The Explainer: A dollar and a dream
Here’s one legal fight from which no winners emerged … unless you count the guys in pin-striped Italian suits.
Over the past few weeks I’ve received a number of emails – including a fair share of them from ol’ Padraig himself – asking for my thoughts on the now-completed battle between Specialized and the upstart bicycle company, Volagi.
I’ve been reluctant for a lot of reasons. Yeah, I’m a bike geek and yeah I’m a lawyer (but not a patent lawyer, by any stretch) … but I just hate watching these things unfold. Over the years, I’ve reported on more than my fair share of patent fights, allegations of intellectual property theft and classic pissin’ matches over bike, wheel and component designs. I’ve never enjoyed it. Emotions run high (people make their living from this stuff, after all), the issues are often esoteric and, when it comes to bicycle designs these days, we’re really fighting over a dime-sized area on the fifty-yard-line of human ingenuity. The issues can lead to big fights over small variations. Such was the case in Specialized v. Volagi, et. al., but it did offer up some interesting issues and I’ll try to touch on a few of them.
For those of you have missed the outcome, let me first mention that the lawyers over at Specialized scored a huge win in court yesterday – at least according to the prepared statement issued by the company, following Friday’s verdict – in that a Santa Clara County jury found that Volagi co-founder, Robert Choi, had breached a contract with his former employer. Yup, they ruled in favor of Specialized and awarded the company the princely sum of (drum roll, please) $1. Nope, that’s not a typo. That’s 100 pennies … in case you thought I’d forgotten to add the word “million” to that figure. (For you Leon Uris fans, think “QB VII.”)
So, what is all this fuss about?
How did two guys – Choi and his business partner Barley Forsman – who had just started a little bike company get into a legal battle with one of the world’s biggest bike companies?
Well, to start, both men used to work for said big bike company. That’s about all the parties who appeared in Santa Clara County Superior Court agreed upon. Everything else, from that point forward, was pretty much in dispute.
To hear Choi and Forsman tell it, they had – outside of their normal daily duties as Specialized employees – come up with an idea for a bike, a bike that no one, including Specialized, was producing at the time. So, back in 2009, the two left their jobs and set up shop as Volagi, right there in Morgan Hill, home of their former employer.
They filed for – and received – a patent (US D637,527 S) for a relatively unique (but not entirely unprecedented) design, which incorporated a bike’s top tube into a “LongBow” that included the two seat stays. The resulting bike, the disc-brake-equipped “Liscio,” received a terrific critical reception in the bike press. Sales were brisk, especially for a new start-up.
But wait! Specialized claims the idea was theirs and that the two had scampered away with an idea that had been developed while Choi and Forsman were employed by the company. The company claimed that the two men had violated the non-compete clause of their employment contracts and that they had engaged in the theft of intellectual property. The company’s attorneys filed suit, demanding that ownership of the idea should revert to Specialized and that Volagi be ordered to pay a royalty on bikes they had already sold and any bike the sell in the future if it’s based on the LongBow Flex patent.
Whose bike is it, anyway?
Specialized asserted that the Liscio was really just a variation on a theme already solidly established by its own “Roubaix” model and that Volagi was simply established to compete directly against the larger company’s most significant source of revenue.
Indeed, there are similarities and they essentially designed to meet similar demands, namely for a comfortable, but high-performance, road bike. My own gut reaction, though, is that’s where the similarity ends.
What Specialized had to prove, in order to win on the intellectual property theft claim, was that the basic concept behind Volagi’s LongBow Flex design had originated at Specialized. They didn’t succeed at that one.
During arguments, lawyers from both sides pretty much turned the court room into a high-end bike shop, parading 25 bikes of various designs in front of the jury. Included, too, was a discussion of precisely where it was that Specialized – particularly company president Mike Sinyard – got the inspiration for the Roubaix.
The defense offered testimony that Sinyard came up with the idea only after seeing the custom-built Seven Cycles bike ridden by a former employee. Indeed, the similarities between the Roubaix, the Seven and other bikes available on the market were greater than they were to Volagi’s Liscio.
