its competitive advantage in the belt drive-bicycle market due to its competitors using its invention for free,” the lawsuit reads.
Gates has not responded to the lawsuit and a spokesperson for the company did not return emails. Spot’s attorneys say the bike-maker tried to contact Gates for records on any companies that have licensed the Drop-Out design, but Gates said it has no records and has not sublicensed the design to any other bike companies, according to the lawsuit.
“Simply put, Gates did not sublicense the Drop-Out Patent and therefore does not owe Spot Brand any royalty payments,” reads a letter from Gates Corp. attorneys sent to Spot in November last year. The Gates attorneys said the separable frame designs on other bikes “employ a different approach than that covered by the … patent and simply do not infringe the same.”
Over the course of several letters sent back and forth beginning last fall, Gates’ lawyers said other designs are different from Spot’s Drop-Out while Spot attorneys argue the other bike-makers are using patented technology. In a May 2024 letter, Spot lawyers said if Gates paid Spot $25 million, the bike company would drop the matter and not file a lawsuit. Gates declined the settlement offer and told Spot to not contact the other bike-makers with warnings they were in violation of a licensing agreement with Gates.
“Gates wanted a piece of Spot’s Drop-Out invention because it was the best solution available to accommodate the Gates Carbon Drive while maintaining frame strength and rigidity. Spot was the first to innovate this module in the market, and along with Gates obtained broad patent rights to protect it,” said Andrew Unthank, the attorney representing Spot Brands in the lawsuit.
Unthank said Spot has been focused on building bikes since the 2008 agreement and “trusting Gates would live up to its obligation.” When the bike company began to notice more bikes with its Drop-Out design in 2023, Spot called on Gates to enforce the patent and pay royalties.
“Gates offered an ever-changing list of reasons why it is not obligated to pay royalties,” said Unthank, who argues Gates encouraged other bike-makers to use the Drop-Out invention. “Instead of supporting Spot as its joint owner of the patented Drop-Out, Gates dodged and deflected, forcing Spot to investigate further on its own and ultimately into this litigation.”
