Telxon Sues MSI Data for Alleged Bribe : Competitor Seeks $100 Million, Claims Firm Bought Secrets
MSI Data Corp., already suffering from sagging sales and earnings, was sued for $100 million Monday by its major competitor, which accused the Costa Mesa company of using bribery to obtain trade secrets.
In the suit, Akron, Ohio-based Telxon Corp. charged that MSI paid a former employee in Telxon’s London office $24,000 for customer lists, marketing strategies and pricing schedules for its European operations. The suit, details of which were provided by a Telxon official, further alleges that MSI then distributed the sensitive information throughout its own European offices.
MSI officials in Costa Mesa declined to comment on the suit, which was filed in federal court in Cleveland, saying that they had not yet seen a copy of it.
Whatever its outcome, the suit comes at a time when MSI can little afford to have its attention distracted from its struggle to stay atop its market. The company manufactures hand-held data-collection devices originally made popular by supermarkets for tracking inventory.
Market Share Slipping
During the last several years, MSI has seen its dominance of the market that it pioneered 18 years ago slip away to faster-charging Telxon, which is close to surpassing MSI in annual sales this year for the first time.
Although MSI has moved during the last several months to shore up operations, recent developments have not been encouraging. Just last week, MSI announced that it had indefinitely suspended its quarterly dividend of 10 cents per share in order to conserve cash for continuing operations. Earlier last month, the company reported that earnings for the first nine months of its fiscal year tumbled 80% from year-ago levels.
“The suit couldn’t come at a worse time for MSI,” noted E. Gray Glass, an analyst with Kidder, Peabody & Co. in New York. “At best it’s a black eye for the company; at worst they’d have to settle, and I don’t know if they have the resources to do that.”
Eugene A. Novak, Telxon’s vice president and chief financial officer, said details of the alleged bribe were brought to his company’s attention last month by a former employee of MSI who claimed to have direct knowledge of the reported payoff.
Novak also claimed that the unidentified MSI employees participating in the alleged bribe were acting with the full knowledge of at least some of their superiors, both in Europe and at the company’s headquarters in Costa Mesa.
“We allege a conspiracy,” Novak said. “We’re not sure who at MSI had knowledge of it, but we believe individuals in executive positions in Europe and at headquarters had knowledge of it before the fact.”
According to the suit, Carl J. Brandt, who had been dismissed last December as Telxon’s director of European marketing and sales, apparently was paid $24,000 to provide MSI with internal documents from Telxon. The incident reportedly occurred in late December.
Also Named in Suit
Brandt, a resident of Schiphol, the Netherlands, was also named as a defendant in the suit.
The suit said that Telxon persuaded a London court to issue an order Feb. 22 blocking MSI and its English subsidiary from destroying, divulging or using any Telxon documents. Telxon officials said MSI was also ordered to return the disputed documents.
