CrunchPad Federal Lawsuit Filed; Some Additional Thoughts

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Thursday afternoon we filed a lawsuit against Fusion Garage in the Northern District of California Federal court. The causes of action include Fraud and Deceit, Misappropriation of Business Ideas, Breach of Fiduciary Duty, Unfair Competitition and Violations of the Lanham Act. The complaint is embedded below, or you can view it here.

This was the first time I’ve ever filed a lawsuit, and it was certainly not the way I thought the whole CrunchPad project would end when I first wrote about the idea in July 2008.

I believe the lawsuit (and attached exhibits) speaks for itself. A timeline is provided as well as supporting evidence from the Fusion Garage blog (now deleted) and emails between our companies. But I do have a few additional thoughts:

  1. We’ve shown through our posts (see The End Of The CrunchPad and CrunchPad Litigation Imminent) and that we’ve got nothing to hide. Our statements are backed up with emails and other evidence. Fusion Garage also makes a lot of statements about us, none of which are backed up by evidence.
  2. Fusion Garage deleted their blog shortly after the dispute erupted. A lot of statements on that blog directly contradict statements made by Fusion Garage this week (these are included in the lawsuit). That deletion, combined with the fact that they very clearly misled us over the last month into believing everything was on track, while they simultaneously registered a new domain name and rebuilt the case of the device to include the new brand, shows a pattern of lies. The press has mostly given them a pass on this.
  3. Fusion Garage is, and always has been, a company on the edge of going out of business. 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. The company was constantly raising debt from unsavory investors, borderline loansharks, to make payroll. We paid a lot of expenses directly, and we agreed with Fusion Garage that they had to clean up their cap table before we could acquire them. Fusion Garage agreed and attempted to do this but was never successful. All of this is shown in the exhibits to the lawsuit.
  4. We have had financing from top tier investors lined up for the CrunchPad. Those investors didn’t love the way Fusion Garage and its founder checked out on background checks, but they were willing to support the project. That financing was on hold until we launched the device. At any time we could have pulled the trigger on it, and we have statements and evidence to support it (these investors are also talking to press directly). We also had partnerships lined up for retail distribution at unheard of terms, as well as soft revenue to drive the retail price down on the device. All of this has evidence to support it. All of these partners will support these statements on record.
  5. Fusion Garage’s financial situation is a mess, and it is inappropriate for press to recommend to people to pre-buy a CrunchPad. The company has not yet hired an attorney to respond to our lawsuit. We believe they do not have the cash flow to do so. When the device goes on pre sales today, linked to from scores of gadget and press sites, they will suddenly have cash flow to defend themselves. What they won’t have is cash flow to build the devices. We believe it is irresponsible for press to link to the pre-sale site without disclosing this to readers.
  6. Much of the key intellectual property, including the board and much of the mechanicals, is owned by Pegatron, the manufacturing arm of Asus. Pegatron was licensing this IP back to the project exclusively. Fusion Garage is no longer working with Pegatron, they’ve hired a new ODM. They have likely given Pegatron’s IP to the new ODM to speed development. Pegatron has expressed concern to us about this, and I would not be surprised if they sued Fusion Garage separately over this issue.
  7. A few people have suggested that we can’t own any IP in the CrunchPad because we are just a blog. That’s not correct. The entire blueprint of the device was created by me. And we also have hired direct resources, including the former head of hardware at Vudu, as well as very high level software engineers, who have worked directly on the project here and in Singapore with the Fusion Garage team. Their direct work on the project was crucial to its success, and the device would not be finished without their work. The fact that Fusion Garage had nearly its entire team here in California for the last few months working with us illustrates this. Why would they have brought them all here at great expense (and we organized visas and housing) unless this was a joint project? The answer is they wouldn’t have.
  8. The founder of Fusion Garage, Chandrasekar Rathakrishnan, isn’t a good guy. He has been caught plagiarizing articles. His previous company Radixs disintegrated in shareholder disputes and angry employees. We didn’t learn about this until last Summer because Singapore media, including blogs, are largely controlled by the government. Embarrassing stuff just isn’t reported. But we’ve spoken to plenty of people associated with the company, and their statements will be included in the lawsuit. Chandra and Fusion Garage have shown a long term pattern of deceit in their business dealings. There is no reason to think that anything will change now.

The lawsuit is below:

http://viewer.docstoc.com/v2/
SF-38-303-C2_20091210160410_00000001

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