
Arrington Is Denied Injunction Against Fusion Garage Over CrunchPad - tptacek
http://www.scribd.com/doc/36582231/CrunchPad-Interserve-v-Fusion-Garage-Denial-of-Preliminary-Injunction
======
tptacek
Gruber characterized this as TechCrunch getting "smacked around" by the judge,
but if you actually read it, it's kind of the opposite. TC doesn't get an
injunction that puts them in control of all of FG's revenue, which is what
they were asking for: the court decided it wasn't likely they'd have a claim
to _all revenues_ even if they won the case. However:

* FG seems to have claimed that any relationship they had with TC was in the nature of a "joint venture" and not a partnership. Doesn't matter, says the court: call it what you will, but there are fiduciary duties at play.

* FG claims they couldn't have had a real relationship because TC's Arrington made statements about both parties sharing profits, and both sides bearing its own losses. _So what?_ asks the court: that's part of the definition of a partnership. Not to mention: TC already has shouldered some of FG's expenses.

* FG claims there's no partnership because a TC employee proposed actions that would have put TC in breach. But a "potential breach" (which TC management prevented) doesn't absolve FG of any duties.

* FG claims there couldn't have been a real partnership because TC had threatened to unilaterally dissolve the venture. _So what?_ asks the court: as long as TC lives up to its obligations, it has that right.

* FG claims there's no evidence of co-ownership of the business. _And?_ asks the court. It's the joint venture that created the fiduciary duties, not ownership.

* FG claims that no joint venture could have existed because TC was negotiating to buy FG. Be that as it may, whatever duties FG had to TC in collaborating on the CrunchPad remain.

* Finally, and probably most importantly, and this is worth quoting directly:

 _Fusion Garage argues that the terms of the parties joint venture were simply
too uncertain and unsettled to be enforceable. While it may be true that the
parties never reached a meeting of the minds on how the business would operate
on an ongoing basis, their cooperative efforts in developing the product were
sufficient to give rise to an obligation on both parties' part not to usurp
the fruits of those efforts._

In other words, see you in court.

I'm actually not that interested in the TC/FG saga, since I think that product
was D.O.A. But I'm very interested in the legal dynamics of joint ventures,
because it's not crazy to think I might be involved in another one someday.
Food for thought.

~~~
grellas
Very good points.

Concerning the joint-venture analysis, where two otherwise independent
entities team up to pursue a business opportunity for profit, or to jointly
develop a product for possible future commercial exploitation, they can
readily satisfy the technical definition of a "general partnership" under the
Revised Uniform Partnership (a joint venture being in essence one species of
"general partnership," basically formed for a specific purpose instead of a
broader collaboration). Under RUPA, the law can conclude that such a
partnership has been legally formed whether or not the parties intended to
form it and whether or not they sought to document it in writing.

Thus, given the critical elements - (1) a commercial teaming and (2) an intent
to share profits - one can legally form a partnership or joint venture and
incur the duties of a partner or joint venturer to the other party involved,
quite without intending to embrace any such legal structure. This area of law
can thus easily catch a party by surprise and lead to imposition of potential
surprise legal liabilities. In effect, the profit-minded goals of the parties,
combined with their statements and actions in teaming to further those goals,
give rise to legal duties that they owe to one another even if they never
intended to embrace a formal legal relationship. The greatest of these duties
is that every partner (or joint venturer) owes a fiduciary duty to every other
partner (or venturer) in the partnership or joint venture. A fiduciary duty is
a far stricter one than is normally represented by arms-length dealing. It is,
rather, a duty to act in the highest good-faith toward one's fellow partners
and includes having to act in the best interests of the partnership in
relating to the venture. This axiomatically means, of course, that one cannot
appropriate for one's own use and profit the subject matter of the venture and
at the very least cannot do so without compensating the other partners for the
value of what is being taken.

Here, given the procedural context of a preliminary injunction application,
the court was not required to, and did not, make any ultimate findings about
whether these parties had in fact formed a joint venture. However, the court
ruled that TC had made a credible showing that such a venture existed, _not_
generally in the broader proposed business relationship that the parties had
been continually negotiating and whose terms were probably wildly unclear but
rather with respect to the product development itself. In other words, with TC
having delivered specs for the product, as well as having contributed money
and engineering resources to further its development, and with FG having
gladly accepted all this and having done so while trumpeting the joint
development efforts to the world, the court said that this likely amounted to
a joint venture for the product development itself and, with that product
constituting an asset of the joint venture, one venturer (FG) could not simply
misappropriate that asset to its own use without breaching fiduciary duties
owed to its fellow venturer (TC). The court said that it amounted to a breach
of fiduciary duty for FG to do this without settling up with TC as its fellow
venturer by compensating TC for the value of the anticipated business
opportunity associated with such jointly developed product.

The rest of the TC case is theoretically far from over, even with the court's
dismissal of its fraud claims and the like, but is nonetheless likely dead in
practical terms. It seems clear from the court's discussion that the fraud
theory is far too nebulous to be sustained.

It takes a great deal of time and money to take a legal action to a point such
as this and, a motion for preliminary injunction being, in effect, like a
mini-trial, TC and FG have very spent somewhere in the six-figure range
already to go through this exercise. Given that it is pretty clear that TC is
chasing after windmills in terms of what it hopes to get out of this core
dispute over breach of fiduciary duty concerning the product itself, it would
seem that any further extension of the case case at this point would be more
ego-driven anything else. One would hope that the parties would simply put it
to rest with some private settlement made in light of the court's ruling.

