

CrunchPad Federal Lawsuit Filed; Some Additional Thoughts - andrewpbrett
http://www.techcrunch.com/2009/12/11/crunchpad-federal-lawsuit-filed-some-additional-thoughts/

======
grellas
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.

~~~
wheaties
Damn, that is a fascinating legal discourse from someone who knows what
they're talking about. Hats off to you sir. I'm following this story not only
because of its relevance to start-ups and IP in general but also because it's
techcrunch. On similar note, what can you make of his claims about a third-
party owning much of the technical IP? If true, will they be shortly filing a
claim?

~~~
nazgulnarsil
the stuff about Asus would indicate to me that either Arrington is an even
bigger idiot than he appears to be or is trying to bluff his way through this.
If Asus actually did have legal action in the pipeline Arrington would be an
idiot to talk about it. Talking about his own suit on his own website is fine,
talking about other, unpublicized suits?

~~~
rbanffy
He is just making sure Fusion Garage can't raise the money to defend
themselves against Arrington.

------
fjabre
Ok so it seems a lot of people are eager to call out Arrington for being
foolish here.. Hindsight is 20/20 and while it's clear TC and friends made
some key mistakes let's not burn them at the cross like so many in this forum
are doing..

I'm working in a startup with a Neurologist who has an appointment at Harvard
and an MBA - no doubt he's a smart guy. Nevertheless that didn't really matter
a few years ago when our startup was taken to the cleaners by cons.. With the
best of intentions we planned a strategic partnership with a medical device
company only to find out that several months later we were deliberately being
led on and lied to by the CEO of said company while they worked on stealing
and implementing our ideas and cutting us out of the deal..

We thought about a lawsuit but we just didn't have the funds to go through
with it.. In the end it worked out for us because we had already had some
successful partnerships with other device companies which kept us afloat.
Also, the company who stole our ideas failed miserably..

Is it really too much to ask that everyone pointing/shaking their finger at TC
and Arrington to give them the benefit of the doubt..? It's pretty obvious if
you believe what he's saying about Fusion Garage and Chandra that these guys
are accomplished liars.. It's a tough lesson to learn and I for one applaud
Arrington for being open and transparent in this whole ordeal.. I'm sure this
has been embarrassing enough for him and the TC team..

~~~
jonknee
I shed no tears when a lawyer doesn't think to make a contract and gets
burned. How many times has he been on the other side skewering people who did
the same thing?

~~~
rbanffy
Well... Not only he didn't get that much burned, he is suing Fusion Garage out
of existence.

And, unless most of the article is correct, he is also slandering them pretty
bad.

~~~
jonknee
Filing gets you nothing, he has to win the suit which will be really tricky
because he didn't spell it out on paper first. Even then what does he have?
Less money and no product. Not to mention looking extraordinarily incompetent
in front of the public. Simply having a contract in place would have made this
cut and dry.

~~~
rbanffy
Filing may get them nothing, but he can get an injunction that prevents FG
from launching the product and thus getting funding for a coming legal battle.
I bet the shortage of money would make them more amenable to Arrington's
allegations of who owns the IP...

Looks increasingly like MA found some company who could develop a product and
that could be bullied out of the deal when it's ready to be taken away.

------
spec
This confirms that they had no contracts - Arrington's "exhibits" are some
blog posts and emails. This guy seriously used to be a lawyer? The initial
price point was just an attempt to hype it up by Arrington, so this whole
device would never be much anyway. BTW, Techcrunch is deleting any unfavorable
comments on their blog, just as they have done many other times previously.

~~~
lionhearted
> This confirms that they had no contracts

This is a misconception - a contract does not need to be written to be
enforceable. A contract consists of an "offer" and "acceptance"

<http://en.wikipedia.org/wiki/Contract#Offer_and_acceptance>

Techcrunch looks like it made an offer to work with someone to build a device,
and Fusion looks like it accepted in some capacity by announcing they were
working with them, tentatively branding it the Crunchpad, etc.

After that, the question is - did Techcrunch provide "consideration" to
Fusion? That is, did they work to fulfill the agreement the two companies had?

