Ask HN: Startup stole our software, and raised $2MM with it. What should we do? | Hacker News Reader

Ask HN: Startup stole our software, and raised $2MM with it. What should we do?

231 pointsqeorge67 comments

About 2 years ago, my firm developed software under contract. About 4 months later, after falling behind on payments, the customer "charged back" all his previous payments (via PayPal), and kept the software (it was not yet finished, but functional enough to charge customers).

We recouped about half the money through PayPal's dispute process. We let the rest go, deciding it wasn't worth trying to squeeze blood from a turnip.

Fast forward to today, the very same company is on the front page of HackerNews:

https://news.ycombinator.com/item?id=8225738

The business' name is Pigeon.ly / fotopigeon.com (when we worked on it it was called pichurz.com / picturgram.com). The owners names are Fredrick Hutson and Alfonzo Brooks.

So, HN, what should we do? We have a signed contract with them which states that the software becomes our property in the event of non-payment. Should we assert ownership of the software? Of their business? Should we sue them? Should we reach out to their investors (Kapor Capital and Base Ventures)? Should we include Kapor Capital and Base Ventures in the suit?

I would really appreciate any advice HN can offer. We will of course rely on our attorney's advice primarily, but I am optimistic that someone here has dealt with a similar situation before.

Thank you for your time!

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You really need to be careful about how you approach this sort of issue.

While the advice may be trite, it is particularly apt here to emphasize the importance of consulting with a lawyer who is strong on IP issues.

In particular, this would normally need a careful evaluation of the contract language, which may or may not define what happens in the particular case you describe. If it should not adequately define what happens in express contract language, then there are default rules that potentially govern what happens. Those rules may or may not support your position. I have bumped into cases where the default rules basically say that the contract assigns the IP rights to the customer regardless of non-payment, with the remedy for the developer simply being to sue for payment. I am not saying that such rules govern your case because it is not possible for anyone to really know your case absent a proper legal review by a knowledgeable lawyer. I am saying you may be making assumptions about your legal rights that may or may not be correct and you should not casually just assume that they are.

It goes without saying as well that you should be cautious about using pejorative language about the person who did this in public because of the obvious risk of setting yourself up for a defamation claim. Again, in the end you may be justified but why complicate your own claims by giving those who did whatever these people did free ammunition to fight you with.

I don't mean to sound unsympathetic. It hurts to get screwed and it sounds like that happened here. Just be careful to go about it the right way in trying to correct the wrong that did occur.

I wouldn't name and shame here on HN, because when you file a lawsuit they'll counterclaim for defamation. No point in muddying things. You're also susceptible to the defense that the PayPal dispute was a negotiation and settlement of the purchase price.

Disclaimer: I'm not your lawyer, this isn't legal advice. Do get your own lawyer to advise you on this, one familiar with licensing disputes.

Screw that, name and shame away. The nasty gits deserve it!

Maybe?

First, we're trusting one person's word over another on HN; this is one of the wonderful reasons courts exist. And let's say hypothetically the person who just posted this loses in court, this nice little shaming comes back and bites them as a defamatory attack.

That's not how the legal system works in America. The process is the punishment. The software pirates have $2 million of somebody else's money that they can burn up going through a multi-year process. They will win this thing by forcing the OP to choose between giving up or being bankrupted by court costs. No way you can win. My suggestion would you find an experienced patent troll (er, I mean, intellectual property broker) and offer them a piece of the action if they can help you squeeze as much as possible out of your adversary. They presumably have the capital, skill, and ability to endure the legal process.

Hey, I just discovered a good use for a patent troll!

I really don't like people who steal software, but so far[1] we have one accusation here. Let's not completely destroy the accused right away based just on this.

[1] It would be unfortunate if this drama played out on HN, he-said she-said style. Although the eventual resolution of this will be very interesting and relevant to developers and entrepreneurs so I expect to read about it here some day.

That's very cool of you, Daniel. While of course I believe my version of events, it is after all just a Hacker News post.

Whether or not I can share the eventual outcome of this matter, I do plan to write an article on concrete steps that developers can take to protect themselves in situations like this.

I don't see how that's a reply to my comment or justifies the downvotes. My comment was about how "the process is the punishment" and that there is not likely to be any justice in a court trial. The other party has $2 million of other people's money and have no incentive not to use it to bankrupt the OP with the legal process. That's a significant challenge and the OP needs a strategy if he wants to win something.

I didn't downvote (nor upvote) you, but the other party absolutely does not want to blow its $2 million on a lawsuit.

