How CEOs Can Navigate Legal Challenges

In positions of leadership we’re bound to be confronted by the unknown; it comes with the territory.  From an early experience as a prosecution witness in an SIPC lawsuit, I vowed never to permit the same ‘unknown’ to provoke the same ‘wired’ response in me, for if it did, I would have learned nothing. If I was to be stress challenged again it would be at a higher and more complicated level than anything I’ve encountered before. Years later a company I managed was sued for patent infringement; the litigious process was a new experience for most of our team. Having ‘been there/done that’ helped me effectively navigate through the threat.

The company had been founded based on intellectual property and most recently had reenergized its product development efforts. One such product crossed the line in that it went directly at a billion dollar competitor’s core market whereas up to that point we had competed only on their fringe.  In the course of filing for a patent on that product our attorney reminded us that we may be able to get patent infringement insurance.  Our CFO researched the possibility and though the premium was a burden, he championed the ‘investment.’ A good decision indeed!

Shortly after our product was launched the billion dollar competitor called and asked to visit us.  ‘Sure, come anytime’…and they did.  In the meeting were two from their company, one being the CEO, and two from ours.  Their stated purpose was to tell us how much they admired the company and that they’d like to purchase us and make us the flagship of their enterprise. Our lead shareholder who attended the meeting with me responded that he’d grown attached to the place and it wasn’t for sale.  With that the CEO of the competitor stood up, shook our hands and advised that his next step was to meet with his attorneys and begin the process of suing us for patent infringement and…he did just that.

Commemorating this experience isn’t about how the litigation proceeded or even the outcome but rather how we survived through it.  We were being sued by a company at least 20 times our size and fear was an emotion we could not allow to overtake us. While we were confident of our position; we were not certain we would prevail. Some of the things we did laid the groundwork for management of any future legal challenges.  To note but a few, we

• Limited participation on a need-to-know basis, in our case, four members of the executive team, the board and the attorneys.

• Restricted adversarial communications – our CFO was the primary contact with the attorneys, the attorneys with their counterparts and I with the competitor’s CEO.

• Thoroughly prepped those who may be deposed and/or called to testify.

• Kept our eye on the ball. Matters like these can be a distraction from participants’ day-to-day responsibilities.

• Put any contemporaneous written notes and communications under attorney client privilege where possible.

• Watched for signs of stress in the participants. If the experience is a ‘first,’ share what you may have been through or find others who can.

• Stayed connected. Our four participants spoke frequently with and supported each other.  Though it may have felt like it from time to time, no one stood alone; we had each other’s back.

In this case, we prevailed…in more ways than one might imagine!

Focus on managing the process as if you were an outsider looking in; harder to do but far more effective than being so immersed that your focus is that of an insider looking out.

Lesson learned.

Fred Engelfried: Fred Engelfried is Director/Chair of North Coast Holdings, Inc. and its subsidiary Lewis Tree Service, Inc. He has been a member of the board of directors of Lewis for over 20 years, and for 10 years prior to that worked with the company intermittently in various consulting capacities. He also is President of Market Sense Inc., a participative management firm that has served more than 100 regional clients over 35 years.