Here, it looks pretty clear that TC did provide some consideration. Courts
will look at what was agreed, and whether the parties provided that.
Techcrunch might be exaggerating their role in the project, but they did
clearly bring some consideration to the table - they put time, effort, money
into the project because they believed they had a deal. Fusion accepted this
consideration.

Importantly, consideration doesn't look at abstract value. It looks at whether
you delivered on the contract. This is important, here's Wik on the subject:

"Consideration must be "sufficient" (i.e., recognizable by the law), but need
not be "adequate" (i.e., the consideration need not be a fair and reasonable
exchange for the benefit of the promise). For instance, agreeing to buy a car
for a penny may constitute a binding contract."

The car for a penny example is extreme, and it might not be a binding
contract, but it might too - there's been some famous cases of pranksters
getting sued. But the key is, even if what TC provided wasn't important, if
Fusion agreed to partner/pay royalties/give them a percent/something in
exchange for what TC brought to the table, then they had a deal and TC
delivered on their end of it.

Also from Wik -

"Contrary to common wisdom, an exchange of promises can still be binding and
legally as valid as a written contract."

A clear, well written contract goes a long way. In absence of one, though, if
you can still show there was an offer, acceptance, and consideration, then
you've got a contract. I'm still going through the lawsuit reading, I'll come
back when I see what TC is asking for because that's an interesting detail.

Edit: On page 10 of the lawsuit. TC is saying they paid vendors and paid
Fusion's debts. That'd be pretty clear consideration if true. Still reading.

Edit2: Alright, page 21 has what TC is asking for. They're asking for all
profits from sale of the product to be put into a trust and that Fusion is
permanently forbidden from selling or distributing the Joojoo product, and
must destroy it. Earlier in the suit they mentioned TC and Fusion are now
permanently competitors, which implied TC is going to build their own pad.
It'll be interesting to see if they have their own set of IP and specs to do
that, or if it's just bluffing for leverage.

~~~
nreece
In a strictly lawful perspective, a contract is a legally binding written
agreement between two or more parties.

~~~
lionhearted
It might depend on your country/jurisdiction. In the United States, oral and
implied contracts are contracts, and are legal and binding.

Some contracts, though, fall under what's called the "statute of frauds" -
that means they must be written to become contracts.

[http://www.expertlaw.com/library/business/statute_of_frauds....](http://www.expertlaw.com/library/business/statute_of_frauds.html)

> A "statute of frauds" requires that certain contracts be in writing, and
> that they be signed by all parties to be bound by the contract.

Contracts under statute of frauds include land sales and transfers,
guaranteeing another person's debts, and contracts that can't be completed in
a year.

