TechCrunch v. Fusion Garage: The Saga Continues – Prelim Rulings

On August 24, a Californian court issued preliminary rulings on the lawsuit between TechCrunch and Fusion Garage over their collaboration on a tablet device. Of the five motions that were filed against Fusion Garage, all except that of the breach of fiduciary duty have been struck down. Most immediately relevant for Fusion Garage is the squashing of TechCrunch’s demand to sequester proceeds from sales of their JooJoo tablet.

What’s been going on?

In 2008, TechCrunch announced their project to build a low-priced tablet device; two prototypes and six months later, Fusion Garage was brought in to work on the software side of the project. Originally planned for launch end-November 2009, Mike Arrington announced the death of the CrunchPad, claiming that TechCrunch had been booted off their own project.

December 2009 saw Fusion Garage announce the launch of the JooJoo. A few days later, TechCrunch filed their lawsuit. This ruling is the first we have heard from the courts since Fusion Garage’s response was filed in early 2010.

Were they or weren’t they?

Assuming no new arguments emerge, the case will proceed on whether Fusion Garage’s actions were harmful to their working relationship with TechCrunch. The courts established that there was in fact a partnership between TechCrunch and Fusion Garage, and therefore, a basis for a breach of fiduciary duty.

The lack of a contract (or the falling-through of plans for TechCrunch to acquire Fusion Garage) was not enough to prove that there was no partnership; for the courts, “their cooperative efforts in develop the product were sufficient to give rise to an obligation on both parties’ part not to usurp the fruits of those efforts.”

Similarly, the argument that TechCrunch held too much power in the relationship for it to have been a true partnership was dismissed, because “any partner or joint venturer generally does have the unilateral right to dissolve the relationship” and also that the ending of the relationship does not necessarily immediately terminate the fiduciary duties partners have towards each other.

That is, regardless of whether there was a contract signed (and whether that was for a partnership or for a joint venture) is irrelevant to the fact that Fusion Garage and TechCrunch did work together. It is this relationship that will impose obligations on both parties. In this case then, it would be considered a breach of fiduciary duty if either party tried to end the relationship without compensating the other party, or if either party tried to claim work done as entirely their own.

What does all this mean?

Be clear, this is only a preliminary finding. Both TechCrunch and Fusion Garage may well respond with more arguments and more evidence (in fact, Fusion Garage’s statement has said as much) for the trial. While it is certainly important to Fusion Garage that their earnings from the JooJoo will not be held in limbo until legal proceedings are over, this is not by any means the end of the story.

In the best case scenario, the court dismisses TechCrunch’s case; in the worst, Fusion Garage will be ordered to pay TechCrunch the share of profits it would have received, had the tablet been released jointly.

In their statement, Fusion Garage claimed to be focused on “building the company and innovating in the consumer electronics market.” Keep an eye on this space to find out how its efforts with the lawsuit and with innovation are turning out.

For our previous coverage on Fusion Garage, and the CrunchPad/JooJoo saga, see: here, here, here, here, here, here, and here.

Image Credit: mira66 and Polina Sergeeva.

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