About Sarah Lacy

Sarah Lacy is the author of the forthcoming book, “Brilliant, Crazy, Cocky: How the Top 1% of Entrepreneurs Profit from Global Chaos” published by John Wiley and Sons in Jan 2011. It’s about Lacy’s two-year journey through South America, Asia and Africa looking for the best entrepreneurs Silicon Valley had never heard of.

Lacy also wrote what has been called the definitive book on Web 2.0, “Once You’re Lucky, Twice You’re Good: The Rebirth of Silicon Valley and the Rise of Web 2.0.” She has covered the tech and startup scene for 15 years for titles like BusinessWeek and Yahoo! Finance.

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What’s the law got to do with it?

The documents that Arrington attached were also sent to the court to bolster their lawsuit as evidence of Fusion Garage’s duplicity in their working relationship. For example, in an email between Fusion Garage and their PR company dated 16 November, the sections on how there is going to be “a massive blowup” when supposedly Arrington realises how “I [Chandra] have strung him along” were highlighted.

In response, both Fusion Garage and McGrath/Power issued statements claiming that Arrington had taken the emails out of context, and that there was no conspiracy. The email exchange existed exactly because the parties wanted to ensure their message was clear.

We don’t know how much weight the courts will give these emails as evidence, but it is puzzling that Arrington would want to release these to the public while the lawsuit is still under way. For one, it is the courts and not the public that will determine the outcome of the case. Besides, even without the counter-arguments from Chandra and Jonathon Bloom it isn’t entirely clear that the meaning Arrington inputed to the emails was what was intended.

We speculate that Arrington may have released this statement due to his frustration at the lawsuit thus far–the courts had dismissed most of his claims and had denied the application for Fusion Garage’s earnings from the JooJoo to be sequestered. This statement will not affect the outcome of the lawsuit, but it doesn’t mean Tech Crunch cannot try to affect how the public percieves Fusion Garage.

What next?

There is also speculation that Arrington may be laying the ground for a possible settlement. This looks unlikely, given Fusion Garage’s response; besides, while the legal battle may be expensive, a settlement may be taken as an admission of wrongdoing, which Fusion Garage has no incentive to admit to.

Watch this space while we await what happens next.

Image credit: John of Austin

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

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.

• NTT Technologies Showcase – Serkan tells us his recent trip to NTT Docomo Labs (article in Japanese).
• Nobot partners with BuzzCity: A Japanese smartphone ad optimizer partners with Singapore mobile ad network, BuzzCity which is focused on mobile ads on WAP/Feature phones. Is BuzzCity heading for smartphone space?
• TenCent acquires Comsenz: TenCent has acquired China’s largest site for online forums. Is this an extension of acquiring traffic, creating new channels of distribution and integrating new service layers with the acquisition? The panel also discuss why online forums still have an appeal in Asia as compared to the dying ones in the West and how they can earn revenues off their online forums.
• China Alibaba buys Auctiva: The flurry of E-Commerce activity is heating up in Asia, with Rakuten in Japan making acquisitions in the US, while Groupon takes Asia clones. Now Alibaba is getting into the game with an acquisition. What lies ahead for Asia’s top tech companies? Is this the beginning of a new era where we start owning US tech companies?
• Sekai Camera on Web: Sekai Camera, a TechCrunch50 company from Japan, has taken the whole Japan by storm with their augmented reality app and sees a new gaming world with social, location based and augmented reality (which they call “solar”). Serkan tells us about the app, Sekai Camera and how they have iterated their technology and acquired a big influx of users into their app.
• Koprol gets 7 users from TV Ad: Similar to what FourSquare did with Bravo in the US, Koprol launched a TV ad in Indonesia and acquired a good amount of users within a day. Is the use of old media still relevant to new high tech social media companies? We also discussed Mixi’s new location based service and also Facebook Places along this issue.
• Events: (a) Geek Camp – 4 Sep 2010, (b) Accelerate – 22-23 Sep 2010, (c) Social Media World Forum Asia – 22-23 Sep 2010, (d) SeedCamp Singapore, (e) Barcamp JB, (f) Barcamp Phnom Penh – 25-26 Sep 2010, and (g) Barcamp Singapore 6 (9-10 Oct 2010) & Barcamp Bangkok (23-24 Oct 2010). One last thing: AsiaJin Meetup in Hackerspace SG (25 Sep 2010).