The OP's chances of recovery strictly went up when these company got funding. Compared to before, the OP has everything to gain and nothing to lose -- before, he had already written off this project as a bad project. Now, the company that has gotten funding needs to make sure that everything is on the up-and-up.

Assuming OP's story is true, it's entirely in OP's power to say "we won't license the code, FOAD," which would force an expensive and possibly fatal rewrite of the code at this late date. OTOH, with that leverage, OP can name his price. If he demands too much, the VCs might just pull the plug. If the OP's goal is revenge, mission accomplished. But revenge doesn't put food on your family.

They might legitimately have no idea they "stole" the software. They probably didn't read the contract carefully, and they might assume that they did "pay" for it, albeit at a reduced price.

That said, they have every incentive to burn the $2m fighting this claim, because otherwise they have nothing. The best result for OP would be a negotiated sale of the software for some $$, or perhaps equity in the business if they can stomach the risk. Nobody wins if the legal dispute eats up all the money and sours the business.

It would be strange that they charged-back and thought it was still completely justified to use the deliverables.

How does not reading the contract and then not paying what's owed equate to "legitimately" thinking they acquired the software at a reduced rate? I have to assume that during the initial dispute the contract was a matter of discussion.

Anyway, as others have said: shut up, get lawyer.

Which gets to my point, and for which a lawyer, as an emotionally uninvolved 3rd party can be far more valuable than as someone who merely knows the law:

Decide what you want to get out of this:

Do you want to destroy the company? Perhaps take them over/replace them in some way? (A good lawyer will ask "What does this accomplish", although deterrence is not illegitimate in my viewpoint).

Get paid for your work, with suitable interest and penalties?

Get a piece of the action of the other company?

If you're telling the truth, there's a good chance you've got them in an exquisitely delicate situation. While they've officially raised a lot of money, if it just happened there it's unlikely it's all been transferred to their bank account. Even if so, you can mess them up going forwards with justified legal action.

For those panicking over defamation, truth is an absolute defense to it, you just have to be able to afford to get your day in court. Although I'll note everyone who's every been in a lawsuit, on whatever side, says it becomes a consuming thing, you've got to think about the opportunity cost. Something a good lawyer will bring up.

Truth trumps defamation, but it isn't necessarily enough to keep you out of court; your opponent just needs to find a way to twist your words enough to create a colorable claim. You'll win in court, but that's incredibly expensive and slow.

I wonder how this company could have made it through DD with a venture capital firm, since that would have involved contract review.

I'm curious, why people are so afraid to name others? Whether to complain about cheats and crooks, or to commend and applaud someone doing something good, people are reluctant to give names. But this seems like an important information for everyone!

Unless the person naming names is wrong and you end up with a witch hunt.

The problem with "name and shame" is that people don't always remember the parties right.

More than 10 years ago, a larger company stole my start-up's work, including our typos. We (when I say "we" in this comment I mean all the people in the start-up) internally agreed to handle it through the court system. Anyway, we had a loose cannon, and at a security convention he was telling everyone he could how that other company stole our stuff (and went directly to the competitor's booth to bitch at them). A year later, people remembered that the software was stolen, but they didn't remember which party was which -- half of them thought our company was the thief. [1]

This was before the days of blogs, so you might have better luck today with the public getting basic facts right, but you're spinning a giant gun around and it just might end up pointed at your face when you are done.

[1] This was among the reasons we decided to handle it through the courts. It was also the last time said loose cannon ever went to a conference during my tenure there.

Shouldn't the Paypal dispute be separate from the actual IP? OP said that in the event of non-payment the "property" stays with OP. Couldn't you argue that the chargeback dispute was Paypal and not the Pigeonly guys?

Or, couldn't you argue that the Pigeonly guys charging back themselves is an admission that they shouldn't have the IP?

> You're also susceptible to the defense that the PayPal dispute was a negotiation and settlement of the purchase price.

Sounds like (e.g.):

1) Contract is for $10K.

2) Client pays $4K.

3) Client stops paying.

4) Client issues chargeback for $4K.

5) PayPal dispute resolution recovers $2K of the $4K chargeback.

It's possible to claim that the PayPal dispute was a settlement of the purchase price, but it seems like it would be a stretch if that actually flies in court. I doubt that the PayPal dispute resolution covered the remaining $6K that was due, rather than just the dispute over the $4K that was already paid.

Their lawyer needs to go over that very carefully to find that out.

My name is Frederick Hutson, and I am the President and CEO of Pigeonly. I was recently made aware of this post.

