Monoprice: A tech consumer's best friend? Or a copycat?

A lawsuit claims the discounter's new home-theater speaker system violates intellectual property. But the company's CEO says Monoprice "never purposely" infringes on patents.

Monoprice

Reviewers have fawned over surround-sound speakers from Energy, a unit of the Klipsch Group.

Two years ago, CNET's Matt Moskovciak dubbed the Energy Take Classic 5.1 system "the best budget speaker system we've reviewed." The sound from the speakers is incredible, he wrote, and the $399 price tag unbeatable.

It was, anyway. A few months ago, upstart online retailer Monoprice debuted its 5.1 Hi-Fi Home Theater Satellite Speakers & Subwoofer system at $249. The speakers aren't just similar to the Energy system, and they don't just have the same dimensions and sound quality. Other than the logos, the two systems are virtually indistinguishable.

"Nearly everything -- from the finish, to the placement of the drivers, to the positioning of the speaker connectors -- is identical," Moskovciak wrote in a February review . Everything, that is, except the price.

Cue the lawyers. On March 15, Klipsch and its subsidiary, Audio Products International, which makes speakers under the Energy brand, filed a suit against Monoprice in federal court in the Southern District of Indiana, accusing the retailer of patent infringement. In a recent interview, Monoprice CEO Ajay Kumar, interviewed before CNET became aware of the suit, insisted the company "never purposely" sells products that infringe on another company's patents. Monoprice subsequently declined to comment on the litigation.

The Klipsch lawsuit isn't the first time Monoprice has been hauled into court for allegedly infringing on a patent. In 2010, it was among a group of defendants in a suit over the sale of printer cartridges that allegedly used a patented technology. Jeffrey S. Boyles, an Orlando lawyer representing the plaintiff in that case said his client dismissed claims against Monoprice last April after reaching a confidential settlement.

Monoprice got its start in 2002, when founder Sean Lee started selling cables from his apartment on eBay. Average consumers may not know much about Monoprice, but techies have come to revere the company for selling ultra-affordable accessories like its signature HDMI cables -- which retail for as little as $3.50 -- compared with equivalent models from Monster Cable, which cost as much as $90 at Best Buy. And as CNET has written , Monoprice's less expensive cables work every bit as well as their pricier rivals.

So how does Monoprice do it? Kumar attributes the price difference to Monoprice's strategy of sourcing the cables directly from Asia, and selling them directly to consumers.

"We wipe out a whole layer of markup in the supply chain," Kumar said.

That cut-rate pricing and the loyalty it's engendered has helped Monoprice soar financially. According to Kumar, privately held Monoprice is profitable, and its revenue has grown at a compounded rate of 38 percent over the last five years. In 2012, the 250-employee company, based in Rancho Cucamonga, Calif., generated $121 million in revenue, a 26 percent jump from 2011.

That success led Monoprice's brass to expand the company's product line, so it moved into audio products, such as the surround-sound speakers. But a handful of its new products, ones that carry the Monoprice brand, are virtually identical to those sold by other companies.

In the Klipsch lawsuit, the speaker maker alleges Monoprice has copied more than the look of its speakers. Klipsch alleges the Monoprice speaker system infringes on a surround-sound patent issued in 2004. Klipsch has even accused Monoprice of copying the "substance" of its owner's manual. ( One customer noted in the user review section on the Monoprice product page that the manual replaced "Energy" with "Monoprice" in "most places" but still included a reference to "your Energy subwoofer." The site adminstrator for Monoprice replied with a request for the specific citation in order to "forward this accordingly.")

"Klipsch Group and Audio Products International have filed a legal action against Monoprice in connection with the sale of its infringing speaker product but have no further comment on this pending legal matter at this time," Mike Klipsch, president of global operations at Klipsch, said in a statement provided to CNET.

In its suit, Klipsch is trying to prevent Monoprice from selling the speakers and is seeking triple damages from the company, an amount that it said would be determined at trial.

The 5.1 Hi-Fi Home Theater Satellite Speakers & Subwoofer system isn't the only Monoprice product that bears a striking similarity to a rival offering. Among its new Pro Audio lineup, Monoprice is selling its Large Diaphragm Condenser Microphone, a studio mic the company boasts on its Web page allows "your recording sessions to be captured in stunning detail, and providing a bright presence to express your sound's full sonic potential."

The mic is virtually identical to Marshall Electronics' MXL 770 Condenser Microphone. The tech specs -- everything from the frequency response range to output impedance, and a host of other audio metrics -- are identical. It has the exact same measurements and weight. It even has the same gold band that rings the mic. The difference: Monoprice's mic sells for $75, compared with $100 for the Marshall mic.

A Marshall representative declined to comment on the similarities.

Then there's Monoprice's Premium Hi-Fi DJ Style Over-the-Ear Pro Headphone. In 2011, the Web site Head-Fi noticed similarities between the $23 Monoprice headphones and Stillwater Designs' Kicker HP541 DJ-Style Over the Ear Headphones, currently available from Amazon for $79.95. The Head-Fi reviewer called the Monoprice unit "a rebrand of the same headphone."

Monoprice didn't license the technology in headphones from Stillwater Designs, but a Stillwater representative said it didn't need to. Stillwater co-developed the headphones with an Asian vendor, and did not retain licensing on the vendor's hard parts, according to spokesman Ron Burnett. Instead, he said, Stillwater focused on customizing the acoustics of its headphones, something it doesn't believe Monoprice has copied.

Monoprice Chief Executive Ajay Kumar Monoprice

"Are the headphones on Monoprice the HP541s?" Burnett said. "We say 'no' because we doubt the Kicker sound is included, though the hard parts are very similar or even possibly exact."

While declining to discuss specific products, Monoprice's Kumar said his company has contracts with Asian manufacturers that own the intellectual property of products made for brands that sell in the United States. Often those brands don't lock up an exclusive agreement with their Asian manufacturers. Moreover, he said, Monoprice requires its Asian suppliers to sign documents that hold them liable for any product that might infringe on the intellectual property of another company.

"We can go to that same factory and legally have them make the same product for us," Kumar said. "We're basically selling the product for a lot less money."

Kumar declined to name Monoprice's Asian vendors, though, citing proprietary arrangements that he wanted to protect.

He also said Monoprice sometimes cuts deals with American companies to license their technology, even though they know Monoprice will offer the same product for a lower price.

"They may do that as a way to get incremental volume," Kumar said.

Again, Kumar declined to name any of those partners. And those companies are unlikely to disclose the relationship; if consumers recognized the arrangement, they'd likely opt for the less expensive Monoprice product.

Without question, there are plenty of Monoprice products that don't resemble rivals' offerings. The company makes all sorts of speaker systems, computer monitors, and, of course, the cables for which it is best known. And Monoprice is looking to expand into other consumer tech markets, such as home automation, camera accessories, and car audio systems. There's little doubt it will look for deals from Asian manufacturers who can produce products that the company can sell for a fraction of the price rivals demand for similar goods.

"Naturally, we're biased," Kumar said. "Why would anyone buy from anyone else?"

CNET Senior Associate Editor Matthew Moskovciak contributed to this article.

 

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