X-It & Kiddle

What are X-IT’s strongest claims against Kidde?

X-IT’s strongest claims are the breach of confidentiality agreements (and then misappropriation of X-IT’s trade secrets) and copyright infringement. As shown in Exhibit 4 in the case study, Walter Kidde agreed to use the pending patent information provided by X-IT only to: evaluate the potential transaction, limit it to personnel involved in the transaction (this includes outside advisors), all personnel involved will keep it a secret, and they must return the information upon X-IT’s request.

Kidde’s copyright infringement would carry significant weight. In fact, when Kidde released its version of the ladder, they neglected to even change the packaging that featured DiBelardino’s children. In essence, Kidde was attempting to use the same packaging to fool customers into thinking that it was the same product provided by X-IT, which was not the case.

In addition, Kidde had agreed to use the information only for evaluation purposes. Instead, they utiliztied the information to determine if there was a small design change to the system that they could make that might provide enough justification that they would not be infringing the claims of the pending patent. While Kidde’s use of an outside advisor was not prohibited, his actions and analysis were, resulting in misappropriation of X-IT’s trade secrets. The infringement of the agreement would have to be handled through the North Carolina courts.

What are the pros and cons of suing Kidde?

The pros of suing Kidde would be that X-IT has sufficient documentation and testimony to argue in court that Kidde committed multiple intellectual property infringements against them. The confidentiality agreement, coupled with the copyright infringements and false advertising, have enough credence to win the court case. At the time, X-IT was in a unhealthy financial situation, and the influx of funds for the damages caused by Kidde to X-IT should they won could save the company from bankruptncy.

However, the major detterent to suing Kidde would be the extraordinary legal fees that would need to be paid to compete against Kidde. Kidde had over $2 billion in revenues, and could easily divert funds to cover all legal and attorney fees, while the cash-strapped X-IT might not have the necessary funding to do so. However, X-IT would have to rely on investors and stopping product development to do so. If you were Aldo DiBelardino, what would you do?

I believe the first step is to talk to an attorney to get an initial analysis of the facts and current data to determine whether they believe there is precedence for this type of matter and a possibility of winning the case. In addition, a meeting would need to be held with the investors and board of directors at X-IT to gain support and reach an agreement on the course of action to be taken. If a business case was made that, although risky, a chance at winning a case of intellectual property infringement against Kidde is feasible, the investors might be willing to support it for long-term gains in the future.

Especially with the copyright infringement and use of packaging, it is clear that Kidde attempted to take advantage of X-IT and bully them out of the marketplace. I would pursue the option of suing Kidde.

If you were an outside investor in X-IT, would you fund a lawsuit? Why or why not?

Whether the case would be funded would highly depend on the business case presented and whether it would be feasible to pursue a lawsuit and win. As an investor, I would also suggest the path of attempting to secure royalty rates with Kidde, utilizing as a negotiating tactic that X-IT would proceed to file suit against Kidde. However, given the history of Kidde’s interactions with X-IT in the past, it is hard to imagine Kidde giving credence to X-IT attempting to file suit and would most likely ignore them. As long as a plan was carefully devised, addressed all the risks of filing a lawsuit, and could be financially supported by enough individuals to cover the legal fees, I would fund a lawsuit.