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Competitive brothers staying out of court

This is a tale of two brothers.

Older brother Robert graduated from Harvard, ventured to Europe and founded an online printed products marketing company nearly 11 years ago.

Younger brother Daniel graduated from Dartmouth, worked in banking and then returned to Buffalo to work for the printing company his father ran. Their father, Kevin, was chairman of the company Daniel eventually came to run, and also was an early investor in Robert's venture.

By September 2002, the Keane brothers' paths crossed in a way that was most beneficial for both. Robert's company, VistaPrint Ltd., needed a printing company to make the business cards, stationary and other products it sold through its Web site. Daniel's company, Mod-Pac Corp., found a fast-growing new customer that would help it outfit a highly productive printing plant that could quickly process thousands of small orders each day.

Bundling so many small orders together so that they could be printed and shipped out quickly -- and profitably -- took some doing. So much so, in fact, that the process was patented.

For a couple of years, the relationship flourished. VistaPrint brought in more and more orders, which meant more and more work for Mod-Pac. Sales at Daniel's company grew by better than 20 percent a year. Profits nearly doubled over two years. And Mod-Pac's stock soared from a little more than $4 in March 2003 to nearly $18 last August.

But in July 2004, Robert's company decided to break up with Daniel's company, handing over $22 million to Mod-Pac to end its deal early. Instead, Robert's company built its own printing plant, which would make VistaPrint more profitable than it was relying on Daniel's firm, which had pocketed a 33 percent markup on each order it printed. At the end of August, Robert's company stopped buying from Daniel's company.

Since then, Robert's company has flourished, selling stock to the public that has shot up from $12 to more than $34 in less than five months. That gave VistaPrint, on pace for $130 million in annual sales and solidly profitable, a market value of more than $1.3 billion.

Meanwhile, Daniel's company has struggled. Without VistaPrint's business, its sales are down and so are its profits. It's scrambling to find customers to replace VistaPrint's business. Mod-Pac's updated factory is running at only about half its capacity. Its once-flourishing stock has tumbled to near $11, dropping its market value to about $37 million. VistaPrint, which has not quite three times Mod-Pac's sales, has a valuation that's about 35 times greater.

So when Robert's company let it slip that Daniel might have a claim on the patent that VistaPrint uses, some Mod-Pac investors latched on, wondering if that might help Mod-Pac and its sagging stock.

Daniel says he's looked into it. He hired a patent lawyer in New York City, who sent a letter to VistaPrint saying Daniel had an ownership interest in the patent. VistaPrint disagrees.

It could turn into an ugly family feud, but Daniel says it's not worth fighting about. Mod-Pac already is using the processes covered by the patent, allowing it to combine hundreds and thousands of orders into an efficient and profitable press run. "We're commercializing it, so we're benefiting from it," he says.

Pursuing the patent claim any further could cost as much as $2 million and it probably wouldn't gain anything for the company or its shareholders, Daniel says.

"We are actively commercializing the aggregation of small orders into print," he says. "If I'm commercializing the patent, what would I have to gain?"

Just personal satisfaction, Daniel says. And that's not worth the cost. "My own lawyer said, 'Do you want to sue them just so you can hang a certificate on the wall that says the Keane brothers were the co-inventors?' "

e-mail: drobinson@buffnews.com

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