By: Bill Bregar
August 23, 2013
A legal war of words in a Canadian court between Robert Schad and Husky Injection Molding Systems Ltd. exposes some bitter feelings between Husky and Schad and his new company, Athena Automation Ltd.
Schad claims Husky and Athena were poised to work together on a small-tonnage injection molding machine — until K 2010, when Husky showed off its new press built with components and subassemblies from Toyo Machinery and Metal Co. Ltd. of Japan.
The battle pits Schad, an independent-minded, 84-year-old machinery guru and environmental activist, against Husky, a major Canadian industrial company.
Even though Schad sold Husky to private equity major Onex Corp. six years ago, he seldom passes up an opportunity to slam the sector as short-term profiteers.
Both sides are playing hardball. Husky is asking for $100 million in damages and an injunction. Schad wants $500 million in a countersuit against his former company. The future of Athena Automation could be at stake.
Husky claims all designs taken from its confidential information "are the property of Husky, not the defendants."
Schad, in his countersuit, said that suit is intended to hurt his reputation and his startup business.
"Husky has warned its customers, prospective customers of Athena and others not to do business with Athena, including by claiming that Husky will shut Athena down," Schad claims in the countersuit.
Caught in the middle is an injection molding plant — Niigon Technologies Ltd. — run by the Potawatomi First Nation reserve at Moose Deer Point. The plant, in a remote area on Georgian Bay north of Toronto, closed Aug. 9, as Husky stopped supporting it and pulled out some of its machinery.
Husky charges that Schad, Athena and Sipa SpA violated confidentiality agreements by using designs from a Husky prototype injection molding project at the Niigon plant. Called LEAP, the technology ran on two beta test presses at Moose Point in 2007 and 2008 — the year Schad launched Athena Automation. The beta test project included advanced molds and control software.
Husky's lawsuit was filed back in May, but it burst into the public eye only recently, when the Toronto Globe and Mail reported the legal battle in the Superior Court of Justice in Ontario. Husky wants monetary damages from Schad, Athena Automation, an affiliated Schad firm and Sipa, the Italian blow molding machinery supplier that has teamed with Athena to make PET preform systems — a direct challenge to Husky, which has the largest share of that market worldwide, by far.
Husky's suit accuses Schad of breaching confidentially agreements and a five-year non-compete agreement with Husky when he left after the sale to Onex. According to Husky's lawsuit, Schad and his family got $400 million for their ownership stake.
But the countersuit filed by Schad claims that, initially, Husky President and CEO John Galt repeatedly talked with Athena about developing its A150 design into a prototype, small-tonnage injection molding press for Husky. According to Schad, Galt "indicated that Husky was very interested in working with Athena on the commercialization of the A150."
Asked to comment for this article, a Husky spokeswoman said the company has not filed a response to Schad's counterclaim. The company issued a statement saying it is committed to protect its investments in innovation.
"Based on his former relationship with Husky and his agreements with the company, Robert Schad had a legal obligation to not misuse or disclose any Husky confidential information. As a last resort, we have now initiated legal proceedings against Robert Schad, Athena, Sipa and others," Husky said in the statement.
Husky's lawsuit in Ontario gives its side of the story.
Husky said that, as part of the sale, Schad agreed to keep Husky technical information confidential. Then Schad formed Athena in Vaughn, Ontario.
"Beginning in 2008 and continuing until late 2012, Schad represented to Husky that Athena was not going to compete in any way with Husky," the Bolton, Ontario, machinery maker said in the suit. But that was not true, Husky claims, saying Athena and Sipa used confidential Husky information "to develop equipment competitive to Husky's."
Husky says: "Schad and Athena initially represented they were developing automation technologies, then later said they were developing a general-purpose injection molding machine. Schad and Athena further represented to Husky that the technologies and equipment developed by Athena would be marketed exclusively to Husky." This latter statement agrees with what Schad claims.
And so Husky officials say they did not question Athena's hiring of some former key Husky people.
But Husky said that idea of a working relationship was false. "Contrary to the representations made by Schad and Athena, Athena was and is developing technology and equipment to be marketed to parties other than Husky, including Husky's competitors and customers," Husky said in the suit.
In Schad's version of events, spelled out in legal documents, top Husky executives reneged on a partnership where Athena would develop a prototype injection press. Instead, Husky worked with Toyo to create the new small-tonnage machine. Schad first saw it at K show in Düsseldorf, three years ago.
That hit a nerve for Schad, who started Husky in 1953 to build a snowmobile, called the Huskymobile, named after the Husky dog. When it didn't work, Schad started a small machine shop. Husky introduced its first injection molding press in 1961. Schad, a charismatic machinery man, was closely linked to Husky for decades, as he became one of the industry's most well-known personalities.
Schad insists that Athena's A150 was not developed using any confidential information from Husky. He said Galt wrote to him in mid-2011, after seeing a fully operation prototype, and expressed Husky's concerns about intellectual property.
In Schad's countersuit, he fired back at his former company: "Husky's late-breaking complaints were purely tactical in nature," he said, and were done to reassure its second set of private equity owners, Berkshire Partners LLC and Omers Private Equity Inc., that Athena would not hurt Husky's value. Berkshire Partners and Omers bought Husky in 2011.
Husky charges that Schad, Athena and Steve Mason, a former Husky employee who transferred to Niigon as general manager, disclosed Husky's confidential information to third parties, including Husky competitors such as Sipa and Mold-Masters Ltd. In court documents, Husky identifies four customers that Athena has solicited: M Corp., GK Packaging Inc., Swissplas Ltd. and Ice River Springs.
Athena conducted some of its development work at Niigon's factory, and Athena and Niigon shared some design and engineering personnel, who were employed by both companies, Husky said.
"Accordingly, there was substantial cross-fertilization and exchange of information, including Husky's confidential information, between Niigon and Athena," Husky's lawsuit said.
The legal wrangling lays bare some raw animosity.
After buying Husky in 2007, Onex began scaling back to focus on thin-wall packaging and PET preforms, medical and consumer electronics. Husky stopped making large-tonnage machines for automotive and other big-part molding.
Schad's countersuit said that, under his leadership, Husky "established a culture of honesty, integrity, innovation and philanthropy," and pumped money back into the company to develop new technology. For years, Husky officials boasted they followed core values: environmental responsibility, making a contribution to society, a passion for excellence, uncompromising honesty and bold goals.
Schad's countersuit says that things are different under private equity ownership.
"Following the sale, Husky made the strategic business decision to change course by, among other things, reducing and/or eliminating a number of its non-revenue generating divisions, refocusing on short-term as opposed to long-term investment strategies [including by refocusing its research and development program away from innovative long-term machine development] and reducing its support to various charitable enterprises."
Husky's suit said The First Nation plant "enjoyed access to Husky's confidential information that went beyond the access given to any other Husky customer" — and makes it clear that the issue is Robert Schad, not The First Nation.
"Schad has been the main architect of the defendants' misconduct. He has misused Husky's philanthropic support of Niigon to facilitate his competing business and has misled Husky with respect to his intentions and actions in relation to that competing business," the lawsuit said.
In court documents, Husky estimates it has spent more than $4 million in supporting Niigon from 2000 through 2012. In addition to the molding machines and automation at favorable lease rates, Husky also trained the employees and helped with marketing and sales.
Schad has said his Schad Foundation has donated $28 million to Niigon, a figure that includes $8 million from 2000-07, while he was still Husky's controlling shareholder, and $20 million since he sold his shares in 2007.