Specialized v Volagi: open and shut lawsuit

Earlier this week, news broke that Specialized was embroiled in yet another lawsuit; this time, with near-neighbor Volagi bikes. Even 15 months after initial filing, the thrust of the case has not been exactly clear. Cycling iQ was eventually able to reach Volagi s co-founder, Robert Choi, for comment after a temporary gag order was lifted mid-week.

The thrust of the case may be hidden in here or not at all. (Image courtesy of Volagi)

Cycling iQ has only existed for four months, but this is the second time a lawsuit involving Specialized has featured here. Preferably, Choi s statements would be corroborated or corrected by Specialized, but the company has effectively shut down external communications on this case. The following is a transcript of an interview with Choi, recorded a few hours after today s court session ended.

What happened today in court?
I can talk in generalities. Yesterday, we got through picking the jury. As a comment to that, we had to pick 12 jurors out of 60 people and, for me to think that I did something wrong enough to require this amount of resources, it just seems so out of line.

So, today, we went through opening statements and the pre-trial procedures; motions to produce or eliminate potential evidence or testimony during the discovery period. You ve got to remember this has now been going on for a year and a half.

Have you been in contact with Easton Bell-Sports who were recently in litigation with Specialized to learn about what to expect?
Yeah, we did talk to their counsel a little bit.

What are Specialized s exact allegations against Volagi?
They initially claimed that I had in my possession some sales call reports , which I passed on to my wife, as she was joining our company (Volagi). I admit, I don t think that was the right thing to do looking back, but Specialized generated thousands of these call reports all the time; it was just a matter of trying to learn about the issues we might have when starting a new company. I realized oh, I shouldn t be doing this and I stopped it. But, they filed with the Court then went back to decide on what they could actually sue us for. Later on, they discovered I used the internal email systems to send a few notes to (Volagi) vendors, so they said I was using company resources. I also had a copy of a project plan that I was working on, which they said were trade secrets; I had nothing on carbon layup, specification or materials. They just say, your bike looks strikingly similar to our bike . Yeah, to a non-technical observer they all look the same.

What do you believe is Specialized s strategy?
I think they have in mind to put us out of business; that s one point. They ve spent millions in this lawsuit, I know that much. That action by itself and them demanding we stop production of our bikes and that they own our invention, the LongBow Flex stay they re doing whatever they can to stop us. I m not sure exactly what their motives are. They have their own in-house counsel and I think they thought they could scare us into giving up what we re doing. They sought for a preliminary injunction to stop us from moving forward and the court said no.

That was in June 2011?

Specialized filed the initial complaint on 22 October, 2010. What has been the sequence of events during that time?
I can give you a chronology. We gave our notice to leave the company on April 12, 2010. Contrary to what normally happens at Specialized to be courted straight out of there we were able to stay on for two more weeks. Both (co-owner) Barley Forsman and I gave our notice at the same time so we could leave to start our own bicycle business. I mean, we gave full disclosure to some degree, we actually told (Specialized), hey, we re going to start our own business . At that moment, we didn t tell them we were going to build a bike; we didn t even know that for certain, really. We had nothing but just a sketch a sketch and an idea.

What was your role at Specialized at the time?
I was managing alot of product lines, including things like bottles, cages, computers, pumps, grips; things you d call accessories. It was still a decent amount of the (overall) Specialized business.

How does Barley Forsman fit into the picture?
At the beginning, I was a Director at Bell-Easton at the time Bell-Sports after selling my VistaLite business. I sold VistaLite to Bell-Sports and moved out in 1994. Barley had just gone through extensive schooling in design, including fine arts and industrial design, when he came knocking on the door of Bell-Sports. I was a director of all branded accessories at the time. I hired Barley for what was basically a summer internship position and soon recognized he had a huge amount of talent. Pretty much right after the internship, I was recruited by Camelbak and relocated. At that time Camelbak was a small company and I thought we needed a really good designer to refine the product, so I hired Barley. He eventually became design manager at Camelbak, while I headed the product group.

We both worked for Camelbak for 10 years and did a tremendous amount of development while we were there. We helped invent the Big Bite Valve, the HydroLock, screw-top bladder and military hydration systems. Just before we left, we invented the better bottle ; the Podium bottle. Camelbak went through a huge amount of growth, then it was sold to a private equity firm. We both felt we made big improvements during that decade, but also felt that innovation was not appreciated (by the new owner); we thought there might be good opportunities if we joined Specialized. We happened to be hired by Specialized at the same time February 2008. Barley was as a design manager and I was product manager for hard goods in the equipment business; not clothing, helmets or shoes, but pretty much all the other categories including tyres at the time.

