Tektronix must pay $930,000 to a former employee and founder of a startup it purchased in 2018, according to a judgement from a federal judge in Delaware.
The opinion and final judgement amount is the result of a breach of contract lawsuit filed by James Bailey, the founder of Initial State Technologies, a Nashville startup that was acquired by Tektronix.
In his suit, Bailey said Tektronix breached its contract by not paying him $800,000 in a “retention hold-back” that was included in the acquisition deal. The suit revealed that Tektronix paid $8.4 million for the startup. The retention to hold-back was meant retain Bailey at the company after the acquisition and to pay him the amount if certain revenue requirements were met, according to the opinion from Judge Gregory B. Williams.
After a one-day bench trial Williams found that the hold-back agreement included in the deal was ambiguous. At issue during the trial was how to define the revenue generated from including Initial State Technologies software into Tektronix's oscilloscopes.
Tektronix said it intended the revenue to include only software-as-a-service revenue or incremental revenue brought in by the new intellectual property from Initial State Technologies. Bailey interpreted the clause to include oscilloscope revenue since his startup’s IP would be included in that hardware, according to the opinion.
As such, the revenue exceeded the contract threshold of between $6 million and $10 million during 2020, according to the opinion.
Williams ruled that in addition to paying the $800,000, Tektronix must also pay interest on the amount starting from Jan. 15, 2021.
A Tektronix spokesperson said the company had no comment on the ruling.
Bailey, who left Tektronix in May 2021, was represented by Morgan & Morgan Business Trial Group.
“We are pleased with the judge’s opinion to award Mr. Bailey the full amount we argued he was due,” said Bailey’s attorney Christopher Lee. “The defendant fought us tooth and nail at each step of the litigation, and it is vindicating to win everything our client deserves.”
Initial State Technologies made cloud-based software that helped engineers input data sets and create visualizations that are easier to digest. Tektronix makes oscilloscopes that are used to test electronics. According to Williams’ opinion, Tektronix saw Initial State Technologies as software that would anchor its foray into cloud technology.
At the time of the acquisition Initial State Technologies had a team of 12 employees. According to Williams’ opinion, the initial acquisition deal included a $1.5 million retention pool to retain key employees from the startup. However, a week before the deal closed that retention pool was dropped and it was determined that Bailey was the key employee the company wanted to keep.
Tektronix is owned by Everett-based Fortive Corp. (NYSE: FTV). It has 3,000 global employees and 1,000 employees in the Portland area.