Photo credited to Shereen Shah: The panel comprising of (from the left) Bernard Leong, Daniel Cerventus, Serkan Toto, Brian Wong, Michael Smith Jr and Chew Lin Kay.

• This Week in Asia is featured on TechCrunch.
• Event this Week: Pycon APAC 2010
• Apple WWDC 2010: What have we? The new iPhone 4, the iOS 4 and Face Time, and oh yes, the juicy war that is brewing between Google/Admob and Apple on mobile advertising with their new terms and conditions on the developer agreement.
• Gree to expand to US & China: Japan’s number 2 mobile social network is now moving into China and US. Of course, we talked about how Gree entice its customers with a semi-naked avatar when they sign up the service.
• Zynga Enters Asia With Acquisition Of Gaming Startup XPD Media; Opens Office In Beijing: The creator of Farmville sets up an office in where social gaming has originated – China. With offices springing in India and China, is Zynga heading towards a global domination of social games through the iPhone and other devices?
• Yahoo! Japan Search Now Provides In-TV-Program Products Info: How Yahoo! has integrated their services into TV with Japan and Korea makes us ponder how it might match up against Google TV if it ever comes to Asia.
• Is Silicon Valley state of mind and dying: Is that really true? With the optimism expressed by the writers from TechCrunch and Geeks on the Plane, is the web/tech scene in Asia finally coming of age? We express some pessimism and cautionary tale while
• Upcoming Events: (a) CommunicAsia happening from 15 to 18 June 2010 next week in Singapore and (b) OpenWebAsia – Southeast Asia in Kuala Lumpur on 13 & 14 July

Photo of the panel and #TWIA team in the live show for Echelon 2010 from Rama Mamuaya, DailySocial.net

TWIA Panel Display Screen (taken by Farry Aprianto and tagged by Mohan Belani in Echelon 2010)

Editor’s Note: The sound quality is perfect after the first few minutes with some calibration from the start. Please bear with us. We will post pictures in this event once we receive them from the organizers.

• DeNA Reports USD100M On Quarterly Profit and focus on social apps business: We examine the landscape of mobile social gaming, and how the fight is now intensified between DeNA and Gree with a lawsuit over a fishing game on Japanese handsets.
• Google Losing Default Mobile Search Engine Position On Docomo i-mode Portal, A Gate To Half Of Japanese Mobile Web: Google is once again being snubbed and where do they go from here after NTT-Docomo, the largest telco dissed them for another mobile search engine. However, it did not help with Goo crashing on the first day when they realized that they could not handle the load.
• Japan’s next generation mobile application platform: NTT-Docomo is leading the way with Renesas Electronics, Fujitsu, NEC, Panasonic Mobile Communications and Sharp to create a new mobile applications platform. We wonder whether they are planning to take the Apple iPhone head-on given their recent success in the Japanese market. We surprise you by where Apple might get the idea of the mobile apps store.
• TenCube, SG based start-up and winner of Android Developer Challenge 2 last year got an award in China. : So, where is TenCube going after traversing from India to China?
• Don’t miss out these major events too: Wordcamp MY, PyCon APAC 2010 and definitely, Echelon 2010.

What seems to be a development of the legal wrangle between Fusion Garage and TechCrunch has just exposed the extremely low numbers of pre-orders for the device. When we first talked about pre-sales with Chandra of Fusion Garage, I imagined numbers in the 5 or 6 digit range. Now I know better.

Image from Gizmodo.

To make matters worse, “approximately 15 of these [90] pre-orders already have been charged back or refunded”. That leaves about 75 people out there on the entire planet Earth who’s interested in acquiring the Joo Joo.

75.

On the other hand, it seemed like the iPad from Apple got 120000 (6 digits!) pre-orders on its first day.

[via]

Follow the Fusion Garage/JooJoo/CrunchPad/TechCrunch story here on SGE: one, two, three, four, five, six (this piece!).

The delay comes by way of a manufacturing issue discovered mid–way during the production with regards to the 12.1 inch capacitive touch screen, which is an industry first. From what is known, it seems like screen was not as sensitive as hoped to be and more fine – tuning had been required.

