Status Of CrunchPad Litigation

http://techcrunch.com/2010/09/15/status-of-crunchpad-litigation/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+Techcrunch+%28TechCrunch%29&utm_content=Google+Reader

by rguzman • 16 years ago

148 77 16 years ago

techcrunch.com

tptacek• 16 years ago

'grellas wrote a monster comment about this when the news broke that TC's injunction had failed:

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.

rriepe• 16 years ago

PR firms take note: Deception and conspiracy won't get you very far in the end.

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.

dotBen3• 16 years ago

The PR firm helping FusionGarage on the side actually come out the worse looking party in all of this. I've taken the time to find their name from the filings just to shame them:

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.

bl4k3• 16 years ago

Also consider that McGrath is a PR company that charges clients a lot of money to get coverage on blogs like Techcrunch. They have dug their own grave.

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.

AlexMuir• 16 years ago

This may be the first step in TC killing its litigation. There's not much point carrying on, at great expense. Now that this evidence is unsealed it will permanently damage the careers of the people involved. I'd be happy with that outcome if I was Arrington - unless this PR firm has deep pockets and can be dragged into it.

annajohnson• 16 years ago

Good point Alex. If TC's real objective is not so much to recover any money but to make it clear to the world that FG screwed TC over (as well as issue a warning to everyone else not to mess with TC!) then I'd say: mission accomplished. No need to rack up even more legal fees unless there is a good chance of recovering both any damages and the costs of the lawsuit.

jnoller• 16 years ago

To me, as a layman, the documents look pretty damning. Sure, Techcrunch did not have a written contract, but I don't see how the language in those emails from fusion garage can be construed as anything but a conspiracy to deceive/screw Techcrunch.

apgwoz• 16 years ago

IANAL: I seem to recall that an oral contract is just as valid as a written contract, but obviously an oral agreement suffers from selective memory--hence written contracts. If these documents provide some insight as to a) the fact that there was an oral contract and b) some of the terms of the contract, c) deemed admissible in court, then is the fact that they had no written contract actually a problem?

sp332• 16 years ago

In the USA an oral contract is only binding up to some amount of money (something large, over a million IIRC), and I think this deal was bigger so it actually isn't legally binding. Not to say it's a good idea :-)

TotlolRon2• 16 years ago

At some point in time a big earthquake will level the bay area. That's a given certainty. It might happen just because of tectonic stuff, or, maybe, it will happen because this place has lost all honor. And god is watching. Maybe.

lionhearted• 16 years ago

For people saying that TC will end this quickly because they're unlikely to receive compensation, you're missing one important detail - this is a massively entertaining circus. I'm a casual follower of TechCrunch, but I'll follow along more closely with this saga happening. Depending on how much money the litigation is costing them, it could well be paying for itself with increased pageviews.

nphase2• 16 years ago

I'm having a hard time understanding why TC should give up on litigation because they're unlikely to receive compensation. If someone/a company wrongs you in a big way, should they not be punished for it? I understand that FG's reputation is already pretty much shot to hell, and you might say it's punishment enough. But if I were TC, I wouldn't be happy with that outcome by itself at all.

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?

pkaler2• 16 years ago

But if I were TC, I wouldn't be happy with that outcome by itself at all.

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.

protomyth• 16 years ago

Some companies (I do believe GE is one of them) make it a policy to pursue legal claims / counter-claims to the fullest in an effort to discourage future actions.

hvs• 16 years ago

It strikes me as more than a little odd that creator of a popular, successful startup related blog failed to get anything in writing for this particular venture. That said, it seems like Arrington may be in the right even if, in the end, that means that he is going to get exactly what Fusion Garage got out of this whole ordeal: nothing.

Kadin3• 16 years ago

My take on it is that there weren't any written agreements because each side was angling to get the best deal possible in the eventual joint venture.

