Phil Knight filed a $33 million bet-the-company lawsuit in 1973 against Onitsuka Co., the Japanese company whose shoes he started importing in 1964.
He prevailed, winning a $400,000 settlement as the case went to appeal. The lawsuit severed Knight from Onitsuka and blew wind into the sails of Nike, the brand he launched in 1972 while still selling Onitsuka shoes.
The case is about to be in the news again.
Next week, Knight will publish his memoir, "Shoe Dog." The book will focus on the company's early years. In advance of the book's publication, the Business Journal trekked to the National Archives in Seattle and photocopied the Onitsuka lawsuit.
The Knight Files:
On eve of publication of Phil Knight's memoir, welcome to the Knight Files
It is a treasure trove of information about the first decade of one of America's most iconic companies. Knight's deposition stretches more than 1,300 pages. He also testified each of the 10 days of the April 1974 trial.
The lawsuit corroborates what's expected of Knight's memoir. He comes across as entrepreneurial, confident and willing to take enormous risks.
Here are 10 business lessons from the lawsuit.
Check back throughout the week for more online coverage of Knight's career. Read Friday's print edition for a cover story about the 16 most important years in Knight's professional life.
1. Live lean and invest heavily.
Knight lived with his parents when he started Blue Ribbon Sports, the company that eventually became Nike, a Fortune 500 powerhouse.
It wasn't glamorous.
"It was rather a meager existence," Knight said, in his 1974 deposition. "I was living at home and my parents were not charging me rent, and they weren’t charging me for the food and the meals I did eat there."
Knight and co-founder Bill Bowerman kept expenses to a minimum. Knight didn't reimburse himself for mileage, for example, when he drove his personal car around Portland in 1964 selling the company's first shipment of imported Japanese track shoes.
When asked during his deposition when he first took a salary, Knight couldn't remember.
He eventually determined it was 1969. Even then, Knight took a low salary.
“…We were doing that (low salaries) to put everything back in to (the business to) buy more and more shoes,” he said, in the deposition.
Knight also worked two jobs for the company's first five years of existence, including as an accountant at Pricewaterhouse and an accounting professor at Portland State. Working two jobs enabled him to pump profits back into the company.
"I tossed in most of my Pricewaterhouse checks for four years," Knight said, in a 2014 speech at Stanford.
2. Work hard.
Knight worked "all the time I had," basically, while starting the company, he said in the deposition. He made phone calls to coaches on lunch breaks while working 50-55 hours a week as an accountant. He spent weekends at track meets.
When he went to Japan to visit Onitsuka, he traveled frugally.
"I went by train, and in the old days it was not nearly as nice as the train that runs now," he said, in the deposition. "As I recall, it was the month of August, which is a vacation month for Japan, and I stood up for the better part of seven hours on the way down to Kobe."
3. Take risks.
A press release for Knight's memoir says it will portray him as an entrepreneur. His deposition in the BRS lawsuit supports that characterization.
In 1962, he sold his car to finance part of the trip to Japan to start the company. In 1964, Knight cashed out his $1,000 savings account to buy the first load of shoes.
“It was all the money I had in the world," he said.
As the jogging boom took off and sales skyrocketed, Knight signed a series of personal guarantees.
“We owed the bank, I believe, in excess of over $400,000, which I was personally on the line for," he said, in the 1974 deposition.
At the time, Knight earned $1,500 a month.
In his 2014 speech at Stanford, Knight said he eventually was on the hook for a $750,000 personal guarantee on a company loan.
4. Remember social skills.
In 1971, Shoji Kitami, a representative from Onitsuka Co., visited Knight and made a lowball offer for 51 percent of Knight's company, then known as BRS. In his 1974 deposition, Knight says he knew his deal with Onitsuka was about to implode.
Many entrepreneurs would have started a shouting match. Knight remained cool.
After a few days of meetings, he and his family even took Kitami to spend a weekend at Knight's father-in-law's cabin in Neskowin, on the Oregon coast, according to the deposition.
Kitam left Portland and returned a few weeks later. That time, Knight and Kitami played golf.
“I was as pleasant as possible,” Knight said in 1974, of the 1971 meetings with Kitami.
5. Expect adversity.
Nike is a global powerhouse today. But it struggled in its early years. The problems started as soon as Knight set out to sell his first carload of shoes.
"I met more sales resistance than I had expected," Knight said, in the 1974 deposition.
Onitsuka didn't have a strong brand in the U.S. Adidas did.
Like many apparel companies, the company was chronically short of cash. Knight got booted from the two biggest banks in Portland in the '70s.
Knight's first attempt to take the company public — in 1970 — also flopped. Knight wasn't able to take the company public until 1980.
6. Know the business.
Knight ran track at the University of Oregon, where Bowerman constantly tinkered with running shoes. He knew the track shoe business cold.
That shows in his 1974 deposition.
Knight visited Japan in 1964 in hopes of convincing Onituska to sign a formal deal. He didn't even have a formal presentation. Knight knew the business well enough to speak extemporaneously. He signed the company's first deal on Aug. 8, 1964.
7. Act ethically.
In the Onitsuka lawsuit, Knight confessed to two ethically dubious decisions. At the first meeting with Kitami in 1971, Knight photocopied one of Kitami's files. He figured it contained important documents about Onitsuka's plans to end its deal with BRS.
“And in one of the coffee breaks I covered the file up with a blotter, and after they went home that evening I brought the file out and discussed it with (eventual Nike president Bob) Woodell on whether or not we should copy the file," he said, in the 1974 deposition. "Mr. Woodell and I figured that the people may very well be trying to sink us, and we should therefore copy the file, which we did."
Knight also admitted he briefly paid an Onitsuka employee to act as an industrial spy. Under intense questioning at his deposition and at trial, Knight said he never got any information from the spy. He only paid him a few hundred dollars.
"I never received any confidential information," he said, in 1974.
In a 1974 court ruling, a federal judge said the lawsuit hinged on whether Knight or Kitami was more credible.
Knight won. The judge ruled in his favor.
8. Be humble.
On a 1964 trip to Japan — which resulted in the first deal in the company's history — Knight bought a book: "Doing business in Japan."
The central lesson of the book: humility.
"Just not try to overpower (people) like so many Americans have a reputation of doing," he said, in 1974.
9. Hire, and work with, the best.
Bowerman was the most celebrated track coach in America when Knight teamed with him to found the company. Knight realized the power of endorsements early.
In a 1996 interview with The New York times, he said as a kid he bought the sneakers worn by Celtics guard Bob Cousy "because I wanted to play like him."
When he wrote the business plan for what became Nike in a small business class at Stanford, Knight wanted to partner with Oregon track standout Dyrol Burleson, according to the 1974 deposition.
"I made a point in this paper that if Dyrol Burleson were to become involved in selling track shoes or distributing track shoes in the state of Oregon, that probably every kid in the state of Oregon would want to have those shoes."
10. Keep control.
Knight won the lawsuit against BRS. If he had lost, it may have cost him the company.
That might explain why Knight has kept such an iron grip on Nike's shares. He controls 72 percent of the company's Class A stock, which nominates nine of the company's 13 directors.
"I choose not to sell any kind of significant number of those shares," Knight said, in a 1998 speech at the National Press Club. "I in no way want to tempt corporate raiders."
