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From Contact to Court

Settling of Kozmo case sends chill wind through Silicon Alley.

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The pitch: an online service that delivers everything from Cop Land to Krispy Kremes. Think Blockbuster meets Domino's -- at Amazon's IPO party.

In the age of Internet cocooning, it could be the ultimate high-concept business idea -- and the fact that both Kozmo and Urbanfetch are now pursuing it in almost the same way may be more than just a case of great minds' thinking alike. At least, that was the claim made in a lawsuit filed by Kozmo in New York State Supreme Court on August 2 and settled earlier this month, which charged Urbanfetch's owners with "misappropriation of trade secrets."

Before Urbanfetch owners Ross Stevens and Fred Tausch were online entrepreneurs, they were principals at the Manhattan hedge fund Integrity Capital Management, and they met with Kozmo founders Joseph Park (pictured) and Yong Kang about investing in their then-tiny business. In several meetings during and after March 1999, Park and Kang described their concept, showed Stevens and Tausch their business plan, and even gave them a tour of Kozmo's headquarters.

That's about all the two sides agree on. In a $60 million countersuit charging that the lawsuit was "deliberately orchestrated to wreak havoc" with their business, the Urbanfetch founders argued that they didn't steal any proprietary information and asserted that the two Web-based delivery services aren't really so similar after all. The reason? Both deliver films and food, but Urbanfetch doesn't offer "hardcore, 'adult,' X-rated videos."

Legally, the case centered not on originality -- just how many ways are there to deliver doughnuts? -- but on whether Integrity's meetings with Kozmo implied confidentiality. And when Judge Barry Cozier denied Kozmo's request for an injunction to prevent Urbanfetch from launching, he said there was no evidence that Integrity had any legal obligation to Kozmo. The decision won Stevens and Tausch few friends, but it led Kozmo to reconsider its litigation. The two sides finally settled in a five-page sealed agreement. An Urbanfetch publicist says his client is "happy" with the outcome.

"It was a start-up's worst fears come to fruition," says Stuart Levi, who heads the e-commerce practice at Skadden, Arps, Slate, Meagher & Flom. And as the first talked-about "trade secrets" lawsuit in Silicon Alley, it's making New York's handshake-over-Heineken Internet deal-makers reach for the nondisclosure agreements already ubiquitous in the Valley. "When we started, we saw everyone as potential partners, not competitors," says Kang. "This has made us more paranoid."


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