Two weeks before Chicago startup Opternative began offering “the world’s first online eye exam” in late July, co-founder Steven Lee settled a lawsuit alleging he had sold copyrighted test questions for optometry board exams through a previous business.
Lee will pay the National Board of Examiners in Optometry at least $181,200 — and up to $481,200 if Opternative continues to raise funding or is acquired, according to a settlement signed in mid-July. Lee did not admit to any wrongdoing.
The suit ratchets up the tension between Opternative and the industry it seeks to disrupt. The company fired back by saying the allegations were an attempt to discredit its technology, while the NBEO said it had been investigating the study guides before it was aware of Opternative.
Lee and entrepreneur Aaron Dallek founded Opternative in 2012. In late July, it released its platform to provide online refractive tests for $40.
The 25-minute test can yield contact or eyeglass prescriptions for individuals between ages 18 and 40 in 27 states so far, including Illinois. The company has raised at least $3 million from investors.
Reception from the optometric community has been critical, with doctors raising concerns that it will encourage patients to skip in-person eye exams that can uncover other illnesses.
The Charlotte, N.C.-based testing organization filed the lawsuit in U.S. District Court in October 2014. The suit alleged that Lee established a business called “Optometry Board Exams: Secrets, Hints, Tips, Cheat Sheets,” which advertised purchase of practice questions and study guides that included “unauthorized copies of actual questions in NBEO’s question database” to study for a Part I Exam — used to evaluate an individual’s fitness to practice optometry.
The suit accused Lee of trade secret misappropriation, willful copyright infringement, tortious interference with contract and breach of contract.
The NBEO’s copyrighted exam questions require “many hours of time and substantial thought and creativity,” the suit said.
According to the suit, Lee was confronted about the sales in November 2013 and took down the website.
Lee’s attorney, Mark Bagley of Chicago-based Tolpin & Partners, said Lee started the business shortly after graduating from the Illinois College of Optometry.
“What Dr. Lee did is, he took some of these materials that he received that were passed freely around among other students, packaged this together, changed it around, added some of his own tips on how to take the test and approach on how to take the test, and was selling these as a study guide for the various parts of the test,” he said.
Bagley said the settlement allowed Lee to refocus his energies on Opternative.
In the settlement, Lee agreed to pay $30,000 within a month. The remaining $151,200 will be paid in installments of $1,800 per month.
But Lee, who the settlement says owns or controls 490,000 shares, or 40 percent, of Opternative, will be required to make further payments if the startup raises additional capital in the next five years.
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If the company raises A or B funding rounds, Lee is required to pay $150,000 for each event. If the company is acquired, Lee must pay $300,000 to the NBEO, minus any payments made after the A or B rounds, according to the settlement.
Bagley said the payment structure was a creative solution to meet the cost of a settlement.
“Dr. Lee owns a significant amount of equity in Opternative. But that equity, the value, is not liquid right now, because as a practical matter, he can’t really sell his share or it would be at a ridiculous discount,” Bagley said. Additionally, “a founder of a company should not be seen as bailing out in any way, and he doesn’t want to bail out. He has a lot of confidence in Opternative.”
Opternative launched an Indiegogo campaign to raise $15,000 for the “world’s first online eye exam” in June 2013, making the company’s plans public knowledge. Lee began selling study guides through Optometry Board Exams in late 2007 and did so until confronted by the NBEO in 2013, according to legal documents.
“We are troubled by the timing of the NBEO’s actions, as the suit was filed nearly two years after our founding and appears part of a coordinated campaign by an aggressive group of optometrists to discredit our pioneering technology and misinform consumers seeking an affordable and convenient way to take a refractive eye exam,” Opternative CEO Dallek said in an e-mailed statement to Blue Sky.
“However, the settlement between Dr. Steven Lee and the NBEO will have no impact on the future financial performance of Opternative as we continue to grow our services.”
The testing organization countered that it had been looking for the person behind the study guide business since November 2012.
“The NBEO began investigating the owner of this inappropriate website long before there was an association with this business venture,” NBEO CEO Jack Terry said in an e-mail. “The investigation was based on the multiple issues described in the complaint which are contrary to the Candidate Agreement that all candidates read and sign when registering for any NBEO exam and immediately prior to taking an exam.”
He also said the NBEO holds no position on Opternative or any business venture of any optometrist, which would be “be outside the scope and function of the NBEO.”
Opternative raised $3 million in seed and bridge rounds from investors including Pritzker Group Venture Capital, Jump Capital and Chicago Ventures.
Email: [email protected] * Twitter: @megancgraham