Status Of CrunchPad Litigation
techcrunch.com
techcrunch.com
Bridges is awesome. Really sharp guy, incredibly good at what he does. He and Matt Scherb write some really strongly worded stuff that manages to ride the line between outright rage and total professionalism.
As it happens, you have Bridges to thank for your MP3 players. When the RIAA tried to sue the Rio out of existence, he said "oh, hell no." (On behalf of his client, naturally. He's not Lawyer Batman or anything.)
They're not cheap but they're easily the best. Poor Fusion Garage.
The unusual thing here lies in the fact that Mr. Arrington is choosing to expose details of the discovery to the public view. Since discovery normally is a matter of public record, as long as it is not subject to a court order sealing it or otherwise protecting it from disclosure, any party is free to do this but it is nonetheless rare that anyone would make such a disclosure in such a public way. Among other things, there is a serious risk that statements made about the case, or about specific evidence, would be deemed defamatory and would expose the disclosing party to major legal claims and even to punitive-damage risks.
Hence, I would observe / speculate about this as follows:
1. Whatever else might be said about him, Mr. Arrington has guts. He is a fighter.
2. He is using this litigation not to recover any monies from FG (likely a hopeless task) but to figuratively put FG and its founder into the town square, locked in the stocks and made a spectacle for all the world to see their shame. One must admit that his perseverance has yielded some pretty damning evidence against FG.
3. I disagree with those who say that Mr. Arrington is some sort of poor lawyer for not having documented this relationship in a binding legal document. These parties had all sorts of back and forth in what was a very fluid relationship and it seems that Mr. Arrington, for his part, was pushing for maximum advantage on terms without wanting to tie himself down to a premature deal. What he didn't anticipate was that FG would blind-side him as it did with its own power play pulled at the last minute. This was not stupidity but a calculated risk on Mr. Arrington's part and it wound up backfiring on him.
4. In addition to wanting to shame FG, Mr. Arrington wants to send the world a message saying, in effect, that anyone who tries to pull this sort of stunt on him will pay the due penalty for what he does, even if it costs him a large sum to exact the punishment.
5. As an incidental matter, in making himself the center of the drama, Mr. Arrington also derives publicity for himself and for TC, which is really his stock in trade and likely worth more to him in the long run than the out-of-pocket cost of the litigation itself (worth more in the sense of reputation, not in the immediate publicity value itself).
6. The lawsuit itself is otherwise not worth pursuing, as it seeks money damages and injunctive relief over what is essentially a dead product. If the other factors above did not apply, it would be absurd on economic grounds to pursue this any further.
A lost profits measure sounds appealing but would not apply. When a business or venture has no track record upon which to measure such profits with some degree of reliability, courts reject such a measure as speculative.
Thus, the damage recovery here is likely to be trivial in comparison to the costs of pursuing the case. Moreover, under U.S. law (in contrast to U.K.), a prevailing party cannot force the other party to pay its attorneys' fees unless, among other possible but unusual bases, there is a contract specifying that a prevailing party gets such an award. Here, there was no written contract and hence no attorneys' fees provision. Thus, after a trial, each party would likely have to bear its own own attorneys' fees in the case.
The major remedy - where the underlying product is a viable one - is an in-kind remedy by which TC could get a permanent injunction against FG barring it from selling or distributing the product itself. Again, this is meaningless where the product has no intrinsic worth.
Finally, even if damages were meaningful, an entity such as FG would very likely be judgment proof, meaning that it would have no assets upon which to execute any judgment.
Thus, TC's goals in this lawsuit, especially as framed by sophisticated counsel, really have nothing to do with the specific legal remedies it might get, as these have no real worth against this defendant or for this product.
In other words, Mr. Arrington's legal team had possession of these documents but the world would not have known about them from the court record or any other public source unless Mr. Arrington took steps to publish them as he did here.
I have sometimes wondered why companies don't do this more often. It seems that a consistent and well-publicized "we don't negotiate with terrorists" stance could be useful to discourage for example patent trolls.
Details of the correspondence is at http://www.audioholics.com/news/industry-news/blue-jeans-str...
