David vs. Goliath?

Goliath isn’t quite the big, bad ogre he is made out to be, and perhaps David isn’t quite a chaste biblical hero, either

On the surface, the Specialized vs. Volagi case seemed like a case of an industry giant picking on an upstart brand. A closer look reveals that it’s not that simple.

While many details remain vague in the wake of the Specialized vs. Volagi lawsuit, a few things have become clear.

There’s no question the lawsuit put Volagi and the Liscio, its long-distance comfort road bike, more firmly on the map ― while also putting it in a substantial financial hole. To some, Volagi unfairly competed with Specialized. To others, “The Big Red S” came off looking like a bully, and it weathered damaging statements about its R&D department and litigation strategy by a former executive vice president in charge of products. The lawsuit may have thus been costlier for Specialized than for Volagi, even though two million dollars is a lot less money to the giant Morgan Hill firm than half a million is to Volagi.

But why did the lawsuit happen?

The claims

Acknowledging that, “nobody wins in these things,” Specialized founder and president Mike Sinyard explained that the company he founded in 1974 is like his family, and he felt compelled to file suit when he felt it had been injured.

“I was going to just let it go, but I couldn’t. We have this awesome company culture of teamwork and trust here, and when I saw how what they (Volagi co-founders and former Specialized employees Robert Choi and Barley Forsman) did affected the people working here, I had to do it (file suit).”

If for no other reason than the relative sizes of the two companies, struggles like this are often going to be looked at as David vs. Goliath, and Goliath isn’t generally perceived as the good guy.
To hammer home the Goliath image, the defense produced Sean Sullivan, a product manager at Specialized from 1994-1998 and director of equipment and marketing and executive vice president for product and global marketing from 2004-2007. (Not to be confused with Mavic USA’s marketing director Sean Sullivan.) Sullivan testified that, “Sinyard and Specialized have a pattern and practice of suing competitors” to “tie them up in court.”

In response, Sinyard told, “People can say anything. But I say, ‘show me all of these lawsuits.’ They’re not there.”

On the subject of the company’s history in court, former Specialized Chief Brand Officer Ben Capron, who worked for Specialized for 18 years and now works for National Interscholastic Cycling Association (NICA), said, “What Mike cares about first and foremost is riders, what riding can do for people and advancing that, the people at Specialized, and Specialized dealers. All of those constituencies are relying on Specialized to perform. He’s a very competitive business person, and that competitive nature and wanting to do right by those constituencies results in aggressive behavior sometimes.”

Rather than being about squelching competition, Sinyard said the case was a matter of principle.

“I wasn’t worried about that (Volagi) bike, and it was never about getting a lot of money from them,” he said. “It was about making a friggin’ point.”

Choi and Forsman see it differently – and Sinyard looks at what they claim as transparency in their dealing with the company as anything but.

Both quit in April 2010 but stayed on longer ― Forsman for a couple of weeks and Choi until the end of August. They told Sinyard and their immediate supervisors that they were starting a company in the bike industry and refused to reveal what the company was or would do. An email from Choi to Sinyard on the eve of the 2010 Interbike show, where the Volagi bike was unveiled, acknowledged that, “the bikes at Volagi do compete with Specialized.”

Two months before resigning, Forsman requested and received engineering drawings of the Roubaix, which is the Specialized bike that fills the niche closest to that of the Volagi. That same month (February 2010), the company put Choi on its test program of the unreleased 2011 Roubaix and gave him the bike to evaluate.

Also in February 2010, using his Specialized email address, Choi requested price and lead-time quotes on tooling charges on carbon frames and components from VIP, a Specialized carbon molding vendor, for a fictitious “Robert Volagi.”

Choi knew that Specialized had done a trademark search on the name “Venga” but was not using it; Volagi later used that for the original name of its bike, though Volagi changed the name to “Liscio” after Specialized objected to Venga. In May 2010, Choi emailed some Specialized sales documents (territory call reports) to other Volagi employees.

While both sides agree on these facts, they strongly disagree on the motivation behind them and whether or not they furthered Volagi. For instance, regarding the email to VIP introducing “Robert Volagi,” Choi said, “I didn’t want to present myself as a Specialized employee; I didn’t think that was right, and I didn’t want to get Specialized pricing. I didn’t go after any Specialized manufacturer making Specialized frames. VIP at the time was only doing carbon components for Specialized; they were just getting into carbon frames. I just asked for costs for molding.”