In light of the defamatory nature of the poster’s statements, I felt compelled to respond. Well over two years ago, we entered into a work-for-hire agreement with the poster to write aspects of the software code for a beta version of our initial e-commerce platform. Our agreement with the poster makes it clear that we own all work product produced pursuant to the agreement. In the end, however, we were very unhappy with the quality of the poster’s work so we terminated the relationship and requested a refund.

In addition to my own assessment I consulted with several independent sources including a founding member of the CakePHP project (the framework the poster used). Everyone who evaluated the code said the same thing, to sum it up (in their professorial opinion) the framework was not utilized correctly which resulted in the numerous bugs and browser incompatibility issues. The truth is even if we wanted to work with the code the poster provided we couldn't because it was flawed. So we were left with no choice but to start from scratch with a new developer.

The bottom line here is that through hard work and determination, we indeed built the Pigeonly platform from scratch and in no way incorporated any of the code produced by the poster. We are very proud of what we have built at Pigeonly, our mission is to build great products that solve the type of problems most would overlook.

> In light of the defamatory nature of the poster’s statements, I felt compelled to respond.

Useless filler.

> Our agreement with the poster makes it clear that we own all work product produced pursuant to the agreement.

Again, useless filler. You own the work and they need their money for work in question.

> I consulted with several independent sources including a founding member of the CakePHP project

That's great. I audited hundreds if implementations that sucked. The different is that those developers still got paid.

It's your fault for not knowing what you are doing and not having another source involved earlier in the process to make sure things are going smoothly.

Also, you are showing your lack of experience. Project was 2 years long (multiple CakePHP releases, I bet?) ofcourse people will say it's outdated and written poorly.

You are also working with a low level agency (no offense) and then get the code reviewed by 'founding member of X', what do you expect? Are you even serious here?

> So we were left with no choice but to start from scratch with a new developer.

Let me audit that code, I'm 100% sure it will not be up to /my/ standards. Will you fire the developer and sue him for the salary you paid?

> The bottom line here is that through hard work and determination,

The bottom line here is that you really have no idea about technology.

> That's great. I audited hundreds if implementations that sucked. The different is that those developers still got paid.

Say you go get your car fixed. It breaks down as you drive out. There are 3 other garages right next door who all look at your car and say you shouldn't put gum to plug a hole in the fuel pipe. Would you demand a refund? Of course you would, you went for a professional service and you didn't get what you were paying for.

> The bottom line here is that you really have no idea about technology.

He shouldn't have to. When someone says they can write you some code for money, they should be able sort everything out for you. If they can't provide what they said they would, can you honest expect people to pay? You shouldn't have to be technically proficient to get someone to write some simple custom software for you. Just like you shouldn't have to know all the ins and outs of plumbing not to get ripped off by a plumber.

Please don't use car analogy with someone who is in auto technology sector.

Two years without any auditing is a mistake of the founder, if your car is in the shop for two years for massive amount of work you will go there to check it out. And you better bring a friend who knows about cars if you don't have a clue.

I will give you a better analogy, you go to a random mechanic leave the car there for two years without checking on it. You have no clue about the problem or the car.

Then you finally get the car out and decide to bring it to another mechanic. What will happen in 99% of the cases is the mechanic will talk shit about the previous shop and find every little thing that's not 'up to code'. The coolant hoses (that were not part of the original job) are old now after sitting for two years. Oops.

You still have no clue about anything. So you hire your own mechanic who you think has a clue (but you can't gauge that) to do the 'fixes' and he tells you 'it's great now!'. Bullshit.

This is common in tons of other industries. With programming it's harder to tell what 'shit code' is. Especially when you have 2 year timeline working with a framework that changed significantly within that timeline.

Furthermore, you are missing my point. He does not have A level team to rewrite software. Let's not pretend the magical rewrite is a super car here, not with his team.

> He shouldn't have to. When someone says they can write you some code for money, they should be able sort everything out for you.

Again, missing the point. How do you know everybody else is not feeing him bullshit? If you don't know something, don't wait two years to get third party audit on a TWO YEAR OLD code.

Overall, I don't think you know what you are talking about either. You might think you do just like the founder but you are not fit to run a technology company.

The attitude of your posts is disgusting. Both the firm, and the startup made big mistakes here. The answer should be to get a lawyer, because none of us know all sides of the issue, and that is going to be the end result anyways. A lawyer, or drop it. There is no need to attack the above posters for having an opinion opposite of yours. And your analogy is worse than the one posted above. Regardless of whether or not you are in the auto technology sector (why do you even assume people know that about you before commenting)?

