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It’s hard to say whose mug is wearing the most egg when it comes to the surprise lawsuit that surfaced the day after Leapfrog Enterprises Inc. went public late last month. Could it be company counsel Cooley Godward, whose crack lawsuit reporting service found the week-old suit the same day the company’s receptionist accepted a delivery that turned out to be a complaint? Perhaps it’s the plaintiff, Technology Innovations LLC, who arguably squandered a great opportunity to use a pending initial public offering as leverage to settle the dispute. Or maybe it’s the plaintiff’s lawyer, Rochester, N.Y.’s Boylan, Brown, Code, Vigdor & Wilson, which filed the suit July 18 in the U.S. District Court for the Western District of New York but then waited a week to tell Leapfrog. “It was a bit of a mystery,” said Shearman & Sterling partner John Wilson, who represented the underwriters in Leapfrog’s July 25 IPO. “The strange thing about this one was that there was no prior warning or correspondence that the company received.” The thought that crossed Wilson’s mind when he learned of a suit not disclosed in the offering documents was: “Oh, my god,” Wilson said. This isn’t usually how these things work, lawyers say. Lawsuits that come out of the woodwork when companies file offering documents with the Securities and Exchange Commission are generally well publicized by the plaintiffs. They don’t usually get filed stealthily. The reason is money, said Daniel Johnson Jr., a litigation partner at Fenwick & West who has been involved in several pre-IPO cases. “It’s a strategy to highjack the IPO or extract money,” Johnson said. “The difference here is that they never said anything until afterward, so they lost all of their leverage.” The popular thinking is that plaintiffs can use the impending IPO to their advantage in extracting licensing fees. That’s because the company wants to keep everything tidy for the offering, and executives will want to make disputes go away. Sometimes the plaintiff simply calls the company and suggests they work it out without having to trouble with the courts. “When these things happen, your first impulse is to conclude it’s harassment or a nuisance lawsuit that’s been brought just to extract a licensing fee,” Wilson said. The suit, Technology Innovations v. Leapfrog Enterprises, 6377, alleges that Leapfrog infringes on a patent owned by Technology Innovations. Wilson said Leapfrog executives had examined the patent in question, No. 5517407, titled “A Device for Including Enhancing Information With Printed Information and Method for Electronic Searching Thereof,” years ago, and they determined there wasn’t a problem. The nagging question in this case is, what kind of strategy were the plaintiff and its counsel employing? But they’re not talking. Mike Weiner, an entrepreneur and CEO of West Henrietta, N.Y.-based Technology Innovations, said he wouldn’t comment on pending litigation. His lawyer didn’t return a call for comment. What the suit managed to do right away was send Leapfrog’s lawyers into a tizzy. They worked around the clock and through a weekend to determine whether the suit was damaging to the offering and to notify the SEC, investors and Nasdaq. It didn’t stop the IPO, however. As Cooley’s Kenneth Guernsey, who represented Leapfrog in the deal, put it: “The first day went great and after we announced the suit, the second day went great.” The company raised $130.5 million in its offering. Of course, that was on the trading floor, after the lawyers involved suffered the initial heart attack of learning that Leapfrog was a target in a suit not disclosed in the offering documents. “It came as a bit of a surprise,” said the understated Guernsey. “You never want to see a client get sued, but is it embarrassing? No.”

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