The CrunchPad is dead. prominent tech blogger and CrunchPad creator
Michael Arrington revealed that the tablet PC designed specifically for
web browsing would not be coming to a store near you after more than a
year of work.

While many, myself included, were skeptical about the CrunchPad’s
commercial viability, nobody predicted its downfall: a rift between
Arrington and his development partner “over nothing more than greed, jealousy
and miscommunication

According to Arrington, Chandra Rathakrishnan, the CEO of his CrunchPad partner, Singapore-based Fusion Garage, sent an email on November 17 informing Arrington that Arrington was no longer involved with the CrunchPad and that Fusion Garage had decided to sell the device itself unless Arrington agreed to conditions proposed by Fusion Garage’s investors. Investors who ostensibly believe that Arrington brings far less to the table than he and others would argue he does.

Not surprisingly, Arrington says he’s planning to sue. But based on what little Arrington has revealed, it’s quite possible this isn’t a clear-cut case of a contractual breach, or IP theft. Arrington writes:

Neither we nor Fusion Garage own the intellectual property of the CrunchPad outright. Fusion Garage has a team of 13 or so employees, currently working here in Silicon Valley out of a home they rented and in our office. Their team has mixed with our CrunchPad team, which is led by Brian Kindle, the former Vice President Hardware Engineering and Manufacturing at Vudu and an early hardware engineer at TiVo. Development expenses have been shared, and our team has spent time in Singapore and Taiwan, and their team has spent time here. We chose to work with Fusion Garage on Prototype C and the launch prototype after we finished Prototype B internally.

We jointly own the CrunchPad product intellectual property, and we solely own the CrunchPad trademark.

So it’s legally impossible for them to simply build and sell the device without our agreement.

Translation: this is an IP mess only a litigator could love.

Unfortunately for Arrington, his assumption that Fusion Garage can’t proceed on its own may even be wrong. One IP attorney who commented on Arrington’s post indicates that, based on Arrington’s description of who owns (and doesn’t own) what, Fusion Garage may actually be well within its rights to launch the CrunchPad its own, even if it isn’t under the CrunchPad name.

The most interesting part of the story to me: Arrington is a former attorney who worked at two large, prominent Silicon Valley law firms. Given that, I’m not the only one who is asking, “How could a former attorney let something like this happen?

This sad turn of events highlights a simple truth in the world of technology: IP is important. Sure it’s fun to wax philosophical about IP rights but when it comes right down to it, IP is everything to many businesses. If you don’t own IP, there’s a good chance you don’t own a business. Here, the issue of IP ownership was clearly disregarded, as were (apparently) even more basic matters such as corporate structure and basic contracts, both of which relate to IP ownership. This is absolutely mind-boggling when you consider the effort Arrington has put in to the CrunchPad, the PR he had drummed up, a sweetheart deal he negotiated with Intel for chip pricing, the commitment he had received from a multi-billion dollar retailer that was willing to sell the CrunchPad at zero margin early on, and the top-tier Silicon Valley VCs who were apparently lined up to invest.

Fusion Garage hasn’t issued any statements of its own yet and while it would be nice to see this get resolved amicably, the chances of that happening seem slim right now. So as it stands, we probably will see lawsuits, which will be far more costly to the parties than having top-notch IP lawyers involved from the outset. Most unfortunately, lawsuits will likely kill any opportunity the CrunchPad had to make a dent in the marketplace. While it’s unclear what opportunity, if any, there is for a CrunchPad-like device (tablets aren’t new), companies like Apple won’t have to worry about an upstart competitor if they do choose to enter the market. After all, lawsuits take time, rarely provide perfect outcomes and often taint the people and products involved in them.

Obviously, it’s going to be interesting to see how this plays out. But one thing is already evident: the apparent failure to address important CrunchPad IP and contractual issues permitted this fiasco to take place. That failure was a very costly mistake.

While I’m not an attorney (and don’t play one on television), I’ve had the distinct displeasure of dealing with enough of them and will throw out a few suggestions for other entrepreneurs:

  • Hire a good IP attorney. Competent legal counsel can help you identify your IP protection needs and structure your business and its agreements to meet them. This isn’t going to be cheap but as they say, an ounce of prevention is worth a pound of cure. If you think paying $300+/hour for an experienced IP attorney is painful (it is), wait until you learn the average cost of litigating a complex international IP dispute.
  • Focus on ownership. Chances are you do not want to ‘share‘ your IP with other entities, or engage in behavior that might muddy the waters when it comes to determining who owns the IP you think is yours, as appears to have been the case with the CrunchPad. Typically, you’ll want employees and partners who are involved in the development of your technology to assign all IP rights to you, although sometimes licensing agreements are more appropriate. Again, competent legal counsel can help you determine the type of agreements that are most desirable, and negotiate arrangements that address the concerns of both parties.
  • Think twice about ‘partners’. Partnerships and joint ventures can be extremely fruitful, but they can also be very difficult to make work and add to execution risk for young companies. That’s why it’s important to consider how many chefs you invite into the kitchen. Here, it’s pretty clear that the CrunchPad’s demise was the result of a ‘partnership‘ that wasn’t very well thought out and was executed poorly, leaving room for one party to reevaluate its position and come to the conclusion that interests were misaligned. Had Arrington simply kept development in-house and outsourced manufacturing to Asia (something many companies do without problem), this all could have been avoided.
  • Consider where you do business. While it’s important to deal with people who you feel you can trust, there are other considerations which may be more important. In the case of the CrunchPad, for instance, it’s worth noting that Fusion Garage is based in Singapore. Nothing inherently wrong with or ‘dangerous‘ about that, but if you’re going to deal with vendors or partners in countries other than yours, you had better be sure you understand the laws of those countries and any applicable international treaties that may impact the enforceability of your agreements. And more importantly, you’ll want to consider whether you’re even able and willing to pursue enforcement of those agreements in those countries in the first place if the relationship takes a turn for the worse.

Had more attention been paid to the protection of IP rights and the legal structuring of business relationships, I have no doubt that the CrunchPad fiasco would have been avoided. Fortunately, the amount of attention the CrunchPad had received means that its demise won’t be for naught, as it provides a timely reminder for technology entrepreneurs. That reminder: protect yourself, and your IP, at all costs. The consequences of not doing so can be fatal.