It can be hard to prove an oral contract, but if you can prove it has all the
elements of a contract, it's a contract, legal, and enforceable at least under
the standard United States common law.

~~~
smeatish
_Some contracts, though, fall under what's called the "statute of frauds" -
that means they must be written to become contracts._ From the link you
provide, it explains that the statue of frauds makes a contract voidable
(either party can break it) but it's still a contract. Also: 'Sometimes, a
party to a contract that would otherwise be invalid under a "statute of
frauds" will nonetheless be able to enforce it, on the basis of "partial
performance" or "promissory estoppel".' Seems TechCrunch can reasonably claim
partial performance.

------
anigbrowl
OK. IANAL, but here's my opinion anyway, having read the suit and exhibits as
filed:

FG had $500k in debt by end of June. To whom? We don't know. Chandra would
have liked to sell FG to CP [crunchpad] and then pay off that debt in a
subsequent round of capital-raising. Arrington and fellow investors did not
want to buy a company with half a million in outstanding debt.

Another option was for TC to buy FG at a valuation of $3m and pay off the debt
at the same time by converting it to equity, which was also undesirable since
it would have diluted shareholding by 16%. We may infer that with 35% of CP
shares going to FG and a further 16% converted from debt to equity, the upshot
would have been that Arrington's investors would have only had a 49% stake,
with the other 51% being held by FG's investors and creditors, obviously
giving them control of the company.

So TC's offer was for FG to pay off its debt completely, in rturn for which
its investors would get 35% of CP shares. Chandra indicated this was
acceptable, but was unhappy about it as it would have meant giving up all of
his personal equity in FG and $75,000 in cash (in order to satisfy FG
creditors) and his only holding would be an option to acquire 11% of CP in a
future round.

Chandra asked for a better deal but indicated that this option was acceptable
to him if it was the only way. It is unclear from the emails (which are
confusingly presented in reverse chronological order) what position, if any
Arrington & co. took in response to this offer. Since TC did not go ahead and
buy FG, we may infer that the matter was placed on hiatus. I guess but do not
assume that this was pending on FG's satisfaction of its creditors and getting
back to a clean balance sheet.

By November, the awesomely-named Bruce Lee and his 2 co-investors considered
FG to be worth $10m in its own right and valued TC's contribution at 10% of
that for the Crunchpad name and Arrington's marketing effort, with Lee noting
that Chandra had commended an offer of 25% of the shares in CP as payment for
FG. It's unclear whether Arrington lowered the equity offer in exchange for
taking on the debt, or whether the ~28% discount to the earlier offer
represented Chandra's personal equity in FG; I suspect the former, suggesting
that that CP planned to put down $2.5m in cash and absorb any outstanding debt
in exchange for 75% of the equity, which would be fairly consistent with the
negotiations in June.

Whew. So the upshot here is that Dr Lee is basically saying that he
disbelieves Arrington/Crunchpad has brought $5m worth of product development
and marketing clout to the table, but instead values their contribution at $1m
(out of $10m cash that he and fellow investors are willing to put on the
table). Additionally, he seems to feel like he is being hustled, considering
the lack of a formal offer letter for the merger.

Seems to me that Dr Lee has decided to see the color of Arrington's money by
raising the cash stakes considerably; suddenly Fusion Garage [in the sense of
its largest shareholder] is offering to gobble up Crunchpad and pay Arrington
off with a job rather than the other way round. Arrington's blogged thoughts
refer to FG's poor financial position, but gloss over the fact that its
investors have $10m on hand (which appears to be about 4x what Arrington had
lined up).

The plaintiffs seem to argue that Fusion Garage is only alive because of the
good will invested by Arrington/Crunchpad and would have died otherwise; I
presume the defendant's argument will be that this was never the case, that FG
had entered into the project in a spirit of partnership rather than
supplication, and that any monies advanced by Crunchpad to FG's creditors were
a matter of mutual convenience. The case seems to turn on the degree of
innovation provided to the project by Arrington/CP: and looking at some of
their claims, they seem pretty thin (eg suggesting web pages are bettered
rendered against white background, or the use of large icons to select
favorite sites, both of which the defendant will claim to be obvious prior
art).

Prediction: it won't go to trial, Fusion Garage will settle with Arrington for
$1.5-2.5m and both sides will declare victory. Arrington will keep the name
and claim moral high ground and return something to his investors, FG will end
up free of encumbrances and with a commitment of future silence from
TechCrunch about the company and its products.

------
andrewcooke
has this got to the point where we can start using "crunchpad" to mean "a
godawful mess" or similar?

as in "i wanted to grow organically; he wanted a big marketing push: it ended
in a total crunchpad". or "someone didn't tighten the nuts; front driverside
wheel came off on a mountain road: complete crunchpad". or "flock of birds
triggered a false alarm; first strike; automated response: crunchpad".

it happened with cuil, i'm sensing the same promise here....

~~~
noonespecial
It will start out slow. As founders are making deals, they'll say to each
other, "Document well, we don't want another CrunchPad here". Others will
overhear and pick it up. "It was a total crunchpad." Then it will achieve meme
status and people who have no idea where it came from will just post,
CRUNCHPAD! in every thread detailing a startups failure. Divorced from the
device, it evokes nice fail imagery. Launchpads -> Rockets ->failure ->crunch
and dare I say it, Jar-Jar Binks.

I was getting tired of FAIL! anyway.

------
steerpike
I posted the following comment on the techcruch blog but it got deleted. Not
sure why exactly, I think it's a fairly valid question to ask.

