When web-hosting company CI Host bought ad space in 1999 on Evander Holyfield's trunks for his much-anticipated heavyweight title bout with Lennox Lewis, it said a lot about the Bedford, Texas-based company. The $100,000 scheme reflected the kinds of fresh ideas--both in technology and in marketing--that have made CI Host into an industry leader in the small- and mid-sized business market. But the ad also conveyed a strong message: Like Holyfield, CI Host is not to be messed with.
A barrage of lawsuits against everyone from former employees to Internet giant America Online is sending a similar signal about the company's legal department. Not surprisingly, a number of the targets of CI Host's lawsuits call the cases nothing more than bullying tactics. But whether this aggressive approach is a good business strategy is a matter of some debate. Some corporate labor and IP lawyers call it a wise way to protect the company; others call it a risky venture.
The Best Defense
Founded in 1995, CI Host offers individual consumers and businesses services ranging from domain-name registration to custom dedicated servers for e-commerce. With 190 employees, the company has built a customer base of more than 215,000 in close to 200 countries. CI Host's success led Deloitte & Touche to name it one of the fastest-growing technology companies in Texas in 2004. As the privately held company enters its 10th year in business, however, it's earning itself another kind of reputation.
The company's litigation strategy received some attention last fall when the Ft. Worth Star-Telegram published the article "For CI Host, Lawsuits Are Just Business." The Nov. 22, 2004, story counted 45 lawsuits filed since 1999 by the company in Tarrant County District Court alone.
CI Host Chief Corporate Counsel Hollis Godfrey, the company's one-man legal department, says this number doesn't alarm him.
"Given the size of our company and its position in the Web-hosting industry, I feel that the litigation is on par with our industry presence," he says.
Godfrey, who represented corporate clients at his own litigation practice in Dallas before arriving at CI Host in January 2004, says lawsuits have been a necessary component of the company's efforts to safeguard its assets.
For example, in 2002 CI Host sued former employee Amelia Kleymann, a Web- designer who left CI Host to go out on her own. In its complaint, the company claimed Kleymann had stolen customers in violation of a noncompete clause she had signed. A judge ruled in CI Host's favor last year.
Although he wasn't at the company when this suit was filed, Godfrey says such litigation is vital to making it clear to current and former employees alike that CI Host doesn't take violations of noncompete agreements lightly.
"This specific area of litigation is very important to our company," he said. "We
have zero tolerance for any former employee attempting to violate noncompete clauses. The company spends a great amount of resources to train employees in the industry. We do not want them to be able to freely jump from company to company with trade secrets, customers lists and other proprietary information."
Rachel Steely, a labor and employment partner with Gardere Wynne Sewell in Houston, says it's a good strategy for companies such as CI Host to enforce their noncompete agreements aggressively.
"Employees know whether they have a paper doll [for an employer]," she says. "With strong enforcement of noncompetes, a company is sending a message to its current employees that it stands by its agreements and that it is going to take seriously any kind of breach of these agreements. It's a good deterrent."
CI Host also has used lawsuits to try to deter people from damaging its image.
After spotting some negative remarks about CI Host in an online forum, the company sued Houston-based forum operator Everyone's Internet for allowing untruthful statements to be published on its site.
Noting that an online bulletin board operator isn't liable for the comments of third-party users of its site, a federal district court in Texas dismissed the case in February 2004 and ordered CI Host to pay attorneys' fees for Everyone's Internet. Despite the result, Godfrey defends the company's actions.
"Whenever anyone makes statements we believe constitute libel or slander to the company's name or presence, we use all legal measures to attempt to rectify the matter," he says.
Alan Greenspan, a litigation and intellectual property partner at Jackson Walker in Dallas, says chat rooms are, in fact, areas where people sometimes cross the line between free speech and libel. But he says giving such comments too much credence--through litigation or other avenues--has the potential to backfire.
"You can find yourself in a position where instead of deterring people, you run the risk of incurring the wrath of the Internet community," he says.
Of course, CI Host's record shows it's been willing to take risks that others might have shied away from.
Evidence of the company's fearlessness can be found in its lawsuit against America Online, which accuses the Internet provider of unfair competition, interference with contractual rights and defamation. Filed in Tarrant County District Court in 2003, the suit claims AOL illegally labeled the company a spammer and blocked CI Host's clients from sending e-mails to AOL customers for a period of two weeks. The litigation since has been moved to federal court and is still pending.
With discovery now complete, AOL spokesman Nicholas Graham said his company will continue to "defend [itself] vigorously" as the case moves forward.
"We do not believe there is a legal or factual basis for any of the claims," he says, noting that AOL has filed a motion asking the judge to dismiss the case altogether.
According to Peter Vogel, co-chair of the Internet and computer technology practice in Gardere's Dallas office, such cases can drag on at a considerable cost to both parties in the suit, which presents a real risk for the David in a David-and-Goliath scenario.
"Big companies such as AOL and Microsoft are sued all the time and are unlikely to just roll over," Vogel says.
But ultimately, Godfrey says the company cannot afford to ignore threats to its business--whether they be from employees with few resources to defend themselves or large corporations with deep pockets.
"Our strength is the total approach to the needs of the industry we serve and protecting that position," he says. "A complacent company is doomed to failure."