SAN JOSE, CA (BRAIN)—A classic David vs. Goliath storyline might be Volagi's best defense against Specialized's lawsuit - at least in the court of public opinion. But to the eyes of a jury Volagi's best hope may lie in a state labor law put into play in the multi-million dollar battle between Mattel's Barbie and her saucy rivals, the Bratz dolls.
In Santa Clara Superior Court, Specialized is charging that Volagi's co-founders broke their employment contracts by starting a competing brand while still working for the Morgan Hill firm. Specialized also claims the contracts give it rights to any designs the pair came up with while working there, including Volagi's patented Longbow seat stays.
Specialized has declined to comment on the case, saying its policy is to not discuss ongoing legal matters. Volagi co-founder Robert Choi spoke with BRAIN and other media earlier this week and then, in an email, declined to be interviewed again at least until the jury was seated, citing "a gag order requested by Specialized."
Choi and co-founder Barley Forsman dispute whether they started work on the new company while still in the employ of Specialized. They also point out that neither worked in Specialized's bike design department.
But their best hope might be California Labor Code 2870(a), which gives workers the right to inventions they develop on their own time, under certain conditions.
In 2010, a California appeals court ruled that Barbie's manufacturer, Mattel, had no rights to the Bratz doll designs, even though Bratz was founded by a Mattel designer who worked on the new dolls on his own time. The designer had a contract with Mattel similar to the one Choi and Forsman signed with Specialized, according to a brief Volagi's attorneys filed with the court.
There is an ample supply of legal rhetoric in Volagi's brief and the one filed by Specialized. Volagi's seeks to portray Specialized and its founder and president, Mike Sinyard, as a bullying "notorious copycat."
"This case has nothing to do with unfair competition, breach of contract or misappropriation of trade secrets," the Volagi brief begins. "Instead it represents merely the latest sordid chapter in the competition-through-litigation modus operandi of one of the worlds largest bicycle companies to stifle competition by a very small but innovative and resourceful startup that had the audacity, the will, the capability and the perseverance to build a superior bike."
Volagi also filed an affidavit from former Specialized product manager and executive vice president Sean Sullivan, who recounted several alleged instances of Specialized's bullying behavior and litigious tactics. (Specialized denies Sullivan's claims and says they are irrelevant to the case.)
The mysterious 'Robert Volagi'
According to its own brief, Specialized has spent $1.5 million in legal fees on the suit so far (Volagi has spent about $350,000). Its attorneys also fired up their rhetoric machine for a pretrial brief. They recounted an amusing but probably legally irrelevant tale about how Choi created an email alter ego, "Robert Volagi." The ersatz Mr. Volagi would communicate with potential Volagi vendors while Choi was still employed by Specialized.
In one exchange cited by Specialized, Choi helpfully introduced a potential vendor to Robert Volagi, via email.
More seriously, Specialized is making four claims against Volagi, Choi and Forsman:
- 1. Breach of contract Specialized alleges the pair violated a contract clause in which they promised not to "directly or indirectly participate in or assist any other person, organization, business, or demonstrably anticipated business which is a current or potential supplier, customer or competitor of the Company."
Specialized also claims the pair broke a contract clause barring them from revealing confidential company information.
The contract defined confidential information" as "all information related to any aspect of Specialized's business which is either information not known by actual or potential competitors of the company or is proprietary information of the company, whether of a technical nature or otherwise."
Choi does not dispute that he forwarded his wife, Volagi customer relations manager Karen Choi, about 30 of Specialized's sales force's call reports, which contain information about current and potential dealers. But Choi denies that Volagi made use of the reports, which he says in any case were out of date. He later returned the reports to Specialized and destroyed his copies.
Choi also does not dispute that he emailed a copy of Specialized's 2012 Product Plan to his Volagi email account while in Asia on Specialized business in May 2010. But Choi says he only sent it to his Volagi account because he was having trouble accessing his Specialized account and needed to have access to the file in Asia. He says the information in the file was not related to any product that Volagi sells and that he later returned it to Specialized and destroyed his copy.
- 2. Theft of trade secrets Besides the breach of contract charge, Specialized says Choi and Forsman broke California's Civil Code by stealing trade secrets.
- 3. Contract interference Specialized alleges that Choi intentionally interfered in Forsman's contract with Specialized. Choi bankrolled the Volagi startup and offered to pay Forsman a salary if he would leave Specialized.
"Choi knew and intended ... that his collaboration, encouragement and offer to compensate Forsman for his work at Volagi would induce him to develop Volagi and the Volagi bike in breach of his employment agreement with Specialized," Specialized's lawyers wrote.
Volagi's lawyers say they will show there was no breach of contract, so a claim of contractual interference is "ludicrous," "utterly irrational and factually unsupported."
- 4. Fraudulent business acts Specialized alleges Volagi, Choi and Forsman violated California's Business and Professions Codes prohibiting unfair and fraudulent business acts.
Specialized is looking for reimbursement of its legal fees and a royalty on sales of Volagi bikes, as well as unspecified monetary awards associated with each of its four claims.Volagi's lawyers note that Specialized has not identified any actual damages beyond legal fees in a case that they filed themselves. That could turn out to be a significant point at trial as several of the charges Specialized makes, including breach of contract, are only claims if the plaintiff can show actual damages.
Volagi's attorneys say they are confident they will "prevail both at trial and in the marketplace," and promise to seek to recover their legal fees and other damages from Specialized after winning the case.
The trial is expected to last about two weeks.