Knockoff Punch

NOEL AND ADELE ZELLER WERE RUNning their company, Zelco Industries Inc., pretty much as planned. They started out in 1976 with a foot-in-the-door strategy of importing cheap flashlights, figuring to plow the profits back into high-quality products that Noel designed. Revenues were increasing yearly and had reached a comfortable $2.5 million by 1981.

Then, in the fall of 1982, Zelco's "itty bitty" book light hit the stores. It was an instant success, the kind of breakthrough item every young company dreams about. It was so successful that the Zellers had to find money wherever they could to underwrite the costs of manufacturing -- including a last-resort loan from the kind of people who demand interest of 24% a month. People prepared to dispatch a doorway-filling collection agent who a Zelco employee dubbed Bigfoot. By the end of the year, Zelco had sold 200,000 of the sleek, clipon lights. In 1983, with an advertising campaign coaxing "take me to bed," the company shipped a million of the lights from its headquarters and warehouse in Mt. Vernon, N.Y. In 1984, another million. Revenues hit the $15-million mark.

Had the Zellers stopped to bask in their sudden good fortune, they might have been forgiven -- but they might also have lost their company. You could say that the itty bitty book light was too successful. Unexpectedly, it had zoomed to 80% of Zelco's total sales in 1984, its peak year. The company had become, essentially, the book light. Though the light was patented, a hit-and-run horde of "me-too" pirates were ripping it off, selling their cheap imitations wherever they could. In 1985, with sales down, company revenues dropped by a third, to $10 million.

Still, the Zellers are far from discouraged. Sales may have dropped, but $10 million certainly beats the pre-book-light revenues of $2.5 million they were seeing in 1981. And they've learned a few things along the way. They'll tell you that they have, in fact, strengthened their company. How? With a strong defense and a strong offense: with lawyers, a Chinese detective agency, continuous new-product development, even a technique borrowed from Noel's brief stint as a stock-car driver.

Noel, 49, is president of Zelco; Adele, vice-president. Their duties overlap considerably, but he reigns in product development, she in sales and marketing. They've been married 25 years, have two teenage daughters, and are described as "nice people" by virtually everyone who knows them. One of the reasons they left comfortable corporate careers to start their own company was that they wanted to spend more time together. Both of them have an eye for modern art. Their three company cars are Mercedes-Benzes. They know and appreciate fine design.

Even before "European design" became widely fashionable in American housewares, the Zellers were attracting notice for the sleekly modern look of their products. Zelco's rechargeable fluorescent lantern, for example, is in the permanent design collection of New York City's Museum of Modern Art. That's the kind of standard the Zellers consider when introducing a new product, and it's one of the reasons they've been so aggressive in defending their patents on the itty bitty book light. They are proud of the product that has taken them into millions of American bedrooms. Before that, the only choice people had were crazy, unwieldy contraptions with bulky, shadow-casting shades -- none offered much of an improvement on the old flashlight-under-the-covers method of reading in bed. Zelco's tiny bulb is specially designed to burn cool and not cast eye-straining shadows. "In that tiny lamp there are three kinds of plastic," says Noel, who obviously gets his kicks from perfecting Zelco's products. "We practically invented a new switching system. It's a quality job all the way through."

What really gets Noel's dander up are the knockoffs. First of all, it riles him that somebody is getting away with stealing his patented idea. But, craftsman that he is, he just can't understand why anybody would want to manufacture junk or me-too products. He reacts with righteous indignation to the inferior imitations that cheat consumers with lousy bulbs, cumbersome design, and such foolish accessories as builtin radios. Mostly, he feels violated, creatively and financially. "A lot of people thought they could walk all over us. They get a Dun & Bradstreet on you, see you're a small company, and figure you're not going to bother suing them."

In the case of Zelco, a lot of people figured wrong. In the past two years, the Zellers have spent half a million dollars in legal defense of the itty bitty book light. "Yes, they are probably more aggressive than the typical business their size," says Donald S. Dowden, Zelco's New York City lawyer, who agrees with the Zellers that it is possible to establish a litigious reputation and scare off some potential rip-offs.

Often, though, the trick is learning who to sue. Which is why the Zellers employ a Chinese detective agency. Most Zelco products are manufactured in Hong Kong. So are many of the me-too book lights and fluorescent lanterns that steal precious market shares. Both Noel and Adele and their Hong Kong staff of 12 are too well known locally to venture into rival manufacturing plants snooping for knockoffs. "They would never let us or our buyers in their doors," says Adele, explaining how they count on private investigators, posing as customers, truck drivers, or stevedores, to locate the knockoff shops and their customers. Even then, fighting back can be filled with complications. "Taiwan doesn't recognize international patents," Noel emphasizes. "Say a company there knocks off your item. It may be shipping to 20 or 30 importers in the United States. You've got to sue each importer. They're like cockroaches. You step on one of them, another one jumps up."

Patents. Pride. Detectives. Lawyers. All are helpful, but to stay ahead of the competition, Zelco relies much more heavily on its offense, devoting upward of 12% of revenues to advertising and as much as 5% to 8% to research and development. "Our best defense is being aggressive in the marketplace and coming up with new products," says Noel. As tempting as it is to look for another big kill, the Zellers say "you can't hit a home run every time up." So they've decided to swing for singles -- let the extra base hits come as they may -- and run up the score slowly but steadily. Says Noel: "Eventually your line is big enough that people say, 'Give me 6 of this, 12 of that.' And you end up with lots of $400 to $600 orders." Already the Zelco line runs to about two dozen products, and at any given moment there are probably 5 in some stage of development. Although there are 30 U.S.-based employees, Noel alone is the research-and-development department.