Sears, once the world’s largest retailer, recently announced the sale of its famous Craftsman brand of tools to Stanley Black & Decker. The sale price of $900 million is just short of a cool billion dollars. It might be tempting to dance on the fast-coming grave of Sears, but in this article, after providing some brief context in the long history of Sears, we will turn to focus on one chapter in the saga, namely the Roberts ratchet wrench patent case.
In 1986, Richard Warren Sears was a railroad station agent in remote North Redwood, Minnesota, when he received a shipment of unwanted watches from a Chicago jeweler. He bought the watches and resold them at a profit to other station agents. Standard time had just been adopted at the General Time Convention convened in Chicago by the railroads in 1883. Reliable timepieces were as new and important then as smartphones are now.
Sears soon moved to Chicago and joined forces with Roebuck to sell first watches and then all kinds of goods through large mail order catalogs to a mainly rural populace. The Sears catalog was the “wishbook,” as I remember vividly from my youth as a farm boy in rural Wisconsin. The bulky catalog barely fit into the spacious RFD mailbox mounted on the wood post at the end of the long gravel lane. I spent many hours poring over the catalog and dreaming.
Sears launched the Kenmore brand in 1913, the Craftsman brand in 1927, and the Allstate Insurance Company in 1931.
Sears was already selling tools when it acquired the Craftsman brand for $500 in 1927. It was a smart move by new Sears hardware department manager Arthur Barrows. Barrows’ successor Tom Dunlap upgraded the tools and added chrome plating, improvements that seemed unnecessary to Barrows, but this investment also paid off, with sales increasing six-fold the next year.
From 1927, Craftsman became one of the most highly respected American brands in its reputation for quality, which was reinforced by an unlimited lifetime warranty, requiring neither a receipt nor proof of purchase.
From the 1930s to the 1950s, Sears built air-conditioned “windowless” department stores in big cities. My first suit as a boy came from Sears in downtown Chicago, tailored and ready for pickup the next day. Sears followed the the population’s moves into the suburbs in the 1960s and 70s, often as an anchor store in shopping malls.
Many years after its launch, the Craftsman brand made an impression on me with its high quality wrenches and tools, which I used from a young age in repairing tractors and other equipment on the farm.
From 1965, Sears built its Craftsman brand with the Roberts patented quick release ratchet wrench. I remember seeing and using the early quick release ratchet wrenches, which were a delight to operate.
Sears would spend the next 20 years and millions in legal fees striving to avoid paying Roberts any more than a pittance for the invention. The wrench case is discussed in more detail below.
Sears built and moved into the famous world’s tallest Sears Tower in 1974.
In 1984, Sears joined forces with IBM to start up the online service Prodigy, which launched four years later, in 1988, to considerable success before it was passed by CompuServe and then AOL in the early 90s and then eclipsed by the Internet in the late 90s. Prodigy lost money on its low flat-rate subscription plan, and when it began to charge for each email and each hour of service, it lost customers in droves.
In 1996, Sears and IBM took a bath when they sold Prodigy to its management for less than $200 million, as against the billion dollars they had invested in the company. In 2001, SBC acquired Prodigy and moved it to Austin, Texas, where it merged it into Yahoo. Ultimately, Prodigy was parked inside AT&T, where it seems to have been run into the ground for lack of ability to recover even salvage value.
Could Sears have become the online retailer that ultimately emerged as Amazon? Could it have dominated the Internet in the ways that Google and Facebook have succeeded in doing? We’ll never know, though in fairness to Sears, Prodigy was not the only Internet service provider to bit the dust.
Sears was the nation’s largest retailer until overtaken by the stealthy Walmart in 1989. Sears was a leading stock in the Dow Jones Industrials until it was unceremoniously dropped in 1999.
In 2005, an ailing K-Mart bought the failing Sears, and in 2006, Craftsman tools began to be sold at K-Mart. This is the last item mentioned in the Sears timeline (updated 2012 with copyright notice dated 2017).
II. Roberts, ratchet wrench
Peter Roberts (1945—), the Sears clerk who invented the quick-release ratchet wrench, originally sold his U.S. Patent 3,208,318 to his employer for $10,000, then rescinded the agreement, and ultimately collected a reported (yet supposedly hush-hush) $8.5 million settlement after years of litigation. “Inventor Settles with Sears,” Chicago Tribune (Sept. 17, 1989). For more of the story, see “Wrench in the Wheels of Justice,” Washington Post (July 6, 1986). A more detailed history of the Wrench Case was published by the Washington Post and republished by the Los Angeles Times on July 14, 1986.
Roberts was a teenager when he made the stunningly successful invention—a major advance in socket wrenches—that would make tens of millions of dollars in profits for Sears, then the undisputed world’s largest retailer. In 1964, he filed the patent application that led to the issuance of the ‘318 patent a year later. Interestingly, the printed ‘318 patent consists of only one sheet of drawings and one page of specification and claims
When he approached his employer Sears with the invention that he had made on his own time, Sears pooh-poohed the invention. There is some suggestion in a Seventh Circuit opinion that Roberts’ lawyer fell into cahoots with Sears. Apparently without adequate counsel, Roberts accepted Sears’ offer of a license fee of 2 cents per unit, up to a total of $10,000. He took the deal, only to find out that Sears had big plans for his invention, which it launched under the Craftsman brand in 1966 to make millions in profits.
The lawsuit filed in 1969 led to a jury trial, a verdict of $5 million, increased almost double for willful infringement, and multiple appeals, see Roberts v. Sears, 723 F.2d 1324 (7th Cir. 1984). The firm I would join in 1985, Neuman Williams Anderson and Olson, appeared in that appeal. A panel of the Seventh Circuit first held Roberts’ patent invalid for obviousness; on rehearing en banc, the Court decided to remand the case for a new trial. It is an interesting opinion to read, in its grappling with the fact/law dichotomy in obviousness determinations, and its expectation of leaving the field of patent law to the then-new Federal Circuit.
Roberts sought to have the Federal Circuit overturn the Seventh Circuit’s remand. See In re Roberts, 846 F.ed 1360)(Fed. Cir. 1988) (en banc denial of petition for mandamus). By 1988, I had completed a Federal Circuit clerkship, and the firm I joined was no longer involved in the case.
More recently, in this decade, it was reported that Sears once again started doing business with another independent inventor on yet another wrench before it began outsourcing to a cheaper source. See Popular Wrench Fights a Chinese Rival, NYT (Nov. 8, 2012). The Wall Street Journal also has reported that competition from Asia has hurt American industry and discouraged R&D investment here. See “Competition From Chinese Imports Weakened U.S. Innovation, Economists Say” (WSJ Dec. 6, 2016).
As noted above, Craftsman was once the most highly respected brands in America, known for quality. Sears’ famous warranty is hard to redeem now that Sears no longer sells many of the tools it is called on to replace. The brand has lost much of its luster.
Where did Sears go wrong? In a long trail of errors, one misstep was forfeiting the high ground when it squelched and took advantage of its store clerk and inventor Peter Roberts. It could have made and kept Craftsman great and avoided the ignominy of acquisition by K-Mart and the descent of the once-noble Craftsman brand into discount stores.
In a competitive world, even a leading company has to strive and maintain its market, technology and moral leadership, or it will be overtaken by competitors.
If you’re a supplier—even if you have more leverage than Peter Roberts had with Sears—watch yourself! Industrial buyers can be merciless in their treatment of vendors. Make sure your intellectual property is protected, and be careful in your disclosures even to trusted customers. Your early filing of a patent application, your implementation of a nondisclosure agreement (NDA), and your marking of confidential documents can go a long way in protecting your proprietary rights.