The ongoing legal case between the company he co-founded, Iona, and his new venture, Cape Clear, is not likely to lead to retaliatory action, says Annrai O'Toole, who tells Jamie Smythhe remains proud of what Iona has achieved

Despite being forced to resign from Iona's board of directors and doing battle with the Irish software firm in a US court last week over allegations of staff poaching by his new venture, Mr Annrai O'Toole, is pretty relaxed about his very public spat with Iona, the company he co-founded in 1991.

The 36-year-old Dubliner is a millionaire many times over from sales of Iona stock and he still holds a 7 per cent stake in Iona worth more than €20 million. Last week he finally resigned as an Iona director, after months of debate with the firm over whether his new firm, Cape Clear Software, is a competitor with Iona.

"I don't see it that way, although both Iona and Cape Clear are in the web-services space," says Mr O'Toole. "This space is huge and will be fragmented over time - we have relatively minor overlap."

Iona is targeting large enterprises as customers for its sophisticated web-services software, which will enable companies to link different computer systems together, while Cape Clear will sell a much simpler product. And during most of 2001 the nature of the relationship between the two firms was being discussed by Iona and Cape Clear, and there was even talk of a partnership, says Mr O'Toole.

But since the start of the year the relationship between Iona, Cape Clear and Mr O'Toole has deteriorated sharply.

"I don't know about Iona's strategy because I haven't been to an Iona board meeting for six months. . . I thought it better not to put myself in a position of conflict."

Mr O'Toole's resignation from the board was also prompted by a court case taken by Iona against his new venture, Cape Clear, over allegations of staff poaching. Last week a US court decided to throw out Iona's application for an injunction to stop its former head of US sales, Mr Robert Walmsley, from joining Cape Clear. The company alleged he was violating a non-compete clause in his Iona contract by moving to Cape Clear. Iona confirmed yesterday it would appeal this judgement to prevent Mr Walmsley's appointment.

"I'm surprised no one [from Iona\] picked up the phone to talk about this," says Mr O'Toole, who is keen to play down the dispute. "This sort of thing is standard in the US where there are two or three non-compete cases every day. It's a non-news event."

This is the second non-compete case to have affected an Irish software firm recently, following a case taken by data-storage giant EMC against an employee of Dublin firm Eurologic. This is because the software business is primarily about people, says Mr O'Toole. "Venture capitalists primarily invest in a team of people."

Cape Clear is one of more than 10 spin-off firms from Iona but the only one to have faced legal action from its parent firm. Mr O'Toole believes it could signify a change in culture at Iona.

"Iona has served as a giant university and has a large alumni that help each other and still keep in contact via an e-mail list which has about 200 people," he says.

"Everyone would have a lot of respect for people like Chris \ who are generally doing the right thing. . . \ as Iona has grown up it has entered the US market and there are a lot more Americans in there and the campus spirit isn't there anymore. It is a facet of getting big."

But the breakdown in relations between Cape Clear and Iona, and the ongoing legal case, isn't likely to lead to retaliatory action from Mr O'Toole.

Asked if he would consider selling his stake in Iona, which would have a dramatic impact on Iona's sagging share price, he says: "absolutely not".

"I'm enormously proud of what we achieved at Iona," he says. "It has made a lasting contribution to the Irish software industry."

Mr O'Toole studied engineering at Trinity College Dublin from 1983 to 1987 and later joined the university's computer science distribution systems group, where he met Iona's co-founders Mr Sean Baker and Dr Chris Horn.

"The idea to set up a company had been going around for a long time at Trinity," says Mr O'Toole. "Iona was the first in that classic US role to emerge in Ireland.

"One of my motivations for setting up companies like Iona and Cape Clear is that virtually all my engineering class of 1987 left the country to find work," he says. "I was determined to try to change the environment here."

Unlike Cape Clear, which has raised almost $20 million from domestic and US venture capitalists, Iona had little or no opportunity to raise additional capital to fund its expansion. And the notion of a successful indigenous software sector was an alien concept; rather universities were providing graduates to foreign firms such as Dell, says Mr O'Toole.

"When Iona went public in February 1997. . . a whole flood of companies followed on. I think we were definitely the catalyst."

Cape Clear remains small and will generate revenues of between $1 million and $5 million this year. Mr O'Toole is aiming to take new venture capital funding on board towards the end of the year.

"We're developing the product and we've brought Bob on board to sell it."

The next five years will determine whether Cape Clear will rise to become a rival to Iona or fail to fulfil its potential.