A Phone So Bad The Shareholders Would Sue?
By Mike Masnick, Fri Feb 04 23:45:00 GMT 2005

Mobile phone designs succeed and fail all the time. However, could it be possible to design a phone that fails so badly the shareholders sue over it?

Class action lawsuits can fall into a weird category sometimes. While they serve a good purpose in helping large groups of people who were wronged, it sometimes gets taken to ridiculous extremes. It seems like there are very few cases where a public company misses its earnings numbers and then doesn't get hit with some sort of class action lawsuit. However, there always needs to be some kind of reason. Often, with shareholder suits, it involves whether insiders knew about bad news and didn't reveal it or something along those lines. However, in the case of Sierra Wireless, the lawsuit seems to be focused on something much simpler: whether or not the company violated its duties to shareholders by launching a terrible handset.

The Sierra Wireless Voq phone actually was quite a sensation when it came out. The company was not in the handset business, but in October of 2003, it confirmed widespread rumors and jumped into the smartphone business with the Voq phone. It's most distinguishing feature was that the candybar phone had a foldout thumb keyboard, unlike any other phone on the market. Initially, the phone even received fairly high praise from reviewers who thought the design was an innovative way to fit a keyboard on a typical handset. However, the phone did have trouble selling for a variety of reasons, including that the heralded keyboard was actually a bit awkward to use when opened up.

Is that worth a lawsuit, however? The class action filing claims that the real problem wasn't just that the phone was bad, but that it competed against PalmOne's Treo 600 phone, for which Sierra Wireless was a supplier. In other words, Sierra positioned itself to compete against its own customer. That's always a tricky situation, but companies often feel they need to take a chance to expand their own business opportunities, and Sierra appeared to be doing exactly that. It may have turned out to be a bad business decision in retrospect, but it's hard to see how making a business mistake constitutes "violating duties to shareholders."

If this case actually gets anywhere, it could open up the possibility of similar shareholder lawsuits any time any company introduces a product that fails. It would decrease the incentives to take risks with new products and could slow down innovative efforts from existing companies. Of course, right now, not a single plaintiff has signed on, so the case may not go very far no matter what. It appears this may just be a case where some lawyers are simply looking for any kind of class action lawsuit, rather than a situation where one is actually deserved.