SkillSoft makes settlement in trade secrets case

24 Jul 2003

Global e-learning systems maker SkillSoft, which is currently in legal hot water over misstated sales revenues at its Irish SmartForce subsidiary, has just settled a major trade secrets case in the US.

The company has reached a settlement with National Education Training Group (NETg) and its parent company Thomson Learning after a five year-long litigation battle in which NETg alleged that SkillSoft and certain SkillSoft executives who were former employees of NETg had taken alleged NETg trade secrets.

Under the terms of the settlement , SkillSoft will pay NETg US$22m this month and a further US$22m in July 2004. In addition, SkillSoft has agreed not to make specific modifications to its IT courses for a limited period of time. In exchange, SkillSoft and the former NETg employees involved in the lawsuit surrounding the alleged use of NETg intellectual property have been completely released from any liability arising from the use of NETg’s intellectual property.

“This settlement agreement allows SkillSoft to move forward without the continued disruption and uncertainty that accompanies this type of litigation,” said SkillSoft CEO and president Chuck Moran. He emphasised that SkillSoft and the employees named in the litigation continue to deny any wrongdoing, but that the company determined that it was in the best interests of SkillSoft, its shareholders and its customers to put the litigation, the cost of the cases, the threat of an unpredictable jury trial, potentially significant claimed damages, and the prospect of possible injunctive relief, to rest once and for all.

“The settlement allows the company to redirect the attention, energy and financial resources expended on the litigation to producing and delivering to our customers what we think are the best technology-based e-learning solutions available today,” said Moran.

In terms of the likely effect the settlement will have on SkillSoft’s cash position, the company said that its cash position at the end of fiscal 2004 will be between US$50m and US$55m, providing no borrowings are outstanding under the company’s US$25m line of credit.

However, SkillSoft is not out of the woods yet as an ongoing legal battle over misstated earnings and revenues at the Irish e-learning company SmartForce, which SkillSoft acquired a year ago, has yet to be concluded.

Three US law firms have filed class-action law suits against SmartForce and two of its executives, Greg Priest and Bill McCabe, on behalf of investors who lost money on shares they acquired between 19 October 1999 and 22 November 2002. The three firms allege that SmartForce’s failure to supply investors with correct financial details over the previous three-year period was fraudulent, insofar as they allege that untrue statements about the company’s finances were made in order to induce the plaintiffs to buy SmartForce shares.

In its recent financial results, the company said that legal fees arising from the purchase of SmartForce and the subsequent court cases have cost SkillSoft approximately US$5.1m, and major net losses due to goodwill impairment in the marketplace come to $250.1m – a total of $255.2m and rising.

By John Kennedy