Sinyard found Choi’s explanation to be far-fetched and “insulting.”

All items taken from Specialized were returned, and while Choi and Forsman claim to have voluntarily pointed out their existence and then turned them over to the company, Sinyard claims that it took letters from company lawyers to get them back and that he only knew about them following a search of Choi’s company computer.

The result

Sinyard believes that Choi and Forsman copied design elements of the Roubaix and of an unreleased Tarmac model, including seatstays passing the seat tube, overall shape, and paint scheme. He also believes that the name Venga was deliberately chosen for being close to the Venge, the name of an aero road bike Specialized had in development.

At the end of a trial lasting almost two weeks, a jury in Santa Clara County Superior Court found that Choi had breached his employment contract with Specialized by working on a competing company while still employed there. The judge had disallowed most of Specialized’s claims against Volagi’s owners, including interference in a contract and theft of intellectual property over Volagi’s LongBow Flex frame design for which Volagi received a patent in May 2011.

According to Volagi co-founder Forsman, the judge threw those claims out because Specialized could not show that any intellectual property had been stolen, nor could it show that it had suffered any damages from such a theft, had it taken place. The judge’s decision left the jury to decide only on the matter of breach of contract against Choi and Forsman, and it found for Specialized only in the case of Choi with an 11-1 decision, awarding damages in the amount of one dollar.

Demonstrating theft of trade secrets is hard to prove in a case like this if the only evidence is the final product itself, since almost every feature found in any current bicycle has been around a time or two in the past 100-plus years.

While inspiration for the Volagi bike could have come from many possible sources, it certainly could also have come from within Specialized, whose design teams run, as Capron says, “more like a federation of small businesses” that freely share information with each other while simultaneously running as separate entities.

Sharing ideas and information freely within its walls is a great way to run a company bent on innovation, but it also means that any employee has access to varying company secrets. This leaves the company open to employees using resources gained within the company for personal gain outside of the company. On balance, is it better to run this risk or to tightly hold information within each division?

Consider Apple and Sony, a company Apple co-founder Steve Jobs had most admired. Apple is reputed to have an open environment within the company. In the early part of last decade Sony had an MP3 player and owned a major record label, but as illegal file sharing decimated the music industry, Sony’s music division didn’t communicate with its electronics division. Consequently, it was Apple, not Sony, which first created the iPod music player and then the iTunes store, and the rest is history.

While on the witness stand, Sinyard likened Specialized to Apple, something that was later used against him by defense attorney Charles J. Smith in his closing statement.

Evoking Lloyd Bentsen’s famous quote, “I served with Jack Kennedy, I knew Jack Kennedy, Jack Kennedy was a friend of mine. Senator, you’re no Jack Kennedy” from his 1988 vice presidential debate with Dan Quayle, Smith closed with, “We know Apple Computer, we’ve worked around Apple Computer, Michael Sinyard, you are no Steve Jobs.”

Sinyard didn’t appreciate the sentiment any more than Quayle had, and he explained why he chose the Apple comparison. “You come into this room with this jury that thinks one bicycle is the same as the next bicycle. But if that were true, none of us (in the bike industry) would be doing what we’re doing. So I said we were like Apple so they could understand what we do.”

The wrangling

Much earth was scorched during this lawsuit, and there is no shortage of hard feelings on both sides. Volagi lawyers employed what Specialized lawyers called an “unclean hands” defense in using Sullivan to testify that Specialized employed a team of engineers to reverse-engineer and copy competitors’ products, that the original Roubaix design was copied from a Seven bike and that the Roubaix name was chosen despite knowing that Fuji held the rights to it. Sullivan also contended that Specialized used its considerable pull in the industry by threatening its dealers, in attempts to stop them from selling certain competitors’ products, and threatening some of its vendors to keep them from making products of some competitors.

Sinyard dismisses this testimony as coming from a disgruntled former employee. Emails to Sullivan received no reply, and officials of Sullivan’s prior employer refused to comment on the record about him.

