In the esoteric world of online astrology, you might say Mercury has been in retrograde for years.
Even people who turn up their nose at horoscopes might well know that when the little planet "reverses," technology and communication can get all mucked up--delayed flights, broken PCs, all sorts of bad stuff.
No one knows that better than Kelli and David Fox, who pioneered the online horoscope business when they founded Astrology.com in 1995--and who became winners in the dot-com lottery four years later when they sold the site to iVillage for a reported $28 million. Since 2005, however, the native Australians have been locked in a prolonged legal battle with iVillage--or NBC Universal since the media conglomerate bought iVillage in 2006 for roughly $600 million--over contractual rights and the appropriate use of Kelli Fox's likeness on the site.
The long legal battle has filled five phone-book-size encasements of legal documents, pending a trial sheduled for this summer in California Superior Court in San Francisco. The case, which could still be settled, highlights what often happens when start-up founders sell the company they poured themselves into, only to be unhappy with what it's become years later.
But at the heart of the issue is money. Astrology.com brought in $1.3 million for iVillage in the quarter that ended March 31, 2006 (before iVillage was acquired), about 6 percent of the company's overall revenue at the time, according to a filing with the U.S. Securities and Exchange Commission. That revenue--which counts the sale of charts, advertising and licensing fees--grew by 17 percent over the same period a year earlier. Industry watchers say it's safe to assume that Astrology.com now has an annual revenue of $5 million.
Driving traffic to other iVillage content and services might be even more valuable to the company, however. According to research firm ComScore, iVillage derived more than 10 percent of its overall traffic--2.2 million visitors out of a total of 14.3 million--from Astrology.com in November 2006.
While some may find it hard to believe, horoscopes are the little Internet business that could. In terms of software, the business is largely a matter of writing a program that can churn out scripted horoscopes for any sign, any day of the week. Once operation and technology costs are covered, the purveyors of horoscopes sit back and collect ad revenue against those daily readings, as well as fees for sending other marketers "leads" in the form of e-mail addresses from interested consumers (which must sign up to get their reading). Horoscope sites like Astrology.com also make money from the sale of astrological reports, which cost about $10 each.
But for the stars to align for any horoscope site, it must generate lots of traffic; a reputable astrologer can help with that cause. And that's where the trouble started here.
A born astrologer
In person, Kelli Fox seems like a born astrologer. A petite woman with brown hair, she will immediately ask for your birth date; then look up your rising sign in a copy of John Maynard's Pocket Astrologer that's tucked in her purse. She studied at the College of Humanistic Astrology in Sydney, Australia, and received accreditation from the National Center for Geocosmic Research (NCGR) and the American Federation of Astrologers (AFA).
Her husband, David, is the businessman behind Astrology.com, and helped start the company in December 1995. The two sold their first astrology report in 1996. By 1999, like many upstarts at the time, the Foxes either needed to fuel growth from venture capital money or get acquired by a larger, more established company.
When iVillage bought Astrology.com in 1999, the Foxes stayed on and ran the business until 2003. Some time later, the pair said they became aware of what seemed to be conflicts in the original sale agreements between Astrology.com and iVillage. Kelli Fox complains that her followers were confused about whether she had left iVillage because of language on the site referring to her as "publisher" and "your Astrologer." They believe iVillage had muddled the person, Kelli Fox, with their Web site brand.
The Foxes also say that iVillage expanded the scope of her name and likeness beyond their agreed "field of use"--which was online astrology for women--to other areas such as psychic services and horse-betting advice.
"People need to know who they're dealing with," Kelli Fox said.
Still, iVillage contends that it's within its rights.
"Kelli Fox sold her name and likeness as well as all the associated goodwill to iVillage when she sold her astrology business," according to a statement from NBC Universal. "In so doing, she agreed that iVillage could continue to use her name and likeness in connection with the services it provides. iVillage's use of the Kelli Fox name and likeness is fully within its rights under the parties' agreements."
After sending initial letters to iVillage asking for changes, Kelli and David Fox filed a formal complaint on August 16, 2005, in U.S. District Court for the Northern District of California. It charged iVillage with breach of contract, trademark infringement, federal false advertising, cybersquatting and unfair competition, among other grievances. They sought a permanent injunction against iVillage for infringing on the Kelli Fox mark, cancellation of the Kellifox.com domain name, and punitive damages.
On October 4, 2005, iVillage filed a motion to dismiss the case. A judge granted the motion to dismiss a month later on the grounds that the complaint failed to state a federal claim for lack of subject matter jurisdiction. The court didn't address the merits of the case.
The Foxes refiled their lawsuit in December 2005 in California Superior Court with the same complaints under state law. The following month, iVillage sought to dismiss the suit, but the court has allowed it to proceed.
iVillage has countersued, alleging that the Foxes were "engaged in a bad faith attempt to renegotiate a contract from which they have already richly benefited," according to the counterclaim. That's partially because clauses in the two parties' original separation agreement barred the Foxes from filing any complaints following their departure.
The two sides are in settlement talks, and a trial is scheduled for July 16.
The Foxes said that they had a noncompete agreement with iVillage until February 2005, six years after the sale of the company. They add that they honored the agreement and that they're headed back into horoscopes full-bore.
Now the couple owns ZDK Interactive, a San Francisco media holding company for KT the Astrologer (Kelli Fox under a new moniker), and a new horoscope service for mobile phones and the Net. They've built new software for delivering daily horoscopes and chart readings, and the plan is to license the service to third parties. So far, they've teamed with Cingular and Sprint to offer astrology videos via mobile phones.
The Foxes are also investors in several companies, including the hybrid ferry company Solar Sailor and a social network for sick people called Patientslikeme.com.
So what's next for the lawuit? Ira Rothken, managing partner of Rothken Law Firm, who handles many trademark disputes, said he is dubious about the Foxes' case because most consumers wouldn't necessarily believe Kelli Fox is the one prescribing personal horoscopes at iVillage when the site reads "powered by Kepler," which is software that runs the site.
"A reasonable consumer going to that site," said Rothken, who's not involved with the case, "after seeing the astrology readings are powered by Kepler, (is) not going to think Ms. Kelli or anyone else is drafting a personal profile."