Nicklaus: Marcone Supply suit alleges corporate espionage
When Marcone Supply bought a competitor last year, it looked
like the sort of low-risk deal that happens all the time in
unglamorous industries like appliance parts.
Marcone, a 79-year-old parts distributor in Creve Coeur, was
already No. 1 in its industry. Several previous acquisitions had
extended its geographic reach, and buying Buffalo-based AP Wagner
would solidify its position in the Northeast.
A few months after the deal closed, however, Marcone noticed
that many of Wagner’s best customers were no longer placing orders.
A few months after that, Marcone filed a lawsuit accusing two
former employees and a competing company, Detroit-based 1st Source
Servall, of corporate espionage.
Parts of the case, a court document says, would be “appropriate
for a John LeCarré novel.” The suit alleges that one of the
ex-employees tried to destroy evidence of his theft by crushing
memory sticks in a vise and taking a hammer to a hard drive.
LeCarré’s spies, no doubt, would find more creative ways of
covering their tracks. But the novelist might not have imagined
that something as prosaic as a customer list could be at the center
of a high-stakes dispute.
The trouble, Marcone Vice President David Ganz says, is that the
list contains much more than names and addresses. It had data on
past orders, pricing and credit history.
Somebody with access to that data could quickly set up a
competing operation and grab Marcone’s best customers. And that,
the lawsuit alleges, is just what Servall did.
The Detroit company, which didn’t have much presence in the
Northeast before, hired Karl Rosenhahn and Mark Creighton, the two
former Wagner executives who are co-defendants in Marcone’s suit.
After they began using the list, Ganz says, Marcone identified 640
customers whose orders dried up. The loss of sales, he says,
amounted to $12 million last year.
Marcone’s suit doesn’t specify a damage amount, and no trial
date has been set. New York Justice John Michalek did, though,
issue an order last month that prohibits Servall from soliciting
business from Marcone’s customers. A New York appellate court
upheld the order on March 10, with a modification that allows
Servall to accept unsolicited orders from those customers.
Servall issued a statement calling the appellate ruling “a
significant victory” and saying that it wants to serve “customers
impacted by Marcone’s recent poor service and price gouging.”
Ganz, the Marcone executive, points out that it’s Servall
employees who have admitted unethical behavior. Rosenhahn and
Creighton first denied that they had taken any confidential
information, then admitted the theft after Marcone got court
permission to examine their computers.
Ganz also says that Marcone reduced some of Wagner’s prices,
kept most of its employees and invested more than $1 million in its
offices and warehouses. The merger wasn’t, in other words, a
slash-and-burn deal.
“It should have strengthened both entities,” he said. “Last
year, instead of being kind of a fun year with new people and new
locations, it wasn’t comfortable and it wasn’t fun.”
Michael Moberly, a security consultant and founder of Knowledge
Protection Strategies in University City, says information-theft
cases like this are not unusual. “We have this natural tendency to
want to trust our employees; we want to trust everybody,” he
said.
The highest-profile cases, Moberly says, involve high-tech
companies whose employees spirit away a key software program or a
new microchip design. But all companies — even those whose business
revolves around mundane things like hoses and dishwasher racks —
have valuable know-how and customer-relationship data.
And, as Marcone learned the hard way, information in the wrong
hands can do a lot of damage.