Reed Elsevier’s Letter Agreement with Hank Asher: Fraud or Simply Lack of Performance?

Kaitlyn (“booknerd”) posted this about Hank Asher and Reed Elsevier on MetaFilter:

Hank Asher, billionaire eccentric philanthropist/data miner, is being sued by publishing giant Elsevier. “What’s with these people? They’ve even sued my cancer research company.” On the one hand, Asher used to smuggle cocaine. On the other hand, Elsevier has their own problems.

I want to know how that balances out, the, uh, smuggling cocaine vs Reed Elsevier’s own problems. Lots of comments to that one. No. My comments aren’t there. I’ve got to dig into my wallet for the $5 it’s going to cost me to have my say. Read my Pay to Post Business Model editorial and you’ll know why.

Best to get started here where talk is cheap.

First, it’s a bit overly dramatic to say “Asher used to smuggle cocaine” when you know the whole story.

Second, Reed Elsevier has bigger problems, one of which they’re trying to head off at the proverbial pass before it actually becomes a problem. Or before he actually becomes a problem. And who is to say he will? Apparently, Reed Elsevier Lexis-Nexis.

What I mean to say is, Hank Asher’s Non-Compete Agreement expires at the end of August 2009. And Reed Elsevier, along with its US arm, LexisNexis, view Hank Asher as competition – even though he does not appear to be doing anything outside of the boundaries of his Non-Compete Agreement (NCA).

What better way to quash any potential competition than to cry wolf with a preemptive strike?

That Reed Elsevier and LexisNexis would view Hank Asher as competition can be established simply by the existence of the NCA and second, by the lawsuit filed in April alleging violations of the NCA. The reason for their concern is obvious when you realize they really are the only player in the data fusion market and they want to protect their monopoly position that has led to their monopoly pricing and hence their windfall profits.

In a letter to the FTC received prior to the ChoicePoint Lexis-Nexis merger last year (2008), Jordan Ulery, representative from NH, raised his concerns that the merger between the two companies would create a monopoly in the public records / data fusion systems industry:

Government has a limited role in business. Part of that role, however, is to prevent the excessive concentration of power in one entity…

Supporting documentation underscores (for those who are not aware) that ChoicePoint’s product AutoTrack and Lexis-Nexis’ product AccurInt were both built by Hank Asher. Thus a merger between Lexis-Nexis and ChoicePoint would then concentrate the only two data fusion products that matter into the hands of one company.

More telling than this and certainly more relevant now that Reed Elsevier has filed suit is this statement:

The only potential competitor who stands ready to enter the market and has the requisite technical expertise and financial wherewithal to do so is Hank Asher.

Although almost one year has passed since those words were written and almost five years have passed since Hank Asher had a commercial product for this industry, I think it is safe to say that Reed Elsevier still views Hank Asher as competition. He has the know-how, the money and the contacts to enter the market with his feet on the ground and running – should he choose to do so.

This is not to suggest that he is gearing up to go head-to-head with Reed Elsevier. The purpose here is to establish that Hank Asher represents the only viable competition to Reed Elsevier’s corner on the data fusion market. He understands the industry, thinks outside the box, is driven and has the financial means to make it happen.

What is equally important to understand is that these characteristics were in place before he signed the Non-Compete Agreement. Entering into a Non-Compete Agreement does not change one’s innate abilities. At the same time, the presence of these abilities coupled with the availability of capital does not necessarily mean he has violated the terms of the NCA.

My point is, just because he has the means to re-enter the market does not therefore mean he has re-entered the market.

Renting a commercial location, courting the local business journal and hiring is not evidence that he has started a new database venture nor is it evidence that he is usurping Reed Elsevier’s marketshare as has been suggested.

That illogical assumption is a glaring fallacy in Reed Elsevier’s arguments. Once again, because someone has the ability to do something does not mean they are doing it.

You might say, “if it walks like a duck and talks like a duck, it must be a duck.” Then, I’d have to ask you to show me some evidence instead of hearsay and fear.

That brings me to another point. Because Reed Elsevier has NO evidence, they’ve gone on a fishin’ mission, using the power of the Fifteenth Judicial Circuit Court to unearth something, anything with which they can exclaim, “Ah ha! See! He is competing.”

When Hank Asher exclaims, “What’s with these people, they’ve even sued my cancer research company?” he’s referring to the fact that Reed Elsevier has named everyone but the family pet in their Complaint for Breach of Non-Compete Agreement and Misappropriation of Trade Secrets. Every Florida corporation and Limited Liability company that Hank Asher is part of has been named in this Complaint – even his cancer research company. Really.

They subsequently asked for unfettered access to anything and everything in a brazen attempt at legal Discovery. Talk about casting a wide net. Name everyone, tell the Judge you need access to everything but don’t specify anything other than, (my words) “we can’t make sense of all these businesses so we have to go into each one to understand how they relate to each other first just so we can decide if there has been any breach of agreement or misappropriation of trade secrets… and yes, your Honor, we did ah, file this Complaint for Breach of Non Compete Agreement first, before we ah, actually had any evidence . But if you just let us go in there with unfettered access, surely we’ll find something…”

I don’t think so. That’s not how it works.

Back to the Non-Compete Agreement. There is what is referred to as a “carve-out” in that Agreement that allows Hank Asher to continue his philanthropic work for the National Center for Missing and Exploited Children. This is not a mere “convenient excuse” to begin anew. His work with NCMEC started a long time before he signed that NCA. And it was so important to him to be able to continue helping NCMEC that it was included in the NCA. He’s certainly not hiding a new business behind that carve-out although that has been suggested as well.

There is one more interesting piece of information that needs to be brought to light. And this is, perhaps, the reason why Hank Asher has called this suit a sham and why I believe Reed Elsevier may have committed fraud.

I believe it may be Reed Elsevier who has breached the Agreement.

You won’t find evidence of this in Reed Elsevier’s Complaint. No, they conveniently left it out of their Exhibits and, in fact, have tried to deny the applicability of this evidence. You’ll have to go to Hank Asher’s Counterclaim to find The Letter Agreement that serves as the cornerstone of the Non-Compete Agreement.

Without that Letter Agreement, I doubt there would have been a merger between Seisint (Asher’s former company) and Reed Elsevier.

In this cornerstone agreement, Reed Elsevier essentially agrees to negotiate in good faith with Hank Asher regarding any future working relationship or potential collaboration. This would enable Asher to move forward with additional data products and, if his past performance is any indication, allow Reed Elsevier to profit from his ideas. My guess is that this win-win working relationship is the primary reason behind the merger in the first place.

Before you raise the question, “What about all the money he made,” as a result of the merger, I will step out on a limb and suggest he probably didn’t need the money. What he needed then was time. And with Reed Elsevier buying Seisint, Hank Asher bought time.

Most important is that the Letter Agreement binds itself to the Non-Compete Agreement and requires performance on the part of Reed Elsevier. Thus the Letter Agreement forms the cornerstone of and basis for the Non-Compete Agreement.

Lack of performance on Reed Elsevier’s part would constitute a breach of the agreement upon which the Non Compete Agreement rests. And if it can be shown that Reed Elsevier never intended to negotiate with Hank Asher, not only is there lack of performance but fraud as well.