~~~
jacquesm
> This axiomatically means, of course, that one cannot appropriate for one's
> own use and profit the subject matter of the venture and at the very least
> cannot do so without compensating the other partners for the value of what
> is being taken.

Is there a requirement for consent in such cases?

~~~
grellas
It is usually quite a mess whenever a _de facto_ partnership is formed without
the parties intending this result. In effect, once this happens, the parties
have pooled resources to accomplish a joint aim and they can disentangle
themselves at that point only by formally settling up, agreeing upon how to
divide rights, giving mutual releases, and parting ways. If they can't agree,
the situation gets very sticky, usually necessitating that one party or the
other go to court to get a formal "dissolution" of the venture or related
forms of relief such as "declaratory relief." A dissolution action is a full-
blown lawsuit and is by no means a simple step (minimum cost in the U.S.,
thousands of dollars and likely in the tens of thousands - if it is reasonably
contested and goes to trial, easily six figures).

Parties can also try workarounds but, as the TC/FG case illustrates, something
such as a joint product development _ipso facto_ defines the subject the
matter as the product itself and even a so-called independent-development
effort doesn't give the party trying to walk away a clean way of doing so
because the other party simply claims that it breaches fiduciary duties by
doing so.

All in all, such situations usually result in an unholy mess. A good lesson
here for documenting your relationships and for not too casually "partnering"
up with people (this type of case also happens on occasion with founders and
ill-documented relationships - even if one of them is not "on the papers,"
that person can often claim a "partnership" and, hence, a percentage of the
enterprise supposedly promised to him in exchange for undocumented startup
efforts).

~~~
jacquesm
It's almost like a common law marriage for companies.

------
noonespecial
The really sad part is, a year ago this might have been an interesting
product.

By the time they get their egos and money grabs sorted out, it'll be just
another (overpriced) me-too tablet in a sea of better competitors.

------
zitterbewegung
Is fusion garage going to sell this in the future or is the litigation
currently stopping them from selling?

~~~
jacquesm
It's dead in the water as far as I can see. For one they didn't sell enough to
make it interesting, second the lawsuit will likely cost more than it's worth
to FG to continue. If they allow it to go to court it will cost them dearly
and they still don't have a product.

The smart move would be to call it a day and cut the losses, Arrington may
have a legal case but it seems like he's throwing good money after bad as
well. The joojoo isn't going anywhere, the 'profits' are non-existent and
there won't be any in the future.

Maybe he wants it back as part of a settlement so the project can be sold to a
third party?

~~~
bmelton
It's quite likely a vengeful attempt to prohibit FG from making any money off
of it. While the saint in me agrees with your perspective, the devil says "If
I'm not getting rich off this pad, then nobody else is either," and that's
what I suspect Arrington's doing.

On the off chance that FG turns it around and somehow does manage to take it
to market successfully (which this suit will almost certainly impede,) then
Arrington and company should get to reap the proceeds (if that is what the
court finds.)

------
kapitalx
The main reason for the death of the product was the debacle between the two
companies from day 1. I would have certainly purchased one if it was released
by Techcrunch.

~~~
dagw
Nope, the main reason for the death of the product was the price tag. When
announced, they said it would cost $199, when launched it actually cost $499.
That's a pretty huge difference. I fail to see what difference the name on the
box makes.

~~~
kibbles
...which was a result of the soured relationship. if it had gone forward as
the CrunchPad, w/ TC's vision, the price would have been lower. the "joojoo"
is not the CrunchPad.

~~~
kapitalx
Exactly, I don't remember techcrunch ever announcing that they would launch at
$499. The whole vision of the product was being sub $300.

------
stretchwithme
Damn. Run, iPad. RUN!