"So you apparently found out that your business partner was pretty shady last
summer but you chose to not reveal that obviously newsworthy information to
readers, why exactly?

Just wondering why readers should be considering techcruch a newsworthy source
if such an obvious conflict of interests results in you coming down on the
side that benefits you the most?"

~~~
tghw
Seems pretty obvious. He had a partnership with Fusion Garage, why would he
air their dirty laundry? It's not like he did anything to hide the
relationship between FG and TC.

~~~
pmjordan
_He had a partnership with Fusion Garage_

Doesn't sound like he did, actually.

~~~
tghw
Contractually, perhaps not, but both sides stated multiple times that they
were working together, which would be enough for him to not want to slander
his partner.

------
whalesalad
While I've started to lean more against Fusion Garage in this battle for the
CrunchPad, I still think that TechCrunch is equally to blame for choosing such
a shady group to work with.

Arrington states that he has known for a long while (as steerpike pointed out)
that Fusion Garage has been in such shambles, and claims he isn't "just a
blog" and has made significant (and/or the majority of) contributions to the
CrunchPad. If both of these are true, why the hell didn't he pull out on
Fusion Garage early on and go with someone else?

You supposedly have the idea, the investors, the retail channels lined up,
etc... so why is Fusion even an issue? I call shenanigans here...

~~~
KWD
My impression is that Arrington realized how bad Fusion Garage was and why
there was discussion of a new company being formed. He probably just thought
they could get the product out and then deal with the issues, not realizing
the backstabbing by Chandresekar was already in motion.

~~~
rbanffy
I have an opposite impression. It could be that Arrington, seeing the business
relationship went bust and that he made little to no contribution to the
device and thus has little to no rights on it, decided to attempt to get FG's
work for free, by suing them out of business and forcing a settlement on his
terms.

I expect him to be able to prove that FG has and continues to engage in shady
deals.

Actually, I hope not. I would love to see him fight off a slander lawsuit.

------
scott_s
Two things. First, if Arrington can produce the physical prototype that TC
developed on its own, that would be a big deal to me. But he'd still have to
establish that the device Fusion Garage is producing used IP from their
prototype.

Second, I can see this happening. Arrington has an idea for a tablet. He comes
up with the basic idea and rough specs. Fusion Garage goes and implements it.
In Arrington's view, the device is partly his because he had the original
idea. In Fusion Garage's view, the device is all theirs because they did all
of the work to create it. Both think the device is "theirs" because they
underestimate the contribution of the other.

Arrginton really needs to establish what exactly they did, and demonstrate
that it made it into the final device. I'm not sure what his actual
contributions are from the claim; coming up with the specs isn't a big deal to
me. (Note I'm talking morally and ethically, not legally - as always, I am not
a lawyer.)

------
ErrantX
_What they won’t have is cash flow to build the devices._

FG have said they have devices built or building haven't they? I wonder which
is true - my guess is a small inventory, hence the pre-sale.

 _Chandra and Fusion Garage have shown a long term pattern of deceit in their
business dealings._

Dear god.... why oh why did he deal with them? (or continue to deal with them)

If the lined up investors, guys who make a _living_ in picking horses to back,
were worried why didn't Arrington listen to their concerns

And after a brief scan through I dont see any/many mention of contracts or
agreements between TC and FG. As we said before that is a basic mistake - and
it looks like it is one that was actually made :(

Personally I am coming down slowly on TC's side: Fusion Garage are screwing
about.

However the one thing I _am_ certain about now is that I would definitely
never go into business with or invest in Arrington. He's destroyed any
reputation he had as an investor / businessman for me.

Shambles.

~~~
gvb
They have at least one (as shown on the FG video). They probably have 10s or
100s built as a pre-production run (used to proof out the manufacturing
process, given to developers to finish the coding and testing). I'm sure they
don't have production quantities.

The pre-sale is to get enough cash in hand to pay the manufacturing outfit
enough to do a production run in order to fulfill the pre-sale orders. If you
send money to FG for a pre-sale, you are _gambling_ that they will use your
money to actually make a device and deliver it to you.

