Muscle Builder Flexes in Court

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For nearly a decade, L.A.’s Axiom Foods Inc. has doubled its revenue every year on the strength of an obscure product: rice protein.

Little-known Axiom has cashed in on the popularity of protein supplements, which have muscled their way out of the province of aspiring bodybuilders and onto the shelves of health food stores. As a wider range of consumers incorporates protein bars and powders into their diets, they’re also snatching up alternatives to traditional protein sources. The result has been big bucks: Last year, Axiom, the dominant player in rice protein, says it hit $45 million in sales. Products made from its protein powders are sold nationwide.

But that success, Axiom claims, has bred competition from within. The company is accusing a former executive, Robert Bransky, of starting a competitor, J.R. Williams in Tucson, Ariz. Complicating matters further, Bransky is also a founder and remains a co-owner of Growing Naturals, a sister company of Axiom.

Calling Bransky’s actions a “shocking betrayal,” Axiom has sued its former employee.

“In blatant disregard of his fiduciary and contractual duties, Bransky, a trusted officer of plaintiffs Axiom Foods Inc. and Growing Naturals, has secretly carried on a campaign to undermine those companies by, among other things, sabotaging relationships with customers, and disparaging the companies and leaking confidential information to third parties,” Axiom says in a court document.

Bransky denies the claims against him in the complaint and intends to vigorously defend himself, said his attorney, Robert Kort. He declined to comment further.

The fight occurs amid the growing popularity of plant-based proteins – protein extracted from soy, peas, rice and other crops instead of the more common whey, a cheese byproduct. Aided by celebrity endorsements, increased interest in plant-derived products and an overall rise of protein supplement sales, plant-based protein powder sales grew 25 percent last year to reach $820 million, according to trade publication Nutrition Business Journal. The report said plant-based protein powders outsold those based on whey and other proteins in October, the first time that had ever happened, citing market research firm Spins in Schaumburg, Ill.

Developing market

Axiom was founded in 2005 by David Janow, who had previously worked at a Scarsdale, N.Y., company owned by his family, Citadel International Corp., a supplier of food, chemical and animal feed ingredients. While developing rice proteins for animals, Janow realized the potential the technology could have for human consumers and started his own venture.

Axiom, based in West Los Angeles, contracts with a third-party factory in China, which extracts protein from brown rice using enzymes. The company supplies rice protein to companies that sell it as a powder, or put it into snack bars or beverages. It also supplies pea proteins and other products such as rice sweeteners. But its calling card has been the rice protein, and it has become the dominant supplier in the market.

“They’re the only one worth mentioning,” said Edward Lee, chief executive of Industry’s AIDP Inc., a rival rice protein maker. “The others are all small players.”

In 2009, Janow and Bransky co-founded a sister company, Growing Naturals in Arizona. A branding and marketing business, it sells Axiom’s protein powder under its own label through retailers such as Whole Foods Market Inc. and Sprouts Farmers Market Inc.

The products have been a success, and Axiom claims to have exceeded 100 percent annual revenue growth since its founding.

Its business was further boosted last year when a small independent study concluded that rice protein was as effective as whey in building muscle.

Earlier this year, Janow told a food industry trade publication that sales hit $45 million last year and were expected to be as high as $100 million this year.

Its success has drawn competitors. AIDP, a wholesaler of a variety of nutritional supplements, began manufacturing rice proteins last year. Lee said his company had rice protein sales of about $3 million, accounting for less than 5 percent of its annual sales, but he expects the sector to grow.

Internal threat

Outside competition is one thing, but Axiom claims to have uncovered an internal threat. According to a Los Angeles Superior Court complaint filed last month, Bransky has been plotting to launch competing rice and pea protein products.

It’s unclear when Bransky joined Axiom, but according to his LinkedIn profile, he formed a separate company, J.R. Williams, in 2008. On its website, J.R. Williams describes itself as a supplier of gelatin, rolled oats and other products that don’t compete with Axiom.

But Axiom claims Bransky secretly agreed with third parties to create a rice and pea protein business, “which would undermine all of Axiom’s product lines and then exploit his inside information on Axiom’s customers to sell to them.” It further alleges that he used knowledge of vendors to purchase protein powder, leaked confidential information, including product test results, and disparaged Axiom to third parties. Axiom and Growing Naturals are seeking $35 million in damages.

Keith M. Gregory, an attorney at Snell & Wilmer in downtown Los Angeles who reviewed the case for the Business Journal, said that Axiom would need to establish that the information was confidential, that Bransky used the confidential information and that Axiom lost sales as a result.

Employees are free to leave and start competing companies so long as they don’t breach agreements by using confidential information, Gregory said. But these kinds of disputes are more common when it comes to new products, because more of the information in question is considered proprietary.

“Let’s say somebody was trying to develop a new kind of car engine. Car engines are manufactured all the time. We know who the manufacturers are and the public knows that information,” he said. “But this is kind of a new market and a new type of business. The information has independent economic value.”

Meanwhile, demand for rice protein products is expected to grow – and the industry figures to draw new competitors, Lee said.

“It will expand more and more, and consumers will realize its value,” he said. “There are going to be other companies joining the competition with better products and better service.”

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