Internet Brands v. Xenforo: A Lawyer’s Opinion

If you’re a webmaster running any type of social networking or community website, there is no doubt that you’ve already heard the news. Internet Brands, the owner and developer of the highly popular vBulletin forum software, has commenced a lawsuit in the UK against several former employees who are about to release a highly touted competitive product – Xenforo. As of the moment, the best information available comes direct from the vBulletin customer support forum. In short, Internet Brands alleges that employment agreements have been breached and copyright infringement and unfair competition has ensued. Legitimate claim or underhanded attempt to stifle a competitor’s big day out of the gate?

The Allegations and the Torrent of Passionate Comments

After having read the claims made by Internet Brands for myself, the best that I can conclude is that (a) many of the fiery opinions contained in the flurry of comments are misplaced and factually and legally incorrect, and (b) Internet Brands considers Xenforo, which hasn’t even been released yet, a serious potential player in the forum and community software market. There isn’t much information available as to the allegations in the lawsuit against Kier, Mike and Ashley, all former employees of Jelsoft – the original company that created the “beloved” vBulletin software. Many forum owners are outraged that Internet Brands (the subject of at least one controversy) would actually “stoop so low” so as to sue these good people who brought them the software that made their magic possible. From my perspective, it is impossible yet to tell whether Internet Brands has been wronged by well paid former employees and is vigorously attempting to rightfully protect its property or whether the lawsuit is a frivolous claim by a big corporation with deep pockets designed to unfairly thwart the efforts of a new competitor in the marketplace that leaves an especially bitter taste in its mouth.

Contracts & Business Torts: Severance & Non-Compete Agreements

While this case is filed in the UK, the legal issues and how they are handled are usually similar in substance. In situations where a valuable employee has parted ways with an employer, severance agreements are commonplace. An employee may be paid a relatively generous and non-required sum of money in return for signing an agreement not to compete with the former employer, amongst other items that may be contained therein. In the US, non-compete agreements are generally enforceable but the courts are loathe to restrain any working person from finding meaningful employment using the skill he or she has cultivated any longer than is absolutely necessary. As a result, most of these agreements are typically enforced no more than a maximum of one year’s time and only within what would be considered a reasonable geographic area. It is not uncommon for large corporations to present employees with harsh, stringent agreements (such as a 2 to 3 year period of non-competition) with a “savings” clause – a stipulation that, should a court find that the agreement is unenforceable for that extended period of time, the court will not invalidate the agreement but use the longest period of time which the non-compete agreement could be held valid and enforceable.

I noticed an interesting fact. Wikipedia tells me that Kier and Mike left Jelsoft on June 19, 2009. Just about a year later and perhaps coincidentally, the xenforo.com domain was registered (June 4, 2010.) The first post I’ve located on the Xenforo website is July 28, 2010, just after the one year period of departure and perhaps work may have commenced on Xenforo the day after the anniversary of their departure. I have no idea whether or not any non-compete agreement exists nor its terms. But there is one very interesting statement made by Internet Brands which makes me wonder whether any kind of severance and non-compete agreement exists or applies at all that could legally prevent the Xenforo team from developing a rival forum software.

the former owners of Jelsoft not only paid Kier and Mike well during their employment, Kier was paid a handsome bonus when Internet Brands bought the business, although no such payment was required.”

Apparently this statement does not refer to a severance payment or non-compete agreement. Might this entire dispute center around Internet Brands not being happy that, after paying a handsome salary to employees and an additional bonus after the purchase of Jelsoft, the employees left the company and decided to compete against the old employer? Impossible to say for sure at this point but certainly an interesting thought.