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.

sjtgraham• 16 years ago

This Chandra fellow has insanely blackballed himself. No matter how unscrupulous one may be, surely one has to be an absolute idiot to cheat someone with as much clout and reach as Michael Arrington. Chandra deserves everything he has coming to him, the first email is absolutely despicable.

nphase2• 16 years ago

Wouldn't it be smarter of Arrington (he's a lawyer, right?) to keep his approach and related docs under wraps? Wouldn't posts like these just make it easier for FG, et al. to defend themselves?

Edit: Why am I getting downvoted? It's a simple question, IANAL.

mtigas• 16 years ago

As others have mentioned, the actual "damages" in terms of JooJoo sales is basically zero, so TC will likely recover little in terms of that. However, the proceedings make for really awesome entertainment and TC could likely see a modest profit for publicly keeping the topic fresh, bringing in traffic, etc.

(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.)

martey• 16 years ago

IANAL, either, but it looks like these documents came out of the discovery process: http://en.wikipedia.org/wiki/Discovery_%28law%29 As a result, Fusion Garage knows that TechCrunch knows about these documents, and their lawyers should realize that they will probably be used as evidence. Also:

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.

Kadin3• 16 years ago

They're part of the discovery process and were unsealed; thus they're part of the public record.

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.)

redrobot50503• 16 years ago

Winning a victory in court is only a secondary objective.

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.

danilocampos• 16 years ago

Oh man, Andrew Bridges is the attorney for TechCrunch here. I've worked with him.

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.

grellas3• 16 years ago

Since this indeed is a first-class firm for this type of litigation, it bears noting that litigation such as this very likely has cost Mr. Arrington a quarter million and up by this point.

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.

chc2• 16 years ago

Could Arrington seek money damages based on the fact that the Crunchpad very likely would been profitable if not for FG's treachery, or only based on the Joojoo's almost nonexistent profits? I'm not sure how much speculative money is worth in the eyes of the law, but that seems like the real damage here.

enjo2• 16 years ago

It sounded like the documents had been public (somehow).. so I'm guessing he's just wanting to get out ahead of it.

ssp• 16 years ago

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.

imightbeatroll3• 16 years ago

Occam's Razor

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.

rumpelstiltskin• 16 years ago

No matter how damning the evidence is, and it really is damning, Arrington still comes off like a right idiot for not having formal contracts in place that clearly outline who owns what from the beginning.

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.

imightbeatroll3• 16 years ago

Well, there is a reason he is a pundit and not a practicing lawyer. He obviously was not very good at his job. Not having a contract with a foreign company for a project like this is gross incompetence, and if he were representing another client, would be malpractice.

He also comes off as a drama queen, and quite likely, was a customer from hell. So I for one am enjoying the spectacle.

bradleyland• 16 years ago

He's a pundit, but he's also a businessman. If he hasn't got the business sense to put together a contract for a JV, then he ought to have a business manager watching after him.

gregpilling• 16 years ago

I barely got out of highschool and I know enough to write a contract. It can be on a napkin, but for goodness sake write down the basic agreement.

dagw• 16 years ago

The problem with a contract is that it locks downs both parties. Not having a written contract gave MA the freedom to change the deal on FG if things didn't work out the way he wanted. I'm sure Mr. Arrington made a very conscious decision to not put a contract in place and was very well aware of the risks. Sometimes when you gamble, you lose.

bl4k3• 16 years ago

Do you realize that a contract doesn't have to be written right, that contract law places as much emphasis on oral agreements and your actions?

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)

eli• 16 years ago

Forget about the law... How could you possibly form a partnership to work on a project without having a document that describes exactly how the work will be divided?

dotBen3• 16 years ago

...or, what grellas said above (excellent comment, http://news.ycombinator.com/item?id=1696483):

"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"

michaelhalligan• 16 years ago

Has anybody actually done their due diligence to see if there really is a lawsuit, or to see if there really is even a fusion garage? It seems to me like it has the potential for an especially lucrative hoax.