Michael is simply an asshole and a bully, and not a good lawyer either.
I've had enough interaction with the man to know he's on a short list of people I would not want to work with. Mature adults settle their disputes without public temper tantrums (on websites they control).
This is a small time deal. Airing it out like this says more about Michael Arrington and how he deals with anyone who slights him than anything. Would you want to be his contractor, for anything, knowing he could turn on you and trash you like this? No thanks.
His product was a piece of crap, and he should have been a man and cut his losses on this one. He's not an engineer. He was just some ex lawyer with a bit of money and perceived influence who was bossing some eager hustlers from SE Asia around. If he really knew how to design a cutting edge product, and really had any business sense, he would not have gotten himself into a no contract, no name outsource mfr situation like this.
I am glad it bit him in the ass, and that he is so unaware of what an asshole he is that he is broadcasting this to the world. Usually people are more clever about hiding this sort of thing, but no contractor can go into a deal with this guy and claim they did not see any red flags that he's just an unpleasant, high risk client.
Seriously asking, how does that happen?
Arrington would have, assuming they'd delivered the product, relentlessly promoted (and defended) the CrunchPad.
Calacanis would have bought one and shredded it just to spite Arrington.
Mossberg & WSJ would have had to weigh in to "remain relevant".
And the entire damn tech community would have been involved in talking about the product, instead of talking about the complete failure of the crackpots behind it.
I don't get how you miss that so completely - free marketing by one of the most influential people in early adopter tech world.
A product he loved so much the guy named it as an extension of his brand, and self.
WTF?
Rather than sharing a piece of what might have been a very big pie, the FG guy got want he wanted: the full pie, he just ended up shrinking that pie down to nothing.
Whether you choose to be the type who screws others is a matter of your personal code. But despite your honor or lack of it, you will be screwed at some point. When it happens, how you choose to react may well have an influence on whether it happens again...
I wish Arrington all the best in this, if he has the cash to burn.
Who knows what could end up happening to the joojoo. Maybe the IP even ends up getting bought up by some OEM vendor and sold as a new product. Or maybe they even somehow turn around and become profitable. Sure, these all sound absurd. But if TC can afford to take this to trial and make sure FG gets punished for it, why wouldn't they?
Saying that one "wouldn't be happy" implies that an emotional decision is being made rather than a rational decision.
But if TC can afford to take this to trial and make sure FG gets punished for it, why wouldn't they?
The bottom line on the P&L statement. Just because an expense can be afforded doesn't mean the expense should be incurred.
What's wrong with that? Isn't the "passion" people always talk about an emotional thing?
"One of the reasons I'm rich is because I never let my money get mad"
Sounds like good advice to me.
It's important, if you are a significant enough business or even a private individual, to realize that knuckling under on one case might invite others. IBM's stance, and I'd imagine it's also the stance of many other major companies and wealthy individuals, is analogous to governments that have a blanket policy against negotiating with terrorists or meeting ransom demands. In the short run, it might not be the easier or cheaper route out, but in the long run the alternative might be opening yourself up to death by a thousand cuts.
The lawsuit is entitled "SCO v. IBM", not "IBM v. SCO".
http://news.ycombinator.com/item?id=1644772
Two things I take away from this:
* TC vs. FG is pretty much a dead issue, since TC is unlikely to recover real money from the CrunchPad debacle (FG's product is itself pretty much DOA).
* Contracts or not, if you engage in a partnership or joint venture with another firm, both firms will end up with fiduciary duties to each other... which is something good to know as you do business.
I'd hesitate to even call this group a PR firm, though. The Joojoo's launch was mired in image problems. To spend so much time and effort on a misguided publicity stunt while ignoring the basics seems amateurish at best.
I'm constantly amazed how the ethical PR people have to work their asses off to gain the trust of their clients, while groups like this seem to be driving major business decisions for theirs. This isn't PR. It's just sleaze.
they're called McGrath|Power (http://www.mcgrathpower.com/)
Rather than saying what seems obvious "dude, you're going to create a shit storm of bad PR you'll never recover from if you divorce Arrington from the deal. We can't take your money cos we can't make this succeed" (pretty obvious to me), they just took the guys money anyway. So for me they deserve their own bad PR.