Court room observers suggest that the jury was impressed by that testimony, but we’ll never know how impressed. The whole question of intellectual property – and some of the contract claims – were thrown out by the presiding judge before the case ever reached the jury.
When it all came down to it, the only issues to be weighed by the jury of six men and six women were the two breach-of-contract claims against Choi and Forsman, for having violated the non-compete clauses of their employment contracts.
The promise not to compete isn’t a promise to starve
So what the jury had to weigh was whether either one of the former Specialized employees had breached the non-compete clauses of their contracts.
While the non-compete clause in employment contracts is enforceable, even if it is violated, the case isn’t always a slam dunk in most jurisdictions. There is often an over-riding “public policy” concern that traces its roots all the way back to British Common Law, namely that a worker’s former employment really shouldn’t constrain his ability to earn a living after he leaves a company.
If that is carefully viewed in most jurisdictions around the U.S., the standard is even higher in California, where this case was heard.
In 1872, California enacted a law (California Civil Code §16600) banning the inclusion of non-compete clauses in employment contracts, except in the narrowest of circumstances. While many have argued that the 19th century statute is inappropriate in a 21st century economy, driven by invention and innovation, California courts have repeatedly upheld the law, most notably in two recent cases, Google Inc. and Kai-Fu Lee v. Microsoft Corporation, 415 F.Supp.2d 1018 (2005) and Edwards v. Arthur Andersen, LLP, 44 Cal.4th 937 (2008).
In Edwards the California Supreme Court upheld the statute because “ “the law protects Californians and ensures `that every citizen shall retain the right to pursue any lawful employment and enterprise of their choice.’”
Despite that strong affirmation of §16600, the lone issue presented to the jury in Specialized was precisely that, a breach of the non-compete clause in a California contract. I have to admit, I wasn’t there, but given the statute and the applicable case law, I am still wondering why the court didn’t toss that last issue along with the others. Nonetheless, it went to the jury.
The jury found that Choi had violated that provision of his contract, but didn’t reach the same conclusion when it came to Forsman. After finding that Choi had breached, the jury then had to wrestle with the question of damages … the actual cost to Specialized by Choi’s violation of that provision.
A smart move by the big guys?
Calculating damages didn’t take long and this is where Specialized probably faced an uphill battle anyway. No matter how you look at this case, the minute you put a multi-million-dollar corporation up against a couple of guys trying to make it on their own with a small start-up, the case suddenly transforms from Specialized v. Volagi into the far more difficult case of David v. Goliath, Valley of Elah, 1 Samuel, chapter 17, (1025 BC), and we all know how that one turned out for the big guy.
Juries composed of regular folk tend to sympathize with the little guy. They sure did here. Choi has to pay a buck to Specialized, which will cover about two or three seconds’ worth of the legal services the company had to pay in order to pursue this case. (Had the award been substantial, I frankly think it could have been shot down on appeal.)
According to court records, Specialized spent at least $1.5 million dollars in legal fees in this case. The guys at Volagi had to mortgage their homes and have spent far more than they have ever earned from their bikes just to fight this thing.
Frankly, it should have never gone beyond the usual bluff-and-bluster cease-and-desist letters lawyers send out as a matter of course. This is a case that should have been settled long before anyone even paid a filing fee to the clerk of the court. (It is, by the way, worth clicking on that ‘cease and desist‘ link, if you need a laugh.)
I am not sure whose decision it was to pursue the case beyond that, but even without the benefit of hindsight, it’s pretty obvious it was a dumb call.
Indeed, the only thing worse would be if Forsman follows up on his threat to file a frivolous lawsuit claim against his former employer.
Don’t do it. Take a deeeeep breath. Put the lawyers down (they’re dangerous and expensive). Step away slowly and think about your next step.
I think it’s time to shut up and ride.
The Explainer is now a weekly feature on Red Kite Prayer. If you have a question related to the sport of cycling, doping or the legal issues faced by cyclists of all stripes, feel free to send it directly to The Explainer at Charles@Pelkey.com. PLEASE NOTE: Understand that reading the information contained here does not mean you have established an attorney-client relationship with attorney Charles Pelkey. Readers of this column should not act upon any information contained therein without first seeking the advice of qualified legal counsel licensed to practice in your jurisdiction.