Do you have anything to contribute besides expressing your 'disgust' at my counter point because it's not covered with kittens?

This is the place for discussion, not a kindergarden.

If they wanted to get a lawyer they would have; but this is on HN and I will openly comment on it.

> This is the place for discussion

Exactly, so don't shit all over people with your superior "I'm in the auto technology sector so my analogy is better than yours" bullshit. His analogy and points are perfectly fine and I agree with him, but furthermore you being a jackass makes me automatically dismiss your arguments.

No, that was more of "It's funny that you are using this analogy, because I'm A) a car guy B) in an automotive sector".

He got me to bite. If you think this is some sort of superiority play, please go outside your bubble.

As with every dispute that comes up on Ask HN that requires legal action - get a lawyer. (and a good one)

And start putting together every piece of data you can that will help your case - emails, IM message logs, source code etc.

Yes and don't skimp. You want someone who has experience litigating and will be able to accurately advise you on your chances of succeeding. You will probably want to use at least midsize firm if you are not located where they are since you may have more choice of venue. You will have to decide for yourself whether the expected outcome is worth the cost.

If you decide to sue never talk to anyone about this again. In my experience lawyering is better left to the lawyers.

First things first, definitely edit the OP. You get nothing from outing them, much less calling them "thieves" in public. Don't give them any ammo.

Second, gather your contract and lawyer up right now. The reality is you're probably still squeezing blood from a turnip (despite the VC); your best move would probably be asking for a licensing agreement in lieu of a bulk sum.

Third, I think it makes sense to bring this to the attention of the VCs - it won't hurt (the way publicly outing them might) and they could possibly work at mitigating/mediating this.

Again, $2M might seem like a lot to you, but this is mostly budgeted already. If, like most startups, this is relatively short-lived, you may want to recoup via a license, although this is a new contract that would need to be drawn up fresh.

"Third, I think it makes sense to bring this to the attention of the VCs - it won't hurt (the way publicly outing them might) and they could possibly work at mitigating/mediating this."

This seems like the best option. The VCs will want to minimize risk. If they think they can pay you a reasonable sum to make the past dispute go away, this may be your best option. It will most likely not involve expensive lawyers for too many billable hours.

> Third, I think it makes sense to bring this to the attention of the VCs

Don't do anything without talking to your lawyer. This advice could lead to claim a of tortious interference.

Hell this whole post could be tortious interference.

Find a lawyer. Dont comment any further on the matter in public.

This is the only advice to listen to. Succinct.

Already commenting on HN is too far. It should have all been private. Do no further damage.

For qeorge: If you win in court, depending on the outcome and or any settlement, you can potentially still write about the whole thing in a blog entry if you still feel the need to be public about it.

Oh dear, airing dirty laundry in public. Maybe there were reasons why Fredrick and Alfonzo didn't pay you? We wouldn't know as hacker news and you are unlikely to tell us. I would suggest letting a judge decide and hiring good legal council.

However, I would say that your judgement in maybe panicking and posting so publicly is far from the mark. You should remove this post if you can as soon as possible. Only bad things can come of this!

How do you know that they are using any of your IP (code)?

I presume that they approached you, originally, to create software for them, but the idea was theirs. If they terminate a contract with you, however unsatisfactorily, they are still free to start over with another dev agency.

3 years is a long time in terms of what can be delivered in software. The system doesn't sound all that difficult to replicate.

1. Stop talking about it publicly.

2. Hire a lawyer.

I feel like this is the only right answer.

It's been said, but there's not much value in discussing this in public; it just introduces risk/complication.

Are you really going to put any weight on insight gained from this thread? If not, the cost/benefit of keeping this up is out of whack.

In that case, the "benefit" become solely the name/shame which isn't an awesome reflection of professionalism, either.

Read earlier today that one of the founders was convicted of drugs trafficking and served four years in the pen. http://www.forbes.com/sites/hollieslade/2014/08/21/how-this-...

What could this possibly have to do with anything?

Maybe do a little research about the project first...you come off as pretty ignorant with a statement like that.

Edit their names out of this post, this will definitely be used in court, get a lawyer.

Disputes like this at the very least becomes very costly for both parties, notwithstanding the fact the damage each one may inflict in just trying to get the upper hand over the other.

Considering that you've brokered into an agreement before, haven't you explored the possibility of just resolving this amicably, with both parties finding a common ground to ensure a win-win situation for both.