That is Arrington's warning in point 5, and it is a valid warning. Even if
they don't use the pre-sale money to hire lawyers, there is no guarantee they
will get enough money to do a production run, there is no guarantee they won't
take your money and disappear.

Pre-sales is based on trust (buyer) and reputation (seller), not goods already
manufactured.

~~~
ErrantX
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.

------
awolf
Arrington contributed "blueprints" of the device? Does he mean schematics and
a bill of materials? Or does he mean pictures that he drew himself?

If he means pictures then I've got some rockin' time machine blueprints for
sale. Hit me up...

~~~
maukdaddy
If you stole my flux capacitor blueprint I'm going to sue the shit out of you!

------
viraptor
Point 7 is... interesting. Like the whole post really. It lists a lot of facts
about TC helping in CP development, working out some details, assuring
commercial support. But that's pretty much it. They have some emails, but
that's still not really formal.

I may be mistaken of course, but it looks like they do not have any formal
document that says anything about their ownership of the project. Sure - they
helped out the project, or even produced the blueprints, but do they have a
proper contract saying what do they get in exchange? Afaik there's no law
stopping me from creating a device based on someone else's not patented
blueprints (otherwise people writing RFCs would own a lot of software they
didn't write).

~~~
Retric
I think the problem is TC may have provided resources such as office space. At
which point verbal contracts can become binding, which is why emails back and
forth which support the verbal contract would be important. So, the real
question becomes did TC provide such services and can they prove what the
verbal contract was?

------
Chirag
Mr. Arrington and nice folks at TC seem to be removing any HN related comments
for some reason. Strange.

------
ggruschow
I know it hurts, but the baby is dead. He needs to bury it, mourn in private,
heal, and move on.

Litigation won't bring him happiness, wealth, a good reputation, or even
closure. In fact, all this lashing out will do the opposite.

If he just shuts up about them, they'll very likely disappear like all the
other >year-late, >100% over-budget buggy gadgets without major marketing,
funding, or innovation.

~~~
forensic
Well I think Arrington is actually profiting from increased traffic. Drama and
gossip is good for a blogger's bottomline.

He also has a lot of pride invested here.

So yes, Arrington is out to destroy them, and he wants to send a message
saying more or less, "Don't fuck with me."

And he's smart enough to know that there's no such thing as bad publicity.

------
pavs
I smiled when he tried to defend being labeled as techcrunch being just a
blog.

The sad truth is while techcrunch does "other things", its main operation is
being a weblog, as posted in its about section:

"TechCrunch was founded on June 11, 2005, as a weblog dedicated to obsessively
profiling and reviewing new Internet products and companies. In addition to
covering new companies, we profile existing companies that are making an
impact (commercial and/or cultural) on the new web space.

TechCrunch has now grown into a network of technology focused sites offering a
wide range of content and new media."

In its literal sense Techcrunch is anything but tech blog, more precisely is
covers a subset of technology, which is mainly the business aspect of "online
technology". A tech blog in it's truest sense would be Arstechnica or Engadget
or even gizmodo. TC's tech writing depth goes as far as reporting "twitter
being down for 30secs". Their writers couldn't tell their ass from their mouth
if you were to ask them a simple question as to point out the underlying
technical similarities between safari and chrome.

As much as I love hacker news, I am often troubled by some of our fascination
towards techcrunch as a source for tech news. TC is often posted 4-5 times a
day here on the front page.

Utter rubbish example #1:

<http://www.techcrunch.com/2009/12/11/google-code-freeze/>

example #2:

<http://www.techcrunch.com/2009/12/10/playboy-iphone/>

example #3:

[http://www.techcrunch.com/2009/12/10/facebook-is-totally-
dow...](http://www.techcrunch.com/2009/12/10/facebook-is-totally-down/)

Those are in last 24 hours...

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

Must. click. link.

------
jarsj
So I tried going over all the emails, docs posted over techcrunch and here are
some thoughts. I do wonder why is no popular blogger/journalist out there
taking Fusion Garage's side and highlighting these points ?

These are entirely my interpretations and personal thoughts. Happy to be
corrected.