Copyright Infringement and Breach of Contract Claims

The second useful statement contained in the vBulletin post alleges that Kier and Mike “refactored” the vBulletin code and created Xenforo. Essentially, Internet Brands seems to imply that Xenforo contains at least some intellectual property that is still owned by the former employer and has been reworked into something completely different but still a product of the vBulletin process – that the new Xenforo software is somehow derivative of vBulletin and “an expression of the prior work.” This is a rather vague and generic statement not specific in nature and doesn’t specify whether the prior work is actual code or other work product that may be covered under copyright law and/or an employment agreement. I’m guessing that more details will be forthcoming or may already be contained in the equivalent of the “complaint” in the Court of England and Wales, although it remains to be seen whether any of them are truly substantive.

The law governing the unauthorized copying of code is little different than the copying of text crafted by an employee commissioned and owned by an employer. I’m not sure that the crux of the disagreement centers around using specific code owned by Internet Brands even though Internet Brands claims the code was “refactored” into something else. It is possible that Internet Brands is claiming that the founders of Xenforo used work product created during their employ that was ultimately discarded by Internet Brands and never made its way into the vBulletin product. Looking at Xenforo with the naked eye, it certainly looks, feels and acts very differently than vBulletin of any version. Perhaps Internet Brands is referring to the overall design, architecture, look and feel of the Xenforo software or other forum design which may have been unused – and the former employees decided to make a go with it on their own. An employer’s decision not to use work performed and provided by an employee doesn’t automatically make that work the property of the employee. But until I know more, I’m not quite sure who may own these “ideas”, whether they have been sufficiently reduced to tangible form such as within a document or even whether they even have the ability to qualify as intellectual property for which one can register an exclusive right of ownership.  But this is all pure speculation and no specificity has yet been provided.

Preliminary Injunctions

Interestingly enough, Internet Brands “requested that Kier, Mike and Ashley refrain from selling the software while the issues, inclusive of our infringement claims, are heard in the courts.”  Apparently they did not seek that the court prevent (or “enjoin”) Xenforo from selling its software today – the first day of the Xenforo pre-sale. Perhaps not coincidentally, the lawsuit was filed yesterday. At least in the US, a plaintiff with a strong case and potentially significant damages can seek an emergency protective measure which temporarily prevents the defendant from starting or continuing to perform the activity that is the subject of the lawsuit until after a hearing may be held. In order to successfully obtain such a “preliminary injunction”, a plaintiff must show the court that this emergency measure is (i) absolutely necessary as allowing the defendant to continue with its plans would cause “irreparable harm” for which simple money damages would not be sufficient, and (ii) that it has a strong case and is likely to succeed on the merits of its case. I’m sure there is a similar procedure in the UK but I’m not sure whether Internet Brands’ decision not to proceed with such a strategy is based upon (a) legal issues specific to UK law, (b) the fact that money damages might be sufficient and it would fail one of the two prongs of the test to qualify for a preliminary injunction, or (c) its case against Xenforo isn’t very strong.

Conclusion: Wait and See

At this point I think it’s useless to try to make ironclad conclusions about who is right and who is the true villain. All we do know is that Internet Brands alleges there is at least a sufficient basis upon which to make a claim that a reasonable dispute exists. Soon we’ll see whether there is actually any meat on those bones when we are able to see the substance – or lack of substance – of the claim filed by Internet Brands against Xenforo. Until then, I’m going to spend most of my time continuing to enhance TheLaw.com’s law forums and manage the exciting news happening here – the release of a very cool iPhone app and Android app — a ~7,500 word law dictionary and comprehensive legal guide and mobile gateway to TheLaw.com. This is the best way to keep my mind off a lawsuit and remaining productive - happy foruming everyone!

Michael M. Wechsler, Esq. – has written posts on The Law Professor.

Michael M. Wechsler, Esq.

Internet / Mobile entrepreneur since 1989, Intellectual Property attorney since the mid 1990s, former in-house counsel at iVillage.com, Senior Vice President of Business Strategy at Zedge, Co-Founder of the IDT Internet Mobile Group, E-Discovery expert and legal consultant with Kroll Ontrack, and owner and operator of TheLaw.com