What was it about, specifically, that drew you towards Specialized?
I had known Mike Sinyard since when I started VistaLite in the late 1980 s; partly through the fact that Specialized was the first company, in a sense, to violate the patent I had for VistaLite. Is that ironic or what? I sent them a Cease and Desist letter, because they were one of the first companies to try to copy our flashing LED light. That s when I met Mike, through that incident. I wasn t able to stop them at the time; they were still a much bigger company

When did that happen?
I think around 1995.

Let s talk more about your relationship with Mike Sinyard and Specialized as a company
Over the years, before I started with Specialized, Mike asked me whether or not I d be interested in working for him. You know, Mike had a reputation; either you really love working for him, or things don t work out. Nobody could fault his passion for the business, but sometimes that passion and drive gets the best of him. I think he always tries to do what he thinks is right for Specialized, even if that means running over the competition. We say everything s fair in love and war for him, everything s fair when it comes to business.

He s been able to get through many difficult times himself and Specialized is now one of the biggest three companies in the world; if not knocking on second position. I think they were neck and neck with Trek at the time I left, approaching sales of USD800 million.

You previously mentioned a non-compete agreement. Is that an across-the-board requirement for everyone at Specialized?
Yeah. When you join Specialized you have to sign a non-compete, confidentiality document.

So you knew, that if you ever wanted to develop your own idea in the future, it could be possible Specialized would come after you?
Yeah, we recognized that. I wasn t in the bike group. If you read the fine points about the (non-compete) contract, it s about duty to Specialized what belongs to Specialized, belongs to Specialized. In California though, you can plan to compete as long as you re not violating trade secrets, Intellectual Property, know-how, etc. We didn t do any of that. All we had was a design, a concept, for what we thought was a better bike. In order for us to pursue it, we had to quit. On April 12, 2010, both Barley and I did that.

Between us, we already held 40 patents. When we told Specialized we were leaving and going into the bike business, they should have recognized we were probably going to be in competition. They allowed me to work for a while longer, and I actually wanted to finish one of the projects I was working on. Part of their lawsuit claims that I stayed on after I gave my resignation and behaved in an anti-competitive manner, while still being paid by Specialized.

I was hoping that Mike Sinyard would look favorably on me finishing a final project; instead I was given a lawsuit.

Did you have the opportunity to personally speak with Mike before you left Specialized?
To be fair, he did ask me about what I was doing before I left and I said, you know, I can t tell you, because it could potentially compete with what you re doing . I mean, tell me what you can do in the bike business that Specialized doesn t do; they re about in every category and aspect of cycling. There s no way that I can do anything that they re not part of.

Did he call you after you left?
No, after that, I wrote him a nice heartfelt letter; it s now in the court documents. It basically said I learnt a lot from you. Even though I m doing a bicycle I hope you wish me well to some degree. His business acumen was something I wanted to learn from. I had my own, somewhat successful, business before, but I never achieved the level of success Specialized had. I saw the drive and passion that Mike had, like nobody else, for his business and that spoke a lot to me.

When did you write that letter to him?
About a week before the Interbike show (September, 2010).

Do you think he is personally driving this litigation?
I think his feelings were hurt. We weren t buddy-buddy by any means, but we spoke about many things on a personal level. I felt I had a certain amount of rapport with him; maybe he felt betrayed. There are a certain number of people I d call lifers at Specialized. The turnover rate at Specialized is really high; it s a love or hate relationship there. Either you fit in and you re a rock star, or you don t feel like you re part of the team. That s the nature of the Specialized beast. Winning is everything at all costs; people don t care if you re run over.

Mike models his business philosophy, his business model and his measure of success similar to Steve Jobs did with Apple. Mike told me that personally; how much he admired Steve Jobs. Steve Jobs didn t care about anything but Apple, and Mike s the same; just don t get in his way of being the number one bike company in the world. He feels like he s got every moral right to stop anything that threatens to get in the way of that.

The first sketch that led to the final Volagi concept when was that completed?
That sketch was done on January 31st 2010. It was done at home a kind of back-of-the-napkin concept piece. It didn t have any paint or geometry, it was just taking a picture of a bike on side-view and mocking it up to create something visual and we ended up patenting the LongBow Flex stay. At the time we didn t even know if something like that could be patented. It was a novel idea, but I honestly didn t think it could be patented. A separated top tube and stuff like that had been done many times, but we came through with a very innovative idea where the top tube is connected to the seat tube only.

Was that sketch your own?
No, it was done by Barley.

Only a few months after leaving, you presented the first Volagi bike at Interbike.
September 14, 2010. We had to file for a patent before that of course, you can t disclose an invention without first filing it, if you want your work to be protected. We actually only had a rideable model a few days before Interbike; it was still many iterations away from the final product we have now. We got some reviews and very good press but it took a year until we shipped our first product.