Capron told that everyone in the cycling industry is aware of what their competitors are doing, the same way Tour de France riders know their competitors’ strengths and weaknesses.

“But (the assertion that Specialized copies and reverse-engineers competitors’ products) is totally false,” Capron said. “The BG (Body Geometry) shoes developed with Andy Pruitt, the BG saddles developed with Roger Minkow, and the dual-density foam technology that make the Prevail such an awesome helmet all came from research at Specialized. The company, and Mike personally, invests heavily in that and pours the profits back into that; I’d be willing to bet that no one (in the bike industry) has a bigger R&D budget than Specialized.”

Up until the 2010 Interbike show, Specialized appears to have had good relations with Forsman and Choi. As late as June 24, 2010, two months after he’d left the company, Specialized paid Volagi $750 for six hours of design work by Forsman in creating a 3D CAD design for a Specialized Powerade water bottle. He claims that Specialized subsequently asked for some design work on a saddle, which he turned down, claiming he felt he already had too much on his plate.

Forsman and Choi also traveled together in Taiwan and China in May 2010 to line up suppliers and manufacturers for Volagi bikes. This is when they came to an agreement with X-Pace, a carbon vendor that does no business with Specialized, to build their bike as well as to assist them in its design. Choi began his trip to China on Specialized business and then continued the trip on Volagi business, reimbursing Specialized for his expenses during the Volagi-related part of the trip. He claims to have previously approved this with his supervisor, Eric Edgecumbe. Edgecumbe said otherwise.

“I did not know that Robert Choi was going to do anything other than work on his Specialized projects during his May trip in advance,” Edgecumbe said. “Robert disappeared on the trip for about three days; some Specialized employees came to me asking where he was because they had not been able to reach him for three days, and he usually was very reachable in Asia. It was really embarrassing to me. I brought this up with him after he returned and told him to reimburse the company for the non-Specialized expenses he (had) incurred.”

At the time, Choi was working under an April 23, 2010, agreement between him and Edgecumbe stipulating that he was only required to work on-premises at Specialized 20 of his agreed-upon 40 hours per week. As many of the infractions Specialized cited in Choi’s case occurred after their April 12, 2010, resignation date, he and Forsman felt that he was no longer under any contractual obligation to the company and believed that the jury might find him innocent of breach of contract as well.
Forsman claims that there was no cease-and-desist notice or any communication of the sort before being served with a lawsuit. “We thought it (the lawsuit) was a mistake,” he said, “and we thought we could clear it up. We were naïve in thinking that if we gave them everything they asked for, that they would stop. But in doing so, we gave them half of the information they used against us in the trial. I am one who believes that an employee should be loyal to their employer, and I was.”

Forsman claims that he did no design work on the Volagi bike beyond rough sketches while at Specialized, but that he and Choi did have to make some plans, including one by Choi to cover housing expenses of Forsman and his wife once he resigned.

“We believed that if we resigned from Specialized, we would be walked out the door the very same day so we knew that, if we were to resign, we would need to have a plan for the future in place,” Forsman said. “We discussed completing a display model of a bicycle in time for the annual Interbike show in September 2010.”

Choi said, “We had a harebrained idea of a company. We had a sketch of a bike and that was it. But we didn’t know it was actually going to happen and that the bike was even going to work. You can’t start a company with a sketch, and California law said that you can plan a business while working at another company.”

Sinyard felt that Choi and Forsman took advantage of him, his company, and his employees. “They started their company while they worked here,” he said, “and that’s bad form. They wanted to take our most popular product – the Roubaix – and they knew it was our most popular bike because they worked here.”

Capron said, “If it becomes okay for guys working at Specialized to take technology that others on the team worked so hard to develop, it’s not good. If Mike doesn’t (file suit), then it said to the others on the team that, ‘your blood, sweat and tears don’t matter, and I’m not going to defend it.’ Knowing Mike, I’d guess that was a big part of where this thing was coming from for him.”

Despite the fallout, Sinyard told, “If I had it to do over again, I would do it again.”

Somewhere between the hardened positions on either side is where the truth lies. Perhaps Goliath isn’t quite the big, bad ogre he is made out to be, and perhaps David isn’t quite a chaste biblical hero, either.