Going through the lawyers and courts should be the last resort. I know to some degree this advice (which you could take with a grain of salt) may not hold some ground with the others. But just the same, you've worked together before and there should be no reason for you not to be able to settle things properly.

Personally I would not be posting things like this one the internet. The reason being if you sue them and in fact they aren't in the wrong they might decide to sue you back. Your making some very big claims.

You could be sued for liable or malicious falsehood.

Thank you for sharing this information. I think that while jumping into the more expensive lawyer arena is one choice. A shot across the bow of Pigeon.ly is a good alternative. I think hiding behind lawyers benefits only the lawyers. As a civil society, I think people should be called out for their poor behavior, and explain themselves. You've made your case, now Pigeon.ly should explain themselves. A public court of opinion is, in the end, the only court that truly matters. Or so I think.

In cases like this, do investors usually have protections built into their investment contract that if something like stolen IP or possible fraud wasn't initially disclosed they can recall their investment?

I imagine this can't be the first time something like this has come up.

Sounds like the perfect use case for insurance, kind of like title insurance in real estate.

Seems to me that your damages would be limited to the amount you originally agreed to. The fact that they had a funding round and press shouldn't matter.

Payment + chargeback is a bit different than non-payment; complicating the fact is that you received some money from PayPal.

Aside from PayPal, did you pursue any recourse?

Does your contract have a mutual non-disclosure clause? If so, I suspect you just violated it.

I'm sure when you saw their funding event, you were upset. Bottom line: if everything had gone according to plan, you would have been paid, and they'd still have their funding event.

I can appreciate the frustration you must be feeling. Working with clients seems to highlight the best and worst of humanity.

I believe that you should always lead with your best. A situation such as this can definitely impact your business in a negative way. It's more of a one-sided allegation and your choice of wording is defamatory. At this point, consider hiring a lawyer. They may not be able to tell you what you should do, but they can definitely tell you what NOT to do, which is just as important sometimes.

Good luck.

As a general rule, consultants should always develop code on their own servers and transfer the code to the client only when full payment is received. In this case, I realize that the ship has sailed, but I'm sure there is a lesson to be learned.

I would do a DCMA take down notice against the web host and send it to whoever funded him as well. He did not pay in full. He not only stole the code but committed credit card fraud. If he has a parole officer I would try to find out.

Nobody can give you much more advice than to collect all your papers/email/documents regarding this and discuss it with a lawyer.

I know your upset, and want to hit them hard – but outing them probably won't do much good in the long run.

My question is why are you caring about it now, if it was 2 years ago? Now that it made HN.. now you care? Its funny how it didn't matter the past 2 years. If it was a real issue you would of gotten a lawyer already, get over it and keep on doing business. I'm tired of everything becoming a lawsuit over nothing that mattered in the first place.

The only ones who will benefit in the long haul are the lawyers, don't waste money. Every lawyer that wants the case will tell you, you have a case and we got this, lawyers love to drag things out. Long and expensive process.

Another question... How did they get all the code for the website if they hadn't paid in full? If my clients don't pay they never get any code on the server they own.? So you gave it all up before payment?

I can understand your feelings but you gotta hire very GOOD lawyer! Keep Calm and Fight Legally!

Have you seen the Forbes article about this? Sounds like you're dealing with an ex-con.

http://www.forbes.com/sites/hollieslade/2014/08/21/how-this-...

i'm sorry for your loss. however you need to consult a lawyer to understand where you stand and what your options are. i'm not sure there a lot of them on hn. goodluck

Ouch! You should finish the software and launch a competitor.

Yeah if they stole a semi finished product I'm sure OP could blow them out of the water with feature. Thought the alleged thief has a jumpstart on marketing.

we are in the same boat, amazon zocalo is our app.collablayer.com ditto , we are adding another set of feature to come out of this nightmare.

I find it funny how there's so many articles about this guy who was in prison then does right and starts this company. Then this comes out...

So a company started by felons stole software from you.

I know this isn't Reddit or 4Chan, but I've never felt more compelled to post the following:

http://i.imgur.com/agJIP.gif

Yup...http://i.imgur.com/NnoGhN1.gif

oh cool, and they're taking this opportunity to cash in on vulnerable and disenfranchised populations. real winners here.

What like you own what you worked on?!?? Fuck that! Patents and ownership of property is fucking stupid! This is hacker news!

Everyone knows that it's how well you implement, not whether you developed the idea or not. Clearly they implemented your idea that otherwise would have been nothing. If you had never written it someone else would have written is just as well as you did!

That's how the world works nowadays. Right??!?

If the contract says they own it, they own it. That's how the world works

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