Reference no: EM132224502

To Sue or Not to Sue

Jonathan Hoffman got an unpleasant surprise on a routine shopping outing. An employee had seen books and flash cards in a local Target that looked suspiciously like those made by his company, School Zone Publishing. Unfortunately, his employee was correct. The composition, fonts, language, and concepts screamed copycat. He turned a book over and it all made sense—the competing publisher was Dogs in Hats.

Peter Alfini started Dogs in Hats just two months before, after resigning as School Zone’s vice president of national sales and marketing. As if to pour salt in Hoffman’s wounds, Alfini had taken two former School Zone designers with him to Dogs in Hats. Now the competing workbooks and flash cards were beside Hoffman’s on the shelves of School Zone’s largest customer. Target accounted for about 10 percent of School Zone’s sales.

Alfini claims that all of Dogs in Hats products came from his own ideas and resources. He had worked in educational publishing for more than a decade before joining School Zone. But Hoffman could not believe that Alfini had used what he learned at School Zone from product design and marketing to equipment and contacts to launch Dogs in Hats. Hoffman was infuriated.

Hoffman called an emergency meeting of his executive team—which includes his mother, Joan, the company’s president and co-founder, and his sister, Jennifer Dexter, the vice president of design and development—and his attorney. They analyzed Alfini’s products spread across the table. In one example, a School Zone alphabet flash card featured a drawing of a blond girl in pigtails with green bows and a yellow shirt collar and with a blue capital G on the card’s flip side. A Dogs in Hats alphabet flash card was nearly identical, except for the girl’s hair color, which was brown. They all reached the same conclusion: School Zone’s intellectual property had been stolen. The executive team had little choice but to take Dogs in Hats to court.

Summer sales data confirmed Hoffman’s worst fears. School Zone revenue fell by 23 percent over one six-week period, when Dogs in Hats products were side by side at Target. Hoffman became a man obsessed with preparing the legal case against Alfini. When he suspected one of his salespeople of passing company information to Alfini, he didn’t know who he could trust. In contrast to his normal management style, he limited access to the copy room and banned employees from the office on weekends and after hours. But he was doing what he had to do.

School Zone filed a complaint in federal district court in western Michigan listing 84 allegations against Dogs in Hats. Hoffman was seeking payment for damages and attorneys’ fees. Furthermore, he was demanding that Alfini destroy all materials that infringed on School Zone’s copyrighted and trademarked material. In Dogs in Hats’ response to the complaint, Alfini denied most of the allegations, conceding only that he had hired former employees of School Zone and had reentered School Zone’s property after resigning.

The extensive discovery process lasted for more than two years. School Zone had spent close to $200,000 on legal filings and attorneys’ fees. Joan Hoffman and Dexter were begging Hoffman to drop the case. But Jonathan was haunted by the thought of what his father would have done. Hoffman’s father Jim started School Zone in 1979 and had passed away a few months before the Alfini affair began. “Jim Hoffman would have fire in his eyes,” his son believed. The company’s attorneys had warned that if School Zone did not defend its marks now, it would be increasingly more difficult to do so in the future. So Hoffman wouldn’t drop the case.

A judge magistrate sent the parties into mediation. Neither side should have been surprised; western Michigan courts regularly seek alternative means of resolving disputes over litigation. But Hoffman now faced a dilemma: whether to compromise via mediation and put an end to the case or to hold out for a shot at total victory in court.

1. Hoffman’s gut told him to litigate aggressively. But do you think that was a smart move?

2. Should he settle? Or should he press his case before a judge?