\- From emails its clear that Chandra is desperate, to be either acquired by
Tech-crunch or raise some money. Poor guy is under loan, has to pay vendors,
salaries. There is no contract because then techcrunch would have to invest
and hence share the risks and put in some real money. If its their joint
venture why haven't they done that ?

\- Michael is aware of chandra's talking to other investors. He jointly owns
the product, but wouldn't let his lined-up investors come and help chandra
out. Doesn't he know that when investors come they do have some say in how
company should run ?

\- The blueprint shit. Come-on. I have a time-machine blue print. Anyone
building it ?

\- Michael says FG is in trouble, has no money even to defend lawsuit. Now if
this was a joint venture started by Michael, how did it come to this ?

\- Many are now suggesting Techcrunch to take their blue print and Crunchpad
name and get the hardware done by someone else. Isn't this what FG did ? Too
their hardware and got a new name ?

To me its clear that Chandra thought of Michael as an potential investor and
discussed details hoping to get acquired. He also talked to several other
investors, who agreed to invest under some conditions they deemed fair.
Chandra, desperate enough, went ahead. Doesn't this happen all the time ?
What's the fuss. Its only unfair that FG is being projected in such a wrong
light.

------
vijayr
Point 6: _Much of the key intellectual property, including the board and much
of the mechanicals, is owned by Pegatron, the manufacturing arm of Asus._

Point 7: _The entire blueprint of the device was created by me._

I don't exactly understand what he means by this. He created the blue print
but someone else owns the IP? And what exactly is a blue print, in this case?
Just saying what the device needs to do/look? Isn't that _too easy_ to do?

~~~
vidarh
Since Pegatron is an Asus subsidiary, the most reasonable interpretation is
that they've started out with motherboard designs or other IP licensed from
Pegatron/Asus and modified that to suit the device.

Few people would start out with a blank slate when most large potential
manufacturing partners can offer decent starting points that are well suited
for their manufacturing process (using components they have large volume
discounts on; designs that fit their tooling perfectly etc.)

But presumably that is only a small part of the IP for the device, and TC are
arguing they own the rights to some or all of the remaining IP.

~~~
liuliu
From what I experienced of ODM in China, I'd guess that Pegatron not only
provides the starting point but also do all the designs of the specific
motherboard, the plastic outfit, pretty much all the hardware. The guess is
reasonable because from what FG claims, they put much resources on the OS
development, thus, for a small startup, it is impossible for them to develop
the motherboard and the whole industry design (even they have the ability to
hand build a prototype).

------
markerdmann
This saga reminds of Warren Buffet's advice to invest only in businesses that
possess "excellent business economics and an outstanding manager."

In my business we've conducted several off-shoring experiments, and they have
largely failed to realize a significant return. The lesson I learned from
observing and assisting in those experiments is that the secret sauce in
business is reputation. Finding people who are honest, reliable, and
intelligent can be very difficult. When you find people like that, "grapple
them to thy soul with hoops of steel." If, like Michael Arrington, you wander
into an industry with nothing but your hubris to guide you, you'll most likely
be taken for a ride.

------
petercooper
Arrington fan here, so this is very tongue in cheek but.. Arrington didn't
comply with UK libel law when Sethi filed his ridiculous lawsuit saying that
the UK's laws didn't affect him, so I wonder if these other guys will try and
claim US lawsuits don't apply to them over in Singapore? :-)

I guess even if they did that, it'd be the nail in the coffin for ever getting
the device sold in the US though.

~~~
forensic
They're living in Silicon Valley now.

------
uuilly
A very successful CEO told me that contracts were just a formality. If you
don't trust the other party to do their end you should not be doing business
with them. Sounds like there was a lot of reason not to trust the Fusion
Garage guys.

------
davidw
> Their main shareholder, the guy who wrote the now infamous email telling us
> that we were no longer part of the project, is a chiropractor named Bruce
> Lee.

Reminds me of 'The Dentist' from Cryptonimicon.

------
joubert
This is fascinating.

Why didn't TC & these guys set up a legal person in which to jointly conduct
their business?

Or was TC just effectively the marketer for this company?