I can imagine that any client of McGrath's is on a TC blacklist now, and their current and potential clients are having second thoughts about working with them.
I read all the McGrath emails, they knew that what they were doing was bad and 'messy', but justified it because the project would have been worth $x (the amount was redacted).
People talk about FusionGarage being unethical because they do not understand the culture of the valley (where you do business based on your reputation), but it was a valley PR firm that pushed FusionGarage into doing what they did, thinking that their mad PR skills could fool bloggers and the media into accepting the FG version of events despite the fact that the entire project from day zero had been covered in blogs.
But, I still respect him for kind of pulling it off. Conceptualizing a device and taking it to the market is tough and kudos to them for it. I know, since I tried and failed in doing the same thing. But this kill any chances they had for an acquisition or buyout, completely. Nobody's going to even touch them anymore. I guess that's what MA's trying to do.
Sad to see how it turned out.
Seriously, he had to resort to showing photos of fusion garage people in the techcrunch offices just to prove that they even had a business relationship.
For an attorney, this is just embarassing.
He also comes off as a drama queen, and quite likely, was a customer from hell. So I for one am enjoying the spectacle.
Arrington was smart in knowing that he didn't need the written contract if things went bad (exhibit a) and that a written contract would tie down his own options for the crunchpad (ie. if they signed and then FG didn't deliver, arrington could have gone to another partner without FG still owning part of the company).
You can see in the evidence that Arrington spent a lot of time going back and forward to work out the merger agreement. This was seen as an almost formality from both parties, hence the reason why it was pushed back so late.
ps. and that PR firm, McGrath Power, I will never ever work with them nor any company that works with them and I will advise every company I know not to work with them or to leave them. Seriously sick company, who in evidence, basically said 'oh this looks bad, but it is worth $x, so lets do it' (the amount was redacted)
"These parties had all sorts of back and forth in what was a very fluid relationship and it seems that Mr. Arrington, for his part, was pushing for maximum advantage on terms without wanting to tie himself down to a premature deal"
You're thinking of the statute of frauds, and it kicks in at $5000. But there are exceptions.
If I'm reading it correctly, many jurisdictions require contracts to be written when they exceed certain amounts of money. In the US that amount is $5000.
If I am reading that right: Because they used TC office space it is implied that a contract existed and Statute of frauds does not apply to that part.
Edit: Why am I getting downvoted? It's a simple question, IANAL.
(On another note, I'm going to assume that FG knows this information exists and can be found/subpoena'd. They should already be preparing to defend themselves against the information in this release.)
I’m embedding all the relevant documents below. A lot of time has been spent by Fusion Garage’s lawyers to try to keep these documents under seal, but they have recently been made publicly available.
I imagine that they wanted the documents kept private because they make Fusion Garage look very bad. Even if they end up surviving this lawsuit, I do not think very many companies will want to work with them.
It makes sense for TC to reveal them: this deprives FG and its PR-firm cronies the opportunity of spinning them the way they'd prefer, and is probably just good business in terms of TechCrunch's core business of selling eyeballs to advertisers. (It got me to visit their site, which I rarely do, FWIW.)
Arrington wants to win in the court of public opinion, and he wants to wreck Fusion Garage. He wants the people who made the decision to bury him irrelevant to the Valley. This was his baby, anyway. Not that it wouldn't have been crushed by the iPad and all the johnny come laties.
This comment is taken out of context, and I believe that written by a singaporean, it means "these people really suck", and not "I will cheat these people".
Very tired and pegatron is giving me problem again. Threaten to stop project again for reasons that they the payment to be early. Really sucker, these people, anyways, still got to deal with them.."
He's clearly tired of dealing with these people who suck. Nothing in the email says in any way that he is suckering the people in.
Just remove the 'er' and it's clear what he is saying:
Very tired and pegatron is giving me problem again. Threaten to stop project again for reasons that they the payment to be early. Really suck, these people, anyways, still got to deal with them.."
The other techcrunch interpretation makes little sense in the context of this email.