For some bicycle brands, the development process for a new platform can take two years. You had alot of work to do get a product to Interbike in five months. Where were you able to compress time?
Between Barley and I, there is a tremendous amount of design experience. We re smart people. We knew the proven geometries; between us we own 35-40 bikes, including a dozen different carbon bikes. We knew exactly what we were looking for. The tricky part was realizing the LongBow concept in a way we wanted it to work. It was the first bike where you have suspension only when you sit.

Did you have difficulty selecting a manufacturing partner to produce the frames?
We found a company in China I d rather not disclose the company we re working with in one of the more popular carbon frame-producing regions. They re a small company that works with some of the other, more boutique, European brands; like Eddy Merckx and De Rosa. They re also building wheels for Ritchey, a bike for Focus and a 29er frame for Cube. It s a good selection because we re not overlapping with any of the big US-based bicycle brands.

Do you share any manufacturing partners with Specialized whatsoever?
There was no reason for us to work with any manufacturer that s doing any business with Specialized. We wanted to stay as clear of that as possible.

How many bikes has Volagi sold?
Probably 180 bikes; we went on sale in August 2011, so we ve been selling for about six months now.

How many bikes were sold internationally?
A few. I know we ve sold one into Australia, maybe one to UK, a couple into Canada. In Australia right now, we re working on opening our own office as a model for our international distribution. I feel very good about the prospect of us doing well in Australia. We have 18 dealers in California now; if we can open a dozen in Australia I think we ll be doing pretty well. That would be a great start.

In relative terms, there s more untapped potential in Asia. Will you go dealer direct there too?
We re looking at key markets, like Canada, Australia, UK. We ve had enquiries from Korea, Taiwan, Japan and Mainland China. Ideally, we want to be able to keep the retail prices reasonable. We want to find qualified representatives.

Are you producing to order, or forecasting?
We will obviously work with what each market needs. I have a pretty good idea about regional demographics and market size. For example, Canada and Australia are pretty similar.

How much is this lawsuit affecting you operationally? Because you re the figurehead, has spending time on this lawsuit delayed any plans you have?
Well, put it this way, we have invested as much money into this lawsuit as we have made from sales to date. That s significant. If we win this case, I think we can get back our legal fees; that would allow us to buy inventory, so we can ship across the water.

We feel good about our future but, of course, some plans are on hold during this case; this week is going to tell us everything we need. If we win, then honestly, challenges like selling a bike will feel trivial.

Any new platforms for MY2013 of MY2014?
I think we did really well in the first year; we made a high-performance road bike with so many breakthrough characteristics that hadn t been done, and we achieved the ride quality we were looking for.

Not only have we already put disc brakes on a high-performance road bike, but we ll also be one of the first to have a version which incorporates hydraulics and electronics all at the same time. Beyond that, there are many components that we want to improve on. We have our own wheel line coming out with a new hub design, and carbon wheelsets. We have plans at the Sea Otter to introduce a new line of bike as well.

How many product designers do you have?
I have a team of Barley Forsman. We are cloning him. You know Calvin and Hobbes and the Transmogrifer? One Calvin comes in one side and there s ten of him that comes out the other. That s one technology I won t give away at any price.

Is it only your money and Barley s in the company or do you have other investors?
No, there aren t any other investors; we haven t paid ourselves for a long time. With all the money we ve had to spend on defending ourselves in this lawsuit, we ve had to sell our homes and dip into retirement money.

I was sued, Barley was sued and the company was sued. We wear different hats all the time; from cleaning the bathroom, to fixing, packing, designing, testing and selling bikes. Between us, we do it all.

Do you feel supported by industry peers during this case?
There has been a tremendous amount of goodwill generated from this story being broken. Honestly, we didn t take this as a deliberate PR route; we just thought maybe the court of public opinion cares. There s nothing rewarding about being sued, but the amount of people supporting us has meant a lot.

We ve had some moral support along the way from major companies; maybe there s a future silver lining, in the sense that some kind of alliance can be had. The bikes we have are so expensive; to buy inventory and develop innovative things in this category is a really expensive endeavor.

Specialized seems to be keeping extremely quiet on this.
I don t think they ever thought this would get this far; they haven t thought about what it would be like, but now it s here. It s not good PR for them. A local TV station tried to interview Specialized one of the biggest employers in the Bay area and Specialized said; we don t talk about arbitration . We re not in arbitration! They re suing us, and telling us we need to give up everything we have.

We thought we had a better idea; this was to be the fulfillment of a dream. I think back to when I began developing accessories. I said to myself I ll never be in the bike business, everything s been done, it s hard to differentiate . Specialized almost sells one million bikes a year, or close to that; they can leverage their size in so many ways. They have everything; I can t imagine why they can t just beat us in the market place. Instead they choose to say this invention is theirs.

We re not proud of this lawsuit. We just want to have a fair shake in the market, instead of Specialized forcing us into bankruptcy because they can outspend us legally. That s really all they re doing.

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