Score one for the small guys. Startup TechForward just won a huge lawsuit against electronics retailer Best Buy over misappropriated trade secrets. The judge has awarded TechForward $22 million in damages, as well as another $5 million in punitive damages.
Here’s the background. In 2009, Best Buy and TechForward, which has raised money from First Round Capital and NEA, engaged in a trial program of TechForward’s Guaranteed Buyback Plan in a number of Best Buy Stores. TechForward has done similar deals with other big-name retailers as well.
Basically, customers choose to purchase the plan at the time they’re buying a gadget, similar to the way you purchase an extended time warranty. With the plan, customers also have the option of selling the gadget back to Best Buy for store credit on a sliding scale. The longer they keep the gadget, the less they get back. It’s a good deal and avoids the process of having to sell an old gadget for the customer.
TechForward’s procedure in evaluating buybacks is unique–the company took the price, exercise rates, managing cash reserves and more into account to determine how much a gadget is worth. BestBuy allegedly held out the promise of a partnership and got TechForward to give them highly proprietary data under a confidentiality agreement.
Six weeks after the exchange of TechForward’s proprietary information, Best Buy decided to end the relationship and start a similar program of its own, that of course closely resembled (basically copied) the startup’s procedures and format.
It gets worse. Not only did Best Buy launch a buyback program using TechForward’s propriety data, it advertised the new program in a commercial blitz during the Super Bowl. Remember those Best Buy adds with Ozzy Osbourne and Justin Bieber back in 2011? Those were solely to advertise the new Buy Back Program, that was based around TechForward’s technology and program.
So last year, TechForward sued Best Buy. You can find an original copy of the lawsuit here. As a result of Best Buy’s theft, the company ran out of cash and had to sell the company’s assets to warranty business SquareTrade. First ROound actually funded the lawsuit, you can read more here. It’s a tragic story, but there is a silver lining to it all.
This week, the ruling came in and it’s actually a significant chunk of cash. The courts ruled in favor of TechForward, and awarded $22 million for the improper use of TechFoward’s trade secrets by Best Buy. The jury also determined that BestBuy’s conduct was willful and malicious and awarded another $5 million in punitive damages.
It’s not that often that a startup goes against a multi-billion dollar company in a lawsuit and wins. Between legal fees, the court system and more; it’s a challenge for bootstrapped startups to take on the big guys. Even in some of the most egregious cases, startups just simply give up or run out of money.
Thanks to the perseverance and determination of TechForward founders Jade Van Doren and Marc Lebovitz, startups may think twice before revealing their business secrets to Best Buy. We’ve embedded a copy of the ruling below.
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