DigEcor president talks candidly about legal spat

If you’ve tried to stay on top of the legal battle that has raged between rival portable in-flight entertainment (IFE) manufacturers DigEcor and e.Digital, then God Bless You. It has been a messy, multi-year spat that will culminate in a 4 May trial.

I had the opportunity to speak with DigEcor president and COO Brad Heckel this morning and he was very candid about the whole situation, admitting that, in retrospect, “This has been a waste of time. It has been very non-productive for both sides.”

DigEcor.jpgThe legal expense alone “has been significant” and that “has been a major issue for both sides”, he says. “We’ve tried settling this multiple times to avoid getting into this expense.”

Additionally, says Heckel, the case has “been a distraction, as [DigEcor] has had to dedicate resources to it” such as staff.

The company remains productive, and is eyeing further expansion. But Heckle believes that, “had this [case] not been an issue that we had to deal with, we would have been even more successful”.

So how did it all come down to this? In April 2007, I took the time to interview both sides for an article that ran in Air Transport Intelligence. I managed to boil down the dispute to three key paragraphs, which I’ll use again today.

California-based e.Digital operated behind-the-scenes in the portable IFE market for years. The company played a role in the design and manufacture of the original DigEplayer 5500 handheld unit for system provider DigEcor, the successor to APS that was bought by US aircraft parts distributor Wencor in 2004.

But e.Digital’s decision to later offer its own handheld system, dubbed eVU, directly to airlines, ignited certain legal action.

At the heart of some of the litigation is an April 2002 non-disclosure agreement signed between APS founder William Boyer – an Alaska Airlines baggage handler and the brainchild behind the DigEplayer idea – and e.Digital. The agreement forbade e.Digital from competing with him for seven years after termination of their relationship.

E.Digital argued that none of the agreements with DigEcor precluded or limited its marketing of eVU. It also believes the non-disclosure agreement was superseded by a subsequent October 2002 agreement that later expired.

DigEcor claims that there was a period of time when e.Digital was peddling its own portable player “to our same customers” when they were contracted to deliver players to DigEcor, but didn’t.

Fast-forward to last month, and it turns out that the non-compete probably wasn’t worth the paper it was written on. A partial ruling from a federal court in Utah dismissed DigEcor’s claim that e.Digital breached a covenant of non-competition. Why?

According to DigEcor, rather than apply the law of Washington State – where DigEcor is incorporated and the agreement was signed -  the court made the decision to apply the law in California, which happens to be the only state in the United States that does not honour non-competition contracts.

So what is DigEcor hoping to gain when outstanding issues go to trial next month? In addition to damages, the company wants “acknowledgment that we had an order in place, and they [e.Digital] were selling their players when they couldn’t deliver ours. Getting that recognition would be one of the emotionally gratifying aspects”.

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10 Responses to DigEcor president talks candidly about legal spat

  1. Mack Smithers April 11, 2009 at 12:01 am #

    Here is your statement:

    Fast-forward to last month, and it turns out that the non-compete probably wasn’t worth the paper it was written on. A partial ruling from a federal court in Utah dismissed DigEcor’s claim that e.Digital breached a covenant of non-competition. Why? Rather than apply the law of Washington State – where DigEcor is incorporated and the agreement was signed – it made the decision to apply the law in California, which happens to be the only state in the United States that does not honour non-competition contracts.

    Here’s the Paul Harvey (The rest of the story) in the courts decision:

    The court concluded California law applied, and under Section 16600 of the Business and Professions Code, the non-compete was per se invalid.
    However, the court took the unnecessary (though arguably wise) step of noting the importance of a sloppily drafted agreement on the court’s overall view of the case:
    “…the court has its doubts concerning digEcor and e.Digital’s expectations about the continuing enforceability of the covenant not to compete. It is apparent that little care was taken in drafting and proofreading the 2002 NDA’s non-compete provision. Also, when the parties documented their business relationship in the October 22 Agreement, which expressly superceded all prior written and oral agreements on the same subject matter, they did not include a covenant not to compete. One would expect that, given the importance digEcor now attaches to e.Digital’s ability to compete, digEcor would have insisted that a non-compete provision be included in the October 22 Agreement, even if doing so seemed overly cautious or not technically necessary.”

    The truth would be nice…did wencor pay you?

    Mack

  2. Mary Kirby April 11, 2009 at 1:23 am #

    I take all of your comments on board but I’m keeping this one on the blog because you make an argument. And it deserves to be heard. Any further arguments – that don’t directly attack me – will be posted too. So go at it!!! I want to hear it!

