A legal dispute is brewing between leading tower companies Vertical Bridge REIT, the fourth-largest tower company in the United States, and its competitor, Everest Infrastructure Partners (including EIP Holdings II). The action has been initiated by Vertical Bridge, a portfolio company of DigitalBridge, in the U.S. District Court for the Western District of Pennsylvania (Pittsburgh), alleging violations under the Defend Trade Secrets Act of 2016. This act is designed to protect businesses from unfair competition. The case, filed on June 8, 2023, underscores the growing importance and controversies surrounding the business practice known as “tower land aggregation” within the cellular towers industry.
Vertical Bridge is suing Everest Infrastructure for false advertising, violation of federal and state trade secrets laws, unjust enrichment, tortious interference with both existing and prospective contractual relations, and unfair competition, all in the context of tower land aggregation.
Dive deeper into this intriguing case as Dgtl Infra examines the allegations brought by Vertical Bridge against Everest Infrastructure, shedding light on the competitive practices within the cellular tower industry.
Vertical Bridge’s Tower Operations and Management
Based in Boca Raton, Florida, Vertical Bridge holds the fourth-largest market share in the U.S. telecommunications towers industry. Its portfolio comprises over 500,000 sites, which include more than 11,000 owned and master-leased cellular and television/radio broadcast towers. The company generates revenue by leasing tower space to national wireless carriers, such as Verizon, T-Mobile, AT&T, and DISH, along with television and radio stations and government entities.
Regarding telecommunications towers, Vertical Bridge typically owns the tower and has a lease or an easement for the real property on which the tower is located, also known as a ground lease. Each tower, with its multiple tenants and long-term leasing agreements, represents millions of dollars in value for Vertical Bridge.
Tower Selection and Management
The locations for Vertical Bridge’s towers are selected based on several factors, primarily network reliability for its tenants. The company has long-term contractual relationships with landlords across the country, allowing Vertical Bridge to install and operate towers on their property in exchange for rent (in the case of a lease) or another form of payment (in the case of an easement).
Tower management and operation costs run into tens of thousands of dollars per year. The construction of a tower, which often takes several months, can cost upwards of $500,000.
Tenant Preferences and Vertical Bridge Contracts
The installation of tenant equipment on towers is a process that is both time-consuming and costly. Once tenants are established on a Vertical Bridge tower, they generally prefer to remain there for decades to ensure uninterrupted service to their customers. Consequently, Vertical Bridge secures long-term leases or easements, often spanning over 20 years, with landlords.
Many of Vertical Bridge’s contracts include a right of first refusal (ROFR), as well as non-interference and consent-for-assignment provisions. These contracts also contain confidential pricing terms and price structure information, such as details regarding rental payments and periodic rental payment increases, commonly referred to as escalators.
Everest Infrastructure’s Scheme: A Direct Competitor
Everest Infrastructure, a Pittsburgh-based direct competitor of Vertical Bridge, operates in an unconventional way within the telecom infrastructure industry. Unlike other companies, Everest engages in an extreme form of a business strategy known as “tower land aggregation”, “tower aggregation”, or “ground lease aggregation”. This strategy involves questionable practices, including the unlawful misappropriation of trade secrets, to interfere with Vertical Bridge’s contracts, thereby increasing its market share.
Background to Everest’s Alleged Unfair Practices
Everest Infrastructure stands accused of devising and implementing an inappropriate, multimillion-dollar scheme spanning several states, allegedly aimed at illicitly enhancing its market share at the expense of Vertical Bridge.
Interestingly, this is not Everest’s first brush with controversy. Key personnel, including Everest’s CEO, Matt Newton, and General Counsel, John Lemmon, previously operated a company named TriStar Investors. In 2012, TriStar was sued by American Tower (NYSE: AMT) – the largest telecommunications infrastructure company in the world – for similar unlawful business practices. After the litigation, TriStar ceased operations, and its principals went on to establish Everest, seemingly perpetuating their previous schemes.
At present, Everest’s contentious strategy targets major U.S. telecommunications infrastructure companies, including Vertical Bridge, suggesting a potentially broader impact on the tower industry as a whole.
How Everest Operates
Everest targets towers subject to soon-to-expire ground leases, specifically those with less than 10 years remaining. It then solicits landlords to share Vertical Bridge’s confidential, trade secret-protected information, promising them a percentage of the revenue that Everest would purportedly receive from tenants should it replace Vertical Bridge. Everest uses the misappropriated trade secrets to formulate an offer designed to undermine Vertical Bridge’s right of first refusal (ROFR), violate its non-interference rights, and contravene its consent-for-assignment rights.
To illustrate how this scheme works, consider the following example: Everest targets a Vertical Bridge landlord, convinces the landlord to share Vertical Bridge’s confidential lease terms, and then crafts an offer to purchase the landlord’s leasing rights for a substantial lump-sum payment at closing. In addition, they propose a monthly rental rate going forward that is 5 to 10-times higher than the current rent that Vertical Bridge pays, plus a promise to pay the landlord 50% of Everest’s revenue from tenant leases.
Implications of Everest’s Practices
Everest’s tactics put Vertical Bridge in a challenging position. The company must either attempt to match Everest’s offer, which would be impossible due to the immediate sharing of existing revenue, or allow its competitor to become its landlord. If Everest were to replace Vertical Bridge, the latter would have to incur significant costs and effort to abandon its existing site and relocate tenants to a new site.
Moreover, Everest’s scheme could cause significant harm to Vertical Bridge, including the loss of market share, depreciation of trade secret value, reputational damage, and increased operational costs. Landlords may also be affected, potentially losing valuable leasing rights in exchange for Everest’s illusory promises of future revenue.
Summary of Legal Counts Against Everest Infrastructure
The following is a summary of the seven legal counts that Vertical Bridge has filed against Everest Infrastructure, detailing accusations that range from false advertising and trade secret misappropriation, to unjust enrichment, tortious interference with contracts, and unfair competition.
- Count I: Everest is accused of false advertising under the Lanham Act, involving deceptive offers (e.g., illusory revenue shares) and misrepresentations about Vertical Bridge’s services
- Count II: Under the Federal Defend Trade Secrets Act, Everest is alleged to have misappropriated Vertical Bridge’s trade secret pricing information
- Count III: Everest faces similar accusations under the Pennsylvania Uniform Trade Secrets Act for inducing landlords to disclose Vertical Bridge’s trade secrets
- Count IV: Everest is accused of unjust enrichment from the misappropriation of Vertical Bridge’s trade secrets, leading to tailored offers that undermine Vertical Bridge’s rights
- Count V: Vertical Bridge alleges that Everest has interfered with their existing contractual relationships, inducing breaches of trade secrets and unconsented contract assignments
- Count VI: Vertical Bridge asserts that Everest interfered with prospective contract renewals, using misappropriated information and misrepresentations
- Count VII: Vertical Bridge claims that Everest engaged in unfair competition by using confidential information to gain a competitive advantage and interfere with existing and prospective contracts
Overall, Vertical Bridge wants Everest to account for earnings from its alleged illicit activities and to cease unfair competition, trade secret misappropriation, and contract interference. Additionally, they are requesting all pertinent damages, lost profits, disgorgement of Everest’s profits, lawsuit costs, attorneys’ fees, and interest.
Initially, the case has been assigned to the Alternative Dispute Resolution (ADR) program of the Western District of Pennsylvania. This process may encompass negotiation, mediation, and arbitration, before moving forward to trial.
Legal Advisor – Vertical Bridge
Vertical Bridge is being advised by K&L Gates, represented by Dave Osipovich as legal counsel.