T HE LINE BETWEEN INVENTIVE GENIUS AND insanity can be indeed fine. Todd Werner, president of Clearwater's Sure-Feed Engineering Inc., has had just enough of each to distinguish himself in the mailing and packaging industry.

While insanity may seldom be regarded as an asset in business, Werner's tenacity – at times viewed by others as approaching the limits of sanity – has earned him his status as an entrepreneur and owner of a business with annual revenues of $20 million.

The road to such revenues has been rocky over the five years of Sure-Feed's existence. It has been Werner's lot to keep his company going in the face of legal challenges from a large northern competitor whose strategies might well have squelched a less tenacious small business. The legal saga began when Minneapolis-based Streamfeeder LLC took notice that Sure-Feed Systems (as the company was named at the time) was poised to penetrate its market with a competing line of the kind of friction feeder equipment that is used in the mailing industry.

In 1996, Werner introduced at a Chicago trade show a machine he had invented and patented. Jim Naset, a former manager of Werner at Clearwater-based Eva-Tone Inc., who had been the first customer, also attended the show.

"I'd kept in touch with Todd through development of the feeder," says Naset, now a vice president at Sure-Feed Engineering. "We knew it was a great idea, and he just needed to maximize its potential. We took the product to the trade show to gauge the industry's response. The excitement there was overwhelming. Todd had 450 leads from that show. I decided to leave Eva-Tone and hook up with him to make this a success."

While the two executives were setting sales goals of $2 million and gearing up for production, following the trade show "a sheriff walked in and served a federal lawsuit from our competition in the feeder business," Naset says. "They were claiming the device Todd had developed and patented infringed on their patents. We thought they couldn't sue since we had a patent. But that's not the way it works."

Werner had to respond within 20 days and his appearance in a Minneapolis federal court was mandated. "We determined that it was a strategy to put us out of business," says Naset. "They had been free of competition for years. And now they saw this little company from Florida eating into their market. Their strategy was to throw this lawsuit at us and drive us away."

Installment defense
Finding legal representation in Minneapolis was a challenge in itself. "I called my cousin there and asked if she knew any lawyers," Werner says. "She lived next door to a judge who gave us a recommendation. It was a step above the Yellow Pages. But the legal firm was young and hungry, like we were. They understood our situation and allowed us to make payments as we went along. We were going up against the largest legal firm in Minneapolis."

Through the legal process, "the judge ordered us to appear four times for settlement conferences," Werner says. "They [Streamfeeder] offered to pay us $1 million [in total] over 10 years if we'd settle the case. This included a 10-year non-compete. We were determined they were wrong. We'd rather risk proving we were right than be displaced from our industry."

While the risks ran high, Werner and Naset did have a contingency plan. "I could have gone on my knees to Norm [Welch, president] at Eva-Tone," Naset says.

"I'd have followed right behind," Werner adds.

As the two executives resisted accepting the terms of the settlement, the judge called them into his chambers for a private conference. "The judge said, ŒLet me get this straight,'" Werner says. "ŒYou're being sued for patent infringements and are on the line for damages that far exceed your means. They're offering you a million dollars.'

"The federal magistrate called us a couple of goons," Werner says.

They refused anyway, opting instead for a trial by jury.

"Our suit is case law," says Werner. "It boiled down to a technical point referred to as doctrine of equivalency. The issue came down to a paper separator that looked virtually "Our suit is case law," says Werner. "It boiled down to a technical point referred to as doctrine of equivalency. The issue came down to a paper separator that looked virtually identical. Our part does the same thing, but it's not actually the same. It's a gray area. They had to sell to the jury that we were infringing."

By the time the case went to trial 18 months later, Naset says, "we had sold 800 units and hit our $2-million goal, in spite of the lawsuit."

"We had a black cloud over us," Naset says. "OEMs [original equipment manufacturers] wouldn't touch us because they'd get dragged into the lawsuit. We had talked to Streamfeeder's number-two OEM and the lawsuit landed three weeks later. They knew the OEMs wouldn't buy from us with a lawsuit pending. We had to make that $2 million selling strictly to retail end users and direct-mail companies."

While perhaps most companies reinvest their profits in growth of the business, sales revenues at Sure-Feed funded legal expenses.

And so to trial
The legal process which had begun in January 1997 was ready for a Minneapolis trial by jury in July 1998. "We had six women and two men on the jury," Werner says. "For five days we talked about the coefficient of friction and how normal force affects the penultimate sheet in a stack of paper. The judge snored. It was obvious the jury had no interest in a patent case. Two of the women were housewives who hadn't worked in 20 years and were excited to get out of the house. And they were deciding on the physics of how feeders work."

At one point in the trial, "one of Streamfeeder's attorneys got in front of the jury and broke down in tears," says Werner. "He was talking about a paper feeder."