  3. Adam Williams April 13, 2009 at 4:01 pm #

    I’d like to offer a little more clarification on the topics being discussed. The issue at hand is not the legitimacy of the wording in the non-compete agreement, but the state in which the non-compete was to apply. For example, the prior judge on the case ruled that the non-compete agreement is valid. The new judge on the case ruled that California state law applied to the non-compete agreement. Unfortunately, the state of California traditionally does not uphold non-compete agreements even though pretty much every other state in the USA does. Therefore, with California state law applying, the non-compete agreement was dismissed.

  4. Mack Smithers April 22, 2009 at 10:59 pm #

    In response to Adam,

    While it’s true that California law was applied and California does not traditionally uphold non-compete agreements and other states do, the verbiage of the non-compete document was constructed so poorly the court stated that it should be used as an example of how “not to write a contract”. It’s highly unlikely that another state would view it any differently.

    Mack

  5. Frank April 23, 2009 at 2:36 am #

    Mary, I have read your reports and you seem to have a lack of interviewing the other side, namely EDigital. Whenever I read what you have to say, which is factually correct from Digecor’s point of view you have no rebuttal from EDigital. All the facts produced for your consumption by Digecor are simply a smokescreen to mask the ONLY reason for this lawsuit (brought by Digecor I might add) to the effect that Digecor failed to perform it’s DUE DILIGENCE when it purchased APS, the company that contracted EDigital to create, manufacture and supply an IFE unit for it’s sale to Alaska Airlines called the Digeplayer. Mr. Brent Wood assumed, or thought, he was purchasing the right to EDIGITAL’S PATENTED TECHNOLOGY (it’s INTELLECTUAL PROPERTY) with the purchase of APS and was told by the owner of APS, Mr Bill Boyer, that APS did own the technology when APS NEVER OWNED EDIGITALS IP. It had simply contracted with EDigital to create, manufacture and supply the Digeplayer. When Mr. Woods of Wencor became aware of his mistake he tried every method available to a large company to intimidate a much smaller one to bend to it’s will and sign over the rights, patents and IP to Digecor to no avail. THAT’S WHEN DIGECOR INSTITUTED THIS LAWSUIT. Edigital’s patents are VERY STRONG and have stood the test of examination on many fronts including being the prevailing party in 6 or 6 lawsuits against 6 large worldwide companies who have acknowledged infringing on the use of Edigitals patents and have paid Edigtial substantial sums in out of court settlements. That may be any area you wish to examine, it just might surprise you. Also you may throughly examine the ongoing lawsuit between Mr. Brent Wood and EDigital. You will find that summary judgements have been issued in favor of EDigital at every turn and the reason for the concilliatory tone of Mr. Heckel is due to his knowledge that their lawsuit against EDigital is going very poorly for his company and while Mr. Woods may prevail on a minor matter within the lawsuit he will come away without any of what he instituted that lawsuit for, This to his great consternation as he is very much used to getting what he wants and is making every attempt to, by every means, to gain something he is NOT LEGALLY INTITLED TO NOR WAS HE EVER ENTITLED TO. I am NOT an employee of EDigital and have no knowledge of its inner workings. I am a shareholder and follow the legalities of the case as posted on Pacer. I suggest to you Pacer is good reading for ANYONE who wishes to find out EXACTLY what is going on in this case.

  6. Mary Kirby April 23, 2009 at 7:55 am #

    Hi Frank,
    Thanks so much for you response. I have every intention of looking at all sides of this story. I’ve got several balls in the air right now, but stay tuned…
    Best,
    Mary

  7. Kirk Rothell September 14, 2009 at 9:20 am #

    Hi Mary,
    Here is the conclusion of the digecor/e.Digital trial. Digecor got spanked and all their claims were dismissed “with prejudice”. Hope you will choose to comment on this and correct the misconceptions you created with the initial interview. Thanks. Kirk

    09/10/2009 397 FINDINGS OF FACT AND CONCLUSIONS OF LAW: It is hereby Ordered that all of digEcor’s remaining claims against e.Digital are dismissed with prejudice, and digEcor recovers no damages of injunctive relief. Judgment is entered in favor of e.Digital and against digEcor on all claims. Signed by Judge Clark Waddoups on 9/10/09. (las) (Entered: 09/11/2009)

  8. Anonymous September 14, 2009 at 9:43 pm #

    http://www.edigital.com/docs/Verdict.pdf

  9. Mary Kirby September 14, 2009 at 9:52 pm #

    Cheers Anon, it is on my ever-growing list.

  10. Anonymous September 15, 2009 at 9:56 pm #

    Hi Mary;

    Many thanks for the great job of following up on this news event. Now the truth has finally come out
    who the bad guy really is.