Memjet Investor Sues Silverbrook
On March 5, 2012, the George Kaiser Family Foundation (GKFF) filed suit against Silverbrook Research, Kia Silverbrook and his common-law wife, Janette Faye Lee, for allegedly inducing GKFF to invest in the Memjet companies based on “omissions, false representations and false promises the Defendants had no intention of keeping.” Since 2003, GKFF has invested in excess of $610 million in the Memjet companies.
It was also alleged that Silverbrook and Lee are threatening to take the patents and intellectual property protecting Memjet’s revolutionary printing technology to sell to third parties. According to the court documents, just weeks prior to the filing of the suit, Silverbrook Research revised its website and removed all previously existing references to Memjet and Memjet Technology. However, the new site solicits new customers, saying that Silverbrook Research can provide services relating to “product development as well as advanced science, engineering, manufacturing and protection of intellectual property.”
The document goes on to state that in 2003, Silverbrook and Lee met with the George Kaiser Family Foundation. At that time, Memjet was nearly out of money, the lawsuit alleges, and Silverbrook and Lee were hoping GKFF would invest in their company. According to the lawsuit, the GKFF now believes that Silverbrook and Lee “lied and made … unambiguous representations and promises on behalf of Silverbrook Research” including the representation and promise that Silverbrook Research would provide Memjet with R&D services at Silverbrook Research’s cost, without profit or mark-up; the representation and promise that Silverbrook Research would grant Memjet exclusive and perpetual licenses to all of the Memjet Technology IP, including issued patents and pending patent applications assigned to Silverbrook Research, which would not be terminated under any conditions; and the representation and promise that if Memjet was sold or its stock went public, the licensed Memjet IP would be transferred to Memjet at no additional cost, so that Memjet or its successors would have all the IP necessary to fully commercialize the technology.
According to the lawsuit documents, between 2004 and 2008, GKFF invested $75 million in Memjet. It wasn’t until 2009, when Silverbrook and Lee went back to GKFF for more money that the foundation became wary due to the lack of commercialization of the Memjet Technology. GKFF did invest an additional $150 million in Memjet, but under the conditions that the company would hire a new professional management team, replacing Silverbrook and Lee as CEO and CFO, respectively; that the value of Memjet would be adjusted to reflect the excessive costs of and delays in commercializing the technology; and that the technology would achieve a concrete commercial milestone. The papers state that Silverbrook and Lee agreed to GKFF’s conditions, and stepped down from their management positions. Hoever, the lawsuit alleges that Silverbrook and Lee marked up the cost of Silverbrook Research’s services to Memjet and started insisting that Memjet do business with companies that, unbeknownst to Memjet and GKFF, Silverbrook and Lee were shareholders, owners and/or board members of.
By the end of 2010 to early 2011, after more investments, GKFF officials became frustrated by the ongoing delays in the commercialization of Memjet Technology. The foundation tried making conditions for future investments including an IP facilitation agreement designed to mitigate any concerns regarding Memjet’s rights to its IP; a reorganization of the company, adding a parent corporation that would be the sole owner of the Memjet Companies; a full audit of Silverbrook Research; and information on the DuPont settlement, which according to the suit, Silverbrook and Lee refused to disclose the information to GKFF and/or Memjet.
However, according to the suit, none of GKFF’s conditions were met. “Indeed, the failure of Silverbrook and Lee to act in accordance with their representations and promises has been absolute; not one of the promised undertakings – even the simple delivery of the DuPont Settlement Agreement – has been performed.”
The suit states that due to the defendants’ fraud, deceit and negligent misrepresentations, The George Kaiser Family Foundation is suing for actual and punitive damages as well as trust over all compensation and other monies received by the defendants as a result of their alleged fraud.