Sendo Sues Microsoft

By Chris Gonsalves  |  Posted 2002-12-24

Sendo Sues Microsoft

Sendo Holdings PLC is suing former partner Microsoft Corp., saying the software giant so wanted to rule the emerging market for Web-enabled phones that it conspired to steal Sendos trade secrets and tried to drive the British firm out of business.

The suit, filed this week in federal district court in Texarkana, Texas, details what Sendo officials call Microsofts "Secret Plan" designed to "plunder the small company of its proprietary information, technical expertise, market knowledge, [and] customers," according to court documents.

According to the suit, Microsoft promised to help Sendo develop, finance and ultimately market Sendos 2.5G smartphone, the Z100. But repeated delays of both Microsofts software and funding left Sendo financially strapped and the partnership frayed. The deal fell apart in October when Microsoft joined with another manufacturer, High Tech Computer of Taiwan, to unveil the Orange SPV, a next-generation phone that the suit claims was built with stolen Sendo technology.

"Microsoft used Sendos 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 complaint reads.

The timing of the suit and the events described in the complaint sheds some light on the rift between Micosoft and Sendo that was apparently developing when Sendo announced last month it was dropping the Microsoft-based Z100in favor of a new deal with Nokia Corp.

Microsoft officials did not respond to requests for comment. A Sendo spokeswoman in the United States referred calls to officials in the Netherlands, where comment was not immediately available.

Sendos suit seeks unspecified damages on 13 counts including misappropriation of trade secrets, unfair competition, conspiracy and fraud.

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According to the court complaint, Sendo and Microsoft representatives first met at a telecom trade show in October 1999, where Microsoft expressed interest in helping to develop the Z100, which would use the Redmond, Wash. firms new mobile operating system, then code-named Stinger. According to Sendo officials, Microsoft claimed Stinger was "virtually complete."

The pair inked a development and marketing deal the following year and work began on the Z100, which was due in August of 2001. The project, and a prototype of the Z100, were unveiled at the 3GSM World Congress in Cannes, France in February 2001.

"Sendo trusted Microsofts representations about the readiness of its Stinger software and that Microsoft could deliver fully functioning software well in advance of the target launch date," Sendo officials wrote in the complaint.

But according to Sendo, Microsoft never delivered usable, bug free code for the Z100, forcing several slips in the delivery date and sapping Sendos dwindling pool of available cash.

As Sendo struggled to hang on during the development of the Z100, Microsoft officials made increasing efforts to look at both the technical details of Sendos work as well as the inner workings of the companys finances, according to the lawsuit. As a part of the original agreement, Microsoft was allowed to appoint one person to Sendos board of directors. It chose its own Director of Corporate Development and Strategy, Marc Brown.

From its insiders vantage point, Microsoft knew that Sendos future had been hitched to the Z100, and that the delays in Microsoft software were jeopardizing the companys survival, Sendo officials charged. "Brown knew that Sendo was rapidly depleting its working capital by funding the development overruns caused by Microsofts delays," the suit claims. And under the original agreement, "in the event of a Sendo bankruptcy, Microsoft would obtain an irrevocable, royalty-free license to use Sendos Z100 intellectual property."

Despite the software delays, Microsoft officials continued to demand more access to Sendos work and its books, even ordering Sendo to stop all other phone development projects to concentrate on the Z100, according to the suit. "These demands were all part of Microsofts Secret Plan to appropriate Sendos technology and customer relationships while driving Sendo to insolvency and, ultimately, out of business," the complaint reads.

Despite repeated assurances from Brown and others at Microsoft that Sendo was its only smartphone partner, Microsoft announced the HTC-built Orange SPV on Oct. 22, 2002, more than a year after the Z100 was due for release. Six days later, Brown resigned from Sendos board. Sendo terminated the development and marketing deal with Microsoft at the same time, claiming that "Microsoft provided HTC with pre-release or test versions of the Sendo Z100 to aid in the development of the Microsoft/HTC offering," according to Sendos suit.

According to court documents, Microsoft has still not returned the confidential and proprietary information it received from Sendo during the partnership and "is using and/or disclosing some or all of it for its own unjust enrichment."

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