CrunchPad Federal Lawsuit Filed; Some Additional Thoughts

Dude. TC and its network do $2M+ revenue a year. You don't think they are incorporated? Lol.

Always? I don't know anything about US law, but German law doesn't require contracts to be written by default. If you buy something the contract between you and the shop owner doesn't have to be written down. You don't even have to say anything, just show what you want to buy and hand over the money. Unpolite but legal. There are requirements for certain kinds of contracts, but not for all of them.

It's the technogeek equivalent of Page Three girls. http://en.wikipedia.org/wiki/Page_Three

Must. click. link.

Possibly, but that's not the only way forward.

The emails talk about shareholder investment; if that is the case they can pre-sale while they are building the first batch on investor money. This way they get a share of the Xmas market rather than launching in the January sales (always a bad move).

With all that said nothing about DG has shouted "marketing sense" :)

We sell units like that.

I have litigated a variety of "false promise" and breach of fiduciary cases on behalf of startups over the years and can share a few observations about what I see here (and I am seeing it literally for the first time, as I have not followed this story).

1. This obviously was an ill-documented relationship, though what is outlined in the complaint clearly suggests that it was either a joint venture of some type or at least something intended potentially to be a joint venture. When such a relationship is properly documented, all the associated issues - who is contributing what, who is getting what out of the arrangement, who owns the IP, etc. - are defined in the written documentation, typically a comprehensive written agreement signed by authorized representatives of both parties.

2. That said, opportunistic teaming happens all the time in the startup world and the absence of a carefully defined agreement is not necessarily fatal to a party's claim that a joint venture existed. A joint venture is a variation of partnership law (legally, it is a form of partnership by which the parties agree to do business jointly, and to share profits in some fashion, for a specific purpose, as opposed to a more general partnership by which they agree to do business together, and split profits, in connection with all their business activities). Technically, a joint venture (indeed, any partnership) can be based on a purely verbal arrangement or one that is verbal and supported by various written exchanges documenting some of the material terms of the arrangement, whether physically signed or not. To be a legally enforceable arrangement, the important thing is for the parties to have some clearly understood agreement, verbal or otherwise, specifying that they would be working together, and making their respective contributions, for a specific purpose whose ultimate goal was to split profits in some reasonably defined way as a result of their joint efforts.

3. While the formal requirements for a joint venture are not necessarily rigorous, and can be met even in a comparatively loose arrangement, one nonetheless must have some form of deal terms that can be said to be a reasonable meeting of the minds on some form of coherent business terms. The idea that "we agreed to work together," without more, does not make for an enforceable joint venture (or any form of contract). Moreover, even if there was a pretty good understanding that parties were to work together for a business purpose, if there is no understanding about who was to get what in exchange for what contribution, then it is almost certain that no form of enforceable agreement would be found.

4. Quite apart from whether a technical contract might be found to exist, the question of credibility also is crucial. That is, even if one party's story, if believed, would support the elements of a proper joint venture, there is the further question of whether that story is believable. On the facts alleged here, for example, why would TC, if it really did contribute major components of the software, hardware, funding, etc., do so without insisting that the parties have some form of written agreement documenting the terms of their venture? To me, this is the major flaw in a complaint of this type. It ultimately makes no sense for a reasonably sophisticated party to have, in effect, proceeded through multiple steps of a pretty complex transaction without proper documentation when, by its own admission, it knew quite a ways back that there were good grounds not to trust the party it was dealing with.

5. That said, the tactical goal of this complaint is to try to demonstrate that some form of enforceable joint venture existed (even if it is pretty shaky on its terms and in terms of believability) because that is the predicate for claiming breach of fiduciary duty on the part of the other "partner." If people really are doing business as partners, they do have fiduciary duties toward one another and can't engage in duplicitous tactics in their dealings with one another. Here, a secret plan on the part of one partner to appropriate the product of the parties' joint efforts would qualify as an illegal form of duplicity. If this can be proved, then the party misappropriating an opportunity or the IP belonging to the venture would have to account for its profits to the other party and would otherwise be legally exposed to substantial damage claims, even punitive damage claims.

6. If IP had been stolen here, though, the first action one would expect is for a party to be at the courtroom seeking to get a TRO and preliminary injunctive relief by which it asks the court to bar the other party from selling or distributing the product pending the trial in the lawsuit. That hasn’t happened here. Perhaps this is because, to get such relief, the moving party would need to demonstrate convincingly that it likely to prevail on the merits of its claims, and this something TC may not be able to do here.

7. On this score, the most telling thing that appears in the facts is the claim that TC had a deal because the CEO of the party it was negotiating with allegedly "agreed" to the terms of a merger in an email exchange. This sort of claim lies in the desperate category. Any merger of this type is highly complex, requires both board and shareholder approval, and is reasonably expected by all but the most unsophisticated parties to include, at a minimum, a detailed term sheet specifying what those terms are. For TC to claim that it had a "deal" on this score, based on statements made in a negotiation by the other party’s CEO, is exceedingly weak.

8. Thus, the legal aspects of this case would seem to come down to this: one party claims it had a deal and got betrayed while the other claims that there was no deal but "mere negotiations" which ultimately failed to lead to a binding agreement or arrangement between the parties. From a reading of the complaint, it would seem to be a difficult hurdle for TC to show that the terms of an enforceable deal are in place here. At the same time, there appears to be evidence of duplicity in the conduct of the other party and TC may have some claims to a form of remedy on account of having been misled by shark-like conduct on the other side. My intuitive sense, however: shark-like conduct likely occurred on both sides here and, if this is so, then TC will ultimately be left to stew in its own juices when this is all said and done.