The question that I can't see a satisfactory answer to is "why?". With Techcrunch onboard the Crunchpad might have worked out, it probably would have made money even if it was not a long term success. They sacrificed a highly vocal technology blog with a generally loyal following and lots of PR goodwill for, well, not a lot as far as I can see.
Working through the evidence now and nothing in there really springs out as explaining it.
EDIT: ok, it appears that they honestly thought the product was strong enough on it's own to survive a divorce from Techcrunch. Still not clear why he wanted the split though...
On a related note the email to the girlfriend from a FG employee is troubling discovery/disclosure; such material is often covered under privacy laws, despite the fact that he was using a company account. I'm surprised to see "personal" correspondence accepted to civil court and, particularly, allowed to be published.
I'd note they didn't publish the email from the girlfriend which that was in reply to.
How hard would it have been for that employee to have used his personal gmail account from his workstation?
(trust me :) I work in computer forensics so we have to know these things)
It might depend. Our company's policy forbids those kinds of things based off disciplinary action. From the company's standpoint (not law enforcement) they own everything.
Legally speaking this is very complex; because clearly under investigation (i.e. civil discovery) work email will be accessed. How they can use that mail then becomes difficult; UK courts will pretty much summarily reject anything with overly personal communication - no matter what the source - unless the personal communication is directly relevant to the case. US courts are more lax but similar.
From the company's standpoint (not law enforcement) they own everything
They like to claim so :) The distinction that happens is that the company could turn to you and say "we have evidence of you using your company email for personal communication" and discipline you - so long as they followed all sorts of guidelines to make sure that they complied with the law. They couldn't, though, then say "we see you are having a sexual relationship with X at Y company...." UNLESS they entered the investigation with the aim of proving such a relationship (in which case I think they probably would need a civil discovery allowance).
It's a legal minefield that is an absolute pain on a daily basis :)
(I much prefer criminal matters where everything on a computer is fair game)
[it's worth pointing out that if I am investigating a corporate computer and come across personal mail/details I am generally not allowed to communicate that with the company hiring us]
There's really very little that his continued involvement would have changed, but now not only is he disassociated with it, he stands to benefit from any legal remedies.
Only, one of two things happened:
1) FusionGarage never intended for their to be any true JV, and was just playing TC along from the very beginning, day one. That'd be amazingly cold if it's true.
2) It started out as a bona fide attempt at a JV, but it became clear to FG at some point that they weren't going to get as sweet a deal as they wanted... but rather than either back out graciously or take what they could get, they decided to play along and then screw TC at the last minute.
I haven't seen anything that really gives weight to either theory. If it's #1, Chandrasekhar Rathakrisnan isn't just channeling the usual Sun Tzu business-as-war crap, he's got a full-blown Josef Stalin "loyalty is for dogs" thing going on. Just on personal experience I find that a bit hard to believe; most people are just not that good at deception. I'd put my money on #2 if I were a betting man: FG and TC spent a while trying to feel each other out and get the best deal possible for their respective sides, but FG decided they could do better by selling TC out than by negotiating in good faith.
Or in another case the two owners of a company headed for Chapter 7 who didn't own the most crucial forward looking IP insisting on having majority control of any new company. And that was the end of that: we weren't going to give them another chance (or rather, near certainty) of ruining a venture, yet they had a sufficient claim to any future success that they would have made life hell in the courtroom if we ended up having any success.
(And this was no small think, a filesystem for Write Once media developed by the creator of one of the first CD-ROM filesystems, the latter was used to master the 3-5th CD-ROMs in the US (first two were tests, 3rd was all of ancient Greek literature). Prior art to the now dismissed Netapp vs. ZFS case....)
Michael Arrington is simply quoting himself from the previous article about CrunchPad:
If he were a fresh out of collage entrepreneur, I'd feel sorry for him, but he used to be a big shot at a name brand Silicon Valley law firm, so it's pretty weak for him to play victim when he displayed such incompetence and a lack of basic common sense.
Never mind that the product was DOA before it was born. It reminds me of the Henry Kissinger quote to the effect of "fights in academia are so vicious because the stakes are so small".