How I fought off an intellectual property battle

Vanessa Garrard left a comfortable position in the consumer electronics industry to start E3 Style with Jillbert Mulder and Richard Chen. After putting in $10,000 each, the company has made a significant stake in the industry in just four years and expects $14 million revenue for 2009-10.

But the business was threatened when the trio’s previous employer hit them with a lawsuit for alleged intellectual property theft. Faced with product delays and no legal experience, Garrard says the company had to figure out a way to combat the claim.

Garrard says the business was able to keep moving by maintaining strong relationships with buyers even when the legal fight became personal. Staying professional, she says, can make a huge difference in a legal battle.

How has the business performed over the past 12 months?

We’re 28 days from launching our Hong Kong company, we’re launching over 150 products to take over there, which is great.

We’ve always had a plan for international expansion, and now the time is right. Revenue wise, we’re looking at $14 million for the Australian business, and we think we’ll turn over $20 million for the international business.

You started E3 after leaving another company. What happened?

The other founders and I decided to leave and start our own company. We decided we could do it well, and then we each put up $10,000 to start the business, and then things went on from there. We moved on to signing up major retailers.

When were you contacted about their IP concerns?

We were contacted about three months after we left. They didn’t care about the other two founders, but they were upset that I had left. The other two had left before that, and there was no problem. But when I left there was a problem because I was in a sales position, and it was taken very personally.

How did they approach you?

There was a phone call to us, saying that we were going to be sued, we should wait for the lawyers and that the business would throw everything they had at them financially to keep the case going. The allegation was that we had stolen the business plan and there was an issue around the name of the business.

They were basically saying that we had taken their intellectual property. They said they would do whatever they had to do to keep the case going.

Did they take any other action against you?

They went on a witch hunt, essentially, and looked through all our hard drives from the business to try and discover any documents related to any activity, whether we had started the name E3 while working there and so on. Of course, we hadn’t, but that was the allegation. There was an allegation around the business model and that we had stolen it as well, and they examined for evidence around that.

How did you respond?

We had to figure out what we could do to respond to all of this. It was actually quite easy, we went to solicitors because we didn’t have any, and they explained it all to us. The whole case surrounded restraint of trade. Although we had signed contracts at the previous employer, they couldn’t stop us from working in an area that we had always worked in. So it was just a matter of being explained all that… but we were very quick to get representation and as we had done everything right, nothing was wrong.

We all had executive positions, and we had signed documents saying we wouldn’t – except for Richard as he was in a different type of role. But it was really grasping at straws.

And then he offered you a settlement, is that right?

They knew it wasn’t going to go anywhere. So what happened was that they took three of us aside and said, we’ll write you a cheque. He offered us some money to settle, but he said we would need to walk away from the industry for two years. Of course it was never even worth contemplating, and they had nothing to stand on.

No one works like that. We’re not stupid, we knew our turnover and the amount that was offered was lower than our first sale.

How did they respond to your rejection of the offer?

What actually happened then was that I was going for a major contract with Dick Smith. They found out and took it really personally. In meetings with Dick Smith they were talking about us and trying to undermine us and the business. They said to people, undercut them. But the buyers knew us well and we had good relationships with them and they told us what was going on.

This also came when you were having an expensive first year, is that right?

Yes, during that time there were some costs. We couldn’t get financing, and there was a lot of lag time between sales and actually receiving revenue. And then on top of that, we had $30,000 in legal fees that we had to scrounge up.

What did you learn from the experience?

It got very personal, and I don’t think there’s anything we could have done to change that. But I think the thing I learned was to maintain good relationships with everyone. We left the company amicably, we let them know everything up front and were completely reasonable the entire time. Stay professional, is what I would suggest. We did nothing wrong, knew our legal position well in terms of our previous employment and did everything above-board – it makes it so much easier.

I mentioned the company was bad-mouthing us to others, but we didn’t do that. We stayed professional at all times, and in the end, that got us our contracts with those retail stores. I see other people in the industry bad-mouthing others and I disagree, because you should stay professional and you’ll end up doing better in your business. It’s just good business practice.