The melodrama worked. "The jury found us guilty," says Naset. "It was devastating. We had a $1.5-million judgment against our company and an immediate injunction preventing us from shipping, servicing and selling parts for our 800 feeders."

Werner and Naset took immediate action. "The day we got the decision we fired our 22 employees," Werner says. "We collected all the receivables we could and paid our payables before they could seize our accounts. We didn't want to burn bridges. Then we hired the third-largest intellectual property law firm in Minneapolis to handle our appeal. We prepaid our attorneys, but we didn't pay Streamfeeder. They were our only creditor and they couldn't force us into bankruptcy. That takes three creditors. They were upset about that."

The appellate court stayed the verdict, but the stakes grew even higher. "This meant we could service, sell and build more product," says Naset, "but we were creating larger damages and this could increase our judgment beyond the $1.5 million."

Within a week of the jury's decision, Werner and Naset formed Sure-Feed Engineering Inc. and hired back seven of their employees. "All of the inventory and equipment was property of our old company," Naset says. "We moved those assets into storage."

"We wanted to keep fighting," adds Werner. "We knew we were right and we were determined to prove it. So we started a new company."

And then Werner invented a new piece of equipment. "Six weeks later we went to the next trade show with our new product and new company," he says. "This time we made the separator gold so everybody could see that we changed it. It was better. They [Streamfeeder] forced us into this. Our first machine was better than theirs, but this second one was much better. Our equipment doubled [by volume] anyone else's on the market. We took the show by storm and there was a phenomenal response to our new machine."

Werner sold the prototype he'd built for the show and took orders for five more. "This gave us the money to buy parts for 10 or 15 more machines," he says.

The competition again took note. "Streamfeeder filed five new lawsuits against us," says Werner. "The first day of the trade show they got another injunction against us, claiming there was no way we could create a new product in six weeks. And they accused us of fraudulent transfer of assets."

But Streamfeeder hadn't been paid, and the Minneapolis company wasn't finished with Sure-Feed. "They showed up at our shop with a 45-foot moving van, eight movers and a sheriff," Naset says. "They seized all the assets we'd put into storage. We were anticipating that. The court ordered an auction to sell those assets to pay for the injunction."

The doom and gloom vanished on April 20, 1999, however, when the appellate court issued its ruling. "We won the appellate decision," Werner says, "and, poof, everything goes away. Streamfeeder was ordered to give us back our equipment."

Of course, Streamfeeder's executives may have had a different reaction to the appellate court's decision, but the company "decided that we'd rather not pursue the matter," says Cliff Thompson, the firm's manager of communications.

"We'd rather invest our resources in serving our customers. We were disappointed but we're not dwelling on it."

Sure-Feed, on the other hand, still has one pending court action, and that is to attempt to force Streamfeeder to pay it for the equipment that the company had seized in lieu of the original payment ordered by the court. By the time the appellate court's decision came down, it was nowhere to be found.

But the Clearwater firm was looking ahead, too.

Back to business
Among those who were impressed by Werner's new invention at the trade show was Mike Despain, the vice president of direct mail systems for Stamford, Conn.-based Pitney Bowes Inc. (NYSE:PBI). "My engineer said, ŒHey, you gotta take a look at this thing,'" Despain says. "So, I did and we started negotiations."

Those negotiations led to an exclusive agreement between the two firms that Pitney Bowes will use its distribution channels to market Sure-Feed's FlowMaster machine. "We've found their technology to be very desirable in the direct mail market as well as the transactional corporate market," says Despain. "We have distribution in over 100 countries. They just didn't have that kind of horsepower to market their product. We're looking at other products they're designing for worldwide distribution."

And sales are going well. "We're ahead of plan in sales," Despain says. "We've sold as many units internationally as we have domestically."

To meet the increased demand for products Sure-Feed has increased its staff to 80 employees and recently started a second shift. "Two years ago we had 23 employees," says Naset. "Being at 150 employees is not out of the question in a year or 18 months."

Currently operating in a 32,000-square-foot facility, Werner and Naset are also seeking a new plant. "We're looking to buy a 125,000-square-foot building in north St. Petersburg or Clearwater," says Joe Springer, the firm's controller. "Our contract with Pitney Bowes allows us to comfortably invest in the company for once and it gives us the resources to innovate other products. Pitney Bowes has the first right of refusal on our new products."

One way Werner taps into his creativity is on his 37-foot speedboat named the Mucky Duck. "He races every month," Naset says.

Would he have changed anything along the way? "I would have paid more attention in school," Werner quips.

"I've learned all about patents and have half of a law degree now. I have a right to be in this business. Somebody can't just sue me out of it. Running a business passionately is what got us through a lot of this. It was tough. Now we've aligned ourselves with the industry leader, Pitney Bowes, with $4.6 billion in sales. They'll take our technology and not put it on the shelf. They have the resources to take it to its full potential.

"I don't know anybody else who would not have folded," says Werner, who has learned to smile about his legal adventures. "Any sane person would have."