As 2strokebuzz noted a couple weeks ago, the new Schwinn Scooters bear more than a casual similarity to the TNG Venice and Milano models, and as promised, we’ve dug a little deeper into the situation and our findings are rather startling. Tom Lynott, president of CMSI, makers of the TNG scooters, had no comment on April 4th, but since then, a source outside CMSI confirmed that CMSI were preparing legal action against Pacific Cycle, the parent company of Schwinn, Mongoose, and GT bicycles. A complaint, which alleges that Pacific Cycle effectively “stole” TNG’s product and business model after a proposed collaboration was abandoned, was submitted to the United States District Court in Seattle on April 6, (two days after our original story), listing six charges against Pacific Cycle: False Designation of Origin, Violation of Washington’s Consumer Protection Act, Common Law Unfair Competition, Intentional Interference with Contract, Intentional Interference with Prospective Economic Relations, and Breach of Contract.
In the complaint, CMSI alleges that Pacific Cycle requested a meeting with CMSI in January 2004 regarding cooperation between the two companies. A meeting was held in February at which time CMSI revealed their exclusive contract with a undisclosed Chinese supplier, their business model, and their marketing plans to Pacific. According to the court papers, Pacific then notified CMSI they were pursuing a “different direction.” CMSI later discovered that Pacific had located CMSI’s Chinese manufacturer and persuaded them to violate their contract with CMSI, and instead manfacture the same scooters for Pacific, to be sold under the Schwinn name (while no longer selling them to CMSI).
The scooters in question are the TNG Venice, Venice LX, and Milano models, sold by Schwinn as the Campus, Collegiate, and Graduate, respectively. The TNG models were based on the design of the Yamaha Vino range. While similar-looking scooters abound in the Chinese marketplace (as well as the shadier end of the American market) TNG had set the Venice and Milano apart by custom-designing many components and styling elements. These components are proprietary to the TNG scooters and were manufactured with tooling paid for by CMSI, yet appear on the Schwinn models, some (notably the headlight) even bearing an embossed “CMSI” in plain view. CMSI, in the meantime, claims to have been forced to scramble to find new parts manufacturers. TNG rebounded from some early missteps by carefully building their reputation via a quality product and a reliable dealer network and parts supply. CMSI alleges that the rapid switch to new suppliers resulted in production and quality-control problems, costing them a loss of market reputation.
According to the CMSI filing, TNG business information was disclosed only after Pacific Cycle orally agreed to, and promised to sign, non-disclosure and non-circumvention agreements. It appears that these documents were never actually signed, and CMSI probably has a slim chance of legal recourse against their Chinese supplier, considering the Chinese disregard for trademark and copyright law. But aside from those points, CMSI’s complaint certainly makes a good case for themselves, we will attempt to contact Schwinn tomorrow during business hours for their response.