Handset vendor Sendo Ltd. has filed a lawsuit against Microsoft Corp. (Nasdaq: MSFT), accusing the software giant of having a "secret plan" to "plunder the small company of its proprietary information, technical expertise, market knowledge, customers, and prospective customers," according to legal documents.
Sendo claims Microsoft "used Sendo's knowledge and expertise to its benefit to gain direct entry into the burgeoning next-generation mobile phone market and then, after driving Sendo to the brink of bankruptcy, cut it out of the picture." The companies' relationship began in October 1999 with the signing of a non-disclosure agreement, followed by a strategic development and marketing agreement (SDMA) in October 2000.
The action has been filed at the U.S. District Court for the Eastern District of Texas, Texarkana Division. Sendo has its U.S. office in Irving, Texas. Sendo has requested a trial by jury.
Sendo alleges that Microsoft, which invested $12 million in the handset firm for a minority stake of about 10 percent, was struggling to break into the wireless industry, and that the software firm "recognized Sendo had the technology and experience it lacked to quickly penetrate this lucrative new market. As such, Microsoft set about through a secret plan ('The Secret Plan') to obtain that technology and know-how from Sendo with the false promises that Microsoft would co-develop, help finance, and the be the 'go to market' partner for Sendo's 2.5G Smartphone, the Z100."
Sendo had developed a device, the Z100, which used Microsoft's Smartphone operating system and had been set to finally ship to mobile operators in November, with advance orders from the likes of Cingular Wireless, SFR, and Telefónica Móviles SA, among others, thought to be in excess of 1 million units. But Sendo dumped Bill Gates and Co. at the last moment and announced it was to build products based on the Series 60 platform from Nokia Corp. (NYSE: NOK), Microsoft's archrival in this wireless space (see Sendo Dumps MS for Nokia).
The device manufacturer did not fully specify its grievance with Microsoft at the time, suggesting that it was based on limited access to Microsoft's source code and the ability to customize its products to carrier specifications. Few were convinced that this was the full story, however. "Although it's true that developing with Series 60 allows licensees to shape the development of the platform, and you can't do that with Microsoft, my guess is that either legal or financial reasons are behind this decision," Tim Mui, a smart handheld device analyst at IDC, told us back in November. Precient!
The court filing goes on to claim that as a result of the "false promises" made to the handset vendor, "Microsoft gained access to Sendo's hardware expertise and knowledge of the mobile carrier business. Microsoft then provided Sendo's proprietary hardware expertise and trade secrets to low-cost original equipment manufacturers (OEMs) [who would not otherwise have had the expertise] to manufacture handsets that would use Stinger [the original name for Microsoft's handset platform] and used Sendo's carrier-customer relationships to establish its own contractual relationships."
Sendo claims that during the development of the Z100 it complained regularly that Microsoft was not keeping to its resources obligations and that it informed Microsoft of "numerous critical problems" with the software platform, "but Microsoft failed to take steps to remedy the software bug fixes and other problems in a timely manner." Sendo also states that it incurred additional and unnecessary costs that Microsoft refused to refund, "placing additional capital constraints on Sendo."
The handset firm further claims that, as it struggled financially and found it difficult to raise third-party funds, Microsoft refused to exercise the warrants it had for further shares in Sendo, which would have injected further funds into the company. "Microsoft refused with the full knowledge that this refusal would push Sendo towards insolvency." Under the agreement between the firms, "Microsoft would obtain an irrevocable royalty-free license to use Sendo's Z100 intellectual property, including rights to make, use, or copy the Sendo Smartphone to create other Smartphones and to, most importantly for Microsoft, sublicense those rights to third parties."
The filing continues with further detailed claims about how Microsoft repeatedly put financial pressure on Sendo that put it further in debt, while still maintaining in May 2002 that Sendo was its "go to market" partner, and that Microsoft was not working with "anyone else as an 'initial go to market partner.'" Then, during October 2002, Sendo alleges, Microsoft repeatedly advised Sendo to file for bankruptcy, all the while having been working with OEM High Tech Corp. (HTC) to develop and manufacture a product to sell to mobile operators.
HTC is the OEM supplier of the SPV (Sound Pictures Video) device, which was jointly launched by Microsoft and Orange SA (London/Paris: OGE) on October 22 (see Orange Uncovers Its SPV, Unlimited Surfing Claim All Wet, and SPVs Go AWOL).
On October 28, according to the Sendo filing, Microsoft resigned its seat on the Sendo board, which had been filled by Marc Brown, and terminated the SDMA. During November, Sendo attempted to retrieve its intellectual property, including source code and test products, from Microsoft, but without success.
As a result of the software giant's actions, Sendo claims it has "suffered undetermined damages and injury."
So what has the software behemoth to say to the press about the matter? No prizes for guessing. "We are not commenting on any matter relating to this situation," says a spokeswoman, who adds that there is no point speaking to anyone else at Microsoft about it either, as no one has anything to say. Not even to confirm that the legal action has been noted.
Indeed, so delicate a matter is this, that the one analyst Unstrung managed to track down so close to Christmas was unprepared to comment on the matter at all.
Meanwhile, the SPV (which we prefer to call it by its unofficial moniker, Soft Porn Vehicle) is proving a hit with the masses, according to Orange: In the U.K., it's among the operator's top 10 selling handsets. "They're flying out the shops," an Orange spokeswoman tells Unstrung. Well, we know it's supposed to be able to do lots of things, but that's going a bit too far, we reckon. It would certainly put one helluva strain on the battery.
— Ray Le Maistre, European Editor, Unstrung