TheBurningOr• 16 years ago

A year ago I would have down-voted a thought like this, but every time something develops with this story, it sounds more and more like a movie plot and less like a real story.

bialecki• 16 years ago

I always wonder how often emails like the first one are really written. They're almost too good to be true. The "high" one gets from writing such inflammatory emails must be amazing because he/she MUST also know that, since it's sent electronically, it almost certainly can come back to bite him/her in the ass.

SoftwareMaven• 16 years ago

Some people really are that clueless about the potential issues around email, whether it's the fact that it isn't secure or that it can be dredged up from any number of locations in an eDiscovery process. In fact, I would be a lot of people, especially at smaller companies, fall into that category.

ErrantX4• 16 years ago

wearing my investigators hat

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.

nl• 16 years ago

That email to the girlfriend was directly relevant - it said (a) how they were working at Techcrunch offices and (b) how Techcrunch were "suckers"

I'd note they didn't publish the email from the girlfriend which that was in reply to.

ErrantX4• 16 years ago

It was predominantly personal. I have seen much less personal mail, pertinent to a case, rejected for such reasons.

chc2• 16 years ago

My guess: Chandra saw dollar signs, didn't want to share the dollar signs with Arrington and decided that he just wouldn't.

bl4k3• 16 years ago

That is true. He likely mistook the hype and attention around the Crunchpad to be because of his own work, not the work of Techcrunch.

imightbeatroll3• 16 years ago

It's interesting to note that Arrington is removing comments that point out his own incompetence for not having a contract with an offshore company.

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".

drinian• 16 years ago

Fusion Garage has also failed to provide source code as required by the GPL: http://lwn.net/Articles/404450/

aresant• 16 years ago

Who at JooJoo completely missed who Arrington is?

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?

dotBen3• 16 years ago

It's called greed.

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.

reneherse• 16 years ago

Well, it's kind of a truism that many people in business are concerned only with what they can get away with. In my own line of work, I've seen seven figure licensing deals ignored because the smaller party didn't have the means to litigate. CEO's coaxing contractors to start work on a verbal agreement then refusing to remunerate because there was no signed contract. Et cetera, et cetera...

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.

ajg1977• 16 years ago

Evil stuff, but I do think this whole thing turned out for the best for Arrington. The Crunchpad (or JooJoo) was an absolute flop whose only hope of success was arriving well in advance of the iPad.

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.

pmorici• 16 years ago

This isn't really interesting to me any more because in the interim since this all started along came the iPad filling the role the CrunchPad was supposed to fill.

braindead_in• 16 years ago

I have been putting this off for sometime. I met Chandra when they were conceptualizing the product and he was interested in hiring me for it. He had a grand vision, but I found him completely out of depth. He kept harping about building an OS for the next generation of devices, being the next Microsoft etc. etc., and seemed drunk on his own kool aid. He threw TC's and MA's name freely. Looking at this makes me squeamish now. Good that I turned it down.

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.

tragiclos• 16 years ago

I simply can't understand the upside to being as deceitful as Chandra is accused of being. If the product was going to be a big hit, wouldn't everyone profit handsomely? And if it was bound to be a failure in the market anyway, why make a friend into an enemy?

hga• 16 years ago

I don't understand it either, but I've seen it often enough, e.g. people who's rather have 100% of nothing than a good and (often more than) fair fraction of something chose the former.

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....)

maxklein2• 16 years ago

Another example – Fusion Garage employee Stuart Tan, who still lists the Crunchpad as the project he’s working on on his Facebook profile, emails his girlfriend to tell her that he’s “really sucker these people.”

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".

JoachimSchipper2• 16 years ago

Do you have a reason to guess that it isn't "these people are suckers" or something similar?

maxklein2• 16 years ago

Read the email, it's obvious when you see it in context.

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.

cool-RR• 16 years ago

Our partner, Fusion Garage, had inexplicably decided to simply terminate the partnership over “nothing more than greed, jealousy and miscommunication.”

Michael Arrington is simply quoting himself from the previous article about CrunchPad:

http://techcrunch.com/2009/11/30/crunchpad-end/

Status Of CrunchPad Litigation

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