Legal tussle turns nasty over flameless candle technology

The flameless candle was born of inspiration at Disney's Magic Kingdom, to provide eerie lighting effects for the popular Haunted Mansion attraction.

More than a decade later, flameless candle technology is the subject of a bitter legal marathon in U.S. District Court in St. Paul, as an Eden Prairie-based distributor goes toe to toe with a Chinese manufacturer of the home decor phenomenon.

While no one knows the exact size of the flameless candle market, millions of dollars in potential sales are at stake. The product has been displayed at retailers such as Restoration Hardware, Bed Bath & Beyond, Williams-Sonoma and Kohl's.

"It's definitely a growing market," said Julie McCallum, editor in chief of Gift Shop Magazine, a retail industry trade journal. "We were just at the International Housewares Association trade show in Chicago and flameless candles were huge."

Which explains why the Eden Prairie company, Luminara, is in a heated dispute with China's Liown Electronics.

The trail of lawsuits filed by the two companies over the last three years includes allegations of threats to customers and potential customers, predatory pricing and outright deceit.

The two sides have retained top Minneapolis legal talent. Liown is represented by the firm of Winthrop & Weinstine; Luminara is the client of Anthony Ostlund Baer & Louwagie.

Adding to the legal drama is the fact that Luminara and Liown were once briefly business partners.

The candles feature a battery-powered device that shines a small light on a movable, wafer-thin silhouette of a flame that appears to flicker when it is turned on.

The candles come in different colors and shapes and are for indoor and outdoor use. The flameless candles feel and look like real candles but without the waxy mess or fire hazard.

"With high-end designs, the candles are tapping into the fashion sector," said Tina Benitez Eves, business editor for the publication Gifts and Decorative Accessories. "People want that."

The story started in 2008 when Disney licensed the "artificial flame technology" that it used in the Haunted Mansion to a U.S. company named Candella, which eventually merged with Luminara. Before the merger Luminara was Candella's exclusive distributor.

According to court documents, the flameless candle was launched commercially in 2010 at the Consumer Electronics Show in Las Vegas. A month after the hugely popular show, Candella executives were introduced to Liown Electronics as a potential manufacturer of the device.

Luminara's lawsuit says Liown was given exclusive access to the flameless candle technology, and an agreement to manufacture the candle was signed in March 2010. The agreement gave Liown the right to distribute and sell the product in China.

But disagreement over the cost of manufacturing led to a breakup between Candella and Liown, and Candella took its business elsewhere. Liown, however, continued manufacturing and filed for a Chinese patent for the technology it developed.

In court papers, attorneys for Candella argue, "It is no surprise that Liown flameless candles infringe on the Disney patents because Liown copied the technology from Candella."

But Liown claims it advanced the technology with improved lighting and has a U.S. patent to support its position.

The dispute over the flameless candle moved into the courthouse in 2012, when Candella filed a patent infringement lawsuit against Liown. Liown quickly countersued, and the battle was on.

But in January 2014, the parties reached an out-of-court settlement and the lawsuits were dismissed. As part of the settlement, Luminara and Liown formed a partnership to develop and distribute flameless candle products.

The agreement was hailed as a win-win situation for both parties.

"We are excited to combine the strengths of these two dynamic organizations," Luminara President Jerry Cain said in a news release at the time. Added Liown CEO Johnny Yang, "This partnership is an opportunity to forge the best from each platform."

But the spirit of comity was short-lived.

Seven months later Liown announced a breakup, saying, "Liown is proud to announce that as of Aug. 5th, 2014, Liown is no longer partnering with Luminara."

The fate of the Luminara-Liown dispute currently rests in the hands of U.S. District Court Judge Susan Richard Nelson.

Attorneys for Luminara last month asked Nelson to approve a preliminary injunction to prevent Liown from selling or importing flameless candles until a trial can be conducted on the patent infringement allegations.

Liown, meanwhile filed an updated lawsuit against Luminara earlier this month that also include a preliminary injunction motion to block Luminara and its retail customers from selling Luminara flameless candles on the grounds that the Luminara technology violates a Liown patent.

Both motions are pending before Nelson.

In its lawsuit, Liown alleges that Luminara executives threatened its customers with notices that they would violate patent laws if they sold Liown-manufactured flameless candles. The suit says that Luminara's "tortious interference" scared several potential customers away.

Luminara's lead attorney, Joseph Anthony, calls the patent infringement litigation "a cautionary tale for American inventors."

"This case is an important test to determine whether there is a practical solution for dealing with foreign manufacturers who pay scant regard to the protections that the United States affords to creative inventions," Anthony said in an e-mail to the Star Tribune.

In its defense, Liown replied, "Our organization deeply values relationships based on transparency and trust, and for this reason we are disheartened that Luminara continues to infringe on patents we have worked so hard to secure."

David Phelps • 612-673-7269