With the previous announcement of the Fusion Garage deal with Malaysian company, CSL, all manufacturing costs associated with the Joo Joo has been eliminated from Fusion Garage’s care. As such, Fusion Garage assures all potential customers that the company will have “no other barriers in the way of product delivery in the new timeframe”. (Cheers to that!)

Despite the tidal wave of positivity that Fusion Garage seems to be currently riding on, the lawsuit filed by TechCrunch in December last year, looms like a bad cloud over their heads. With Fusion Garage’s Motion to Dismiss Lawsuit scheduled to be heard on the 5th of April 2010, here’s a quick summary of the legal wrangle before the jury arrives.

Lawsuit filed by TechCrunch

i. False advertising in violation of the Lanham act

TechCrunch’s rather questionable strongest claim ssentially accuses Fusion Garage of making misleading statements during its advertising and promotion of the Joo Joo. Moreover, it alleges that these falsehoods are damaging to TechCrunch and will continue to harm its reputation unless halted by court injunction.

ii. Breach of fiduciary duty

A breach of fiduciary duty takes place when both parties acted in such a manner so as to define their relationship as being “partners” in the business.

TechCrunch maintains that the dealings between both sides were sufficient enough to deem that a partnership has existed between the 2 companies. As such, Fusion Garage had a duty of loyalty to TechCrunch. Fusion Garage, however, violated fiduciary duty when it concealed important facts, made misrepresentations, and individualized the joint intellectual property.

iii. Misappropriation of business ideas

With this claim Arrington is essentially saying that the Joo Joo/CrunchPad was entirely his creation and that Fusion Garage played no part in its subsequent development.

On another note, nowhere in the lawsuit does Arrington stake claims regarding the core Intellectual Property rights of the CrunchPad which Fusion Garage might have incorporated into the Joo Joo. Instead the supporting evidence provided by Arrington only serves to trivialize their claims.

iv. Fraud and deceit

On this second count of falsehood mongering volleyed at Fusion Garage, they have been accused of making “representations which were material to the joint effort between both parties” but not having the intention to act on them.

Motion To Dismiss by Fusion Garage

To be heard on April 5th.

i. Claim under the Lanham Act fails

Fusion Garage maintains that the Lanham Act cannot be invoked since the alleged “misrepresentations” which they had made during the collaborative phase of their relationship were actually true and there was intention to fulfill theses promises made.

Furthermore, TechCrunch cannot prove that it sustained competitive injury as a result of Fusion Garage’s misrepresentation since the Joo Joo was launched after the public demise of the CrunchPad. TechCrunch was also not developing any rival tablet lines at that point of time.

Separately, the “false statements” which TechCrunch complains Fusion Garage made pertain to Fusion Garage’s involvement in the primary inventorship of the CrunchPad. These statements cannot file for claims for the Lanham Act since they do not constitute to material misrepresentations which are to be made on the nature, characteristics, qualities of the goods and commercial activities undertaken by both Fusion Garage and TechCrunch.

Finally, the invoking of the Lanham Act has been made with respect to a Michael Arrington’s (Non Party Individual) ideas. TechCrunch, the filer of the lawsuit cannot allege this false advertising claim on his behalf and in any case, such a claim cannot be made about an individual.

ii. Claim for breach of fiduciary duty fails

With Arrington having, on numerous occasions, threatened to terminate the project – “For reputational reasons, I’m forced to notify our investors the deal is off. At this point it looks like our position is to turn the project off completely”, TechCrunch surely did not seem like they were taking their relationship with Fusion Garage very seriously.

iii. Claim for misappropriation of business idea fails

Business ideas under the Californian Law are not accorded property rights. And therefore since these ideas are not considered to be property per se, they cannot be subject to common law misappropriation.

iv. Claim for fraud and deceit fails

Claim for fraud and deceit, demands specificity in terms of the time, place, and specific content of the false representations as well as the identities of the parties. However, TechCrunch did not provide this information in their lawsuit.

More importantly, Fusion Garage feels that TechCrunch cannot substantiate their claims for proximate damage allegedly suffered due to “misrepresentations” made by Fusion Garage on the prospects of a joint venture because Fusion Garage did actually have an intention to carry out the joint venture in the first place.

With this summary, we’re sure you’ll be well informed by the time April rolls around!

Follow the Fusion Garage/JooJoo/CrunchPad/TechCrunch story here on SGE: one, two, three, four, five (this piece!), six.

Image taken from Engadget.