Ask HN: Startup stole our software, and raised $2MM with it. What should we do?

[qeorge]

About 2 years ago, my firm developed software under contract. About 4 months later, after falling behind on payments, the customer "charged back" all his previous payments (via PayPal), and kept the software (it was not yet finished, but functional enough to charge customers).

We recouped about half the money through PayPal's dispute process. We let the rest go, deciding it wasn't worth trying to squeeze blood from a turnip.

Fast forward to today, the very same company is on the front page of HackerNews:

https://news.ycombinator.com/item?id=8225738

The business' name is Pigeon.ly / fotopigeon.com (when we worked on it it was called pichurz.com / picturgram.com). The owners names are Fredrick Hutson and Alfonzo Brooks.

So, HN, what should we do? We have a signed contract with them which states that the software becomes our property in the event of non-payment. Should we assert ownership of the software? Of their business? Should we sue them? Should we reach out to their investors (Kapor Capital and Base Ventures)? Should we include Kapor Capital and Base Ventures in the suit?

I would really appreciate any advice HN can offer. We will of course rely on our attorney's advice primarily, but I am optimistic that someone here has dealt with a similar situation before.

Thank you for your time!

[grellas]

You really need to be careful about how you approach this sort of issue.

While the advice may be trite, it is particularly apt here to emphasize the importance of consulting with a lawyer who is strong on IP issues.

In particular, this would normally need a careful evaluation of the contract language, which may or may not define what happens in the particular case you describe. If it should not adequately define what happens in express contract language, then there are default rules that potentially govern what happens. Those rules may or may not support your position. I have bumped into cases where the default rules basically say that the contract assigns the IP rights to the customer regardless of non-payment, with the remedy for the developer simply being to sue for payment. I am not saying that such rules govern your case because it is not possible for anyone to really know your case absent a proper legal review by a knowledgeable lawyer. I am saying you may be making assumptions about your legal rights that may or may not be correct and you should not casually just assume that they are.

It goes without saying as well that you should be cautious about using pejorative language about the person who did this in public because of the obvious risk of setting yourself up for a defamation claim. Again, in the end you may be justified but why complicate your own claims by giving those who did whatever these people did free ammunition to fight you with.

I don't mean to sound unsympathetic. It hurts to get screwed and it sounds like that happened here. Just be careful to go about it the right way in trying to correct the wrong that did occur.

[rayiner]

I wouldn't name and shame here on HN, because when you file a lawsuit they'll counterclaim for defamation. No point in muddying things. You're also susceptible to the defense that the PayPal dispute was a negotiation and settlement of the purchase price.

Disclaimer: I'm not your lawyer, this isn't legal advice. Do get your own lawyer to advise you on this, one familiar with licensing disputes.

[pyre]

> You're also susceptible to the defense that the PayPal dispute was a negotiation and settlement of the purchase price.

Sounds like (e.g.):

1) Contract is for $10K.

2) Client pays $4K.

3) Client stops paying.

4) Client issues chargeback for $4K.

5) PayPal dispute resolution recovers $2K of the $4K chargeback.

It's possible to claim that the PayPal dispute was a settlement of the purchase price, but it seems like it would be a stretch if that actually flies in court. I doubt that the PayPal dispute resolution covered the remaining $6K that was due, rather than just the dispute over the $4K that was already paid.

[rabidonrails]

Shouldn't the Paypal dispute be separate from the actual IP? OP said that in the event of non-payment the "property" stays with OP. Couldn't you argue that the chargeback dispute was Paypal and not the Pigeonly guys?

Or, couldn't you argue that the Pigeonly guys charging back themselves is an admission that they shouldn't have the IP?

[sergiotapia]

Screw that, name and shame away. The nasty gits deserve it!

[jparkside]

My name is Frederick Hutson, and I am the President and CEO of Pigeonly. I was recently made aware of this post.

In light of the defamatory nature of the poster’s statements, I felt compelled to respond. Well over two years ago, we entered into a work-for-hire agreement with the poster to write aspects of the software code for a beta version of our initial e-commerce platform. Our agreement with the poster makes it clear that we own all work product produced pursuant to the agreement. In the end, however, we were very unhappy with the quality of the poster’s work so we terminated the relationship and requested a refund.

In addition to my own assessment I consulted with several independent sources including a founding member of the CakePHP project (the framework the poster used). Everyone who evaluated the code said the same thing, to sum it up (in their professorial opinion) the framework was not utilized correctly which resulted in the numerous bugs and browser incompatibility issues. The truth is even if we wanted to work with the code the poster provided we couldn't because it was flawed. So we were left with no choice but to start from scratch with a new developer.

The bottom line here is that through hard work and determination, we indeed built the Pigeonly platform from scratch and in no way incorporated any of the code produced by the poster. We are very proud of what we have built at Pigeonly, our mission is to build great products that solve the type of problems most would overlook.

[korzun]

> In light of the defamatory nature of the poster’s statements, I felt compelled to respond.

Useless filler.

> Our agreement with the poster makes it clear that we own all work product produced pursuant to the agreement.

Again, useless filler. You own the work and they need their money for work in question.

> I consulted with several independent sources including a founding member of the CakePHP project

That's great. I audited hundreds if implementations that sucked. The different is that those developers still got paid.

It's your fault for not knowing what you are doing and not having another source involved earlier in the process to make sure things are going smoothly.

Also, you are showing your lack of experience. Project was 2 years long (multiple CakePHP releases, I bet?) ofcourse people will say it's outdated and written poorly.

You are also working with a low level agency (no offense) and then get the code reviewed by 'founding member of X', what do you expect? Are you even serious here?

> So we were left with no choice but to start from scratch with a new developer.

Let me audit that code, I'm 100% sure it will not be up to /my/ standards. Will you fire the developer and sue him for the salary you paid?

> The bottom line here is that through hard work and determination,

The bottom line here is that you really have no idea about technology.

[mbesto]

As with every dispute that comes up on Ask HN that requires legal action - get a lawyer. (and a good one)

[LTheobald]

And start putting together every piece of data you can that will help your case - emails, IM message logs, source code etc.

[sseveran]

Yes and don't skimp. You want someone who has experience litigating and will be able to accurately advise you on your chances of succeeding. You will probably want to use at least midsize firm if you are not located where they are since you may have more choice of venue. You will have to decide for yourself whether the expected outcome is worth the cost.

If you decide to sue never talk to anyone about this again. In my experience lawyering is better left to the lawyers.

[nkozyra]

First things first, definitely edit the OP. You get nothing from outing them, much less calling them "thieves" in public. Don't give them any ammo.

Second, gather your contract and lawyer up right now. The reality is you're probably still squeezing blood from a turnip (despite the VC); your best move would probably be asking for a licensing agreement in lieu of a bulk sum.

Third, I think it makes sense to bring this to the attention of the VCs - it won't hurt (the way publicly outing them might) and they could possibly work at mitigating/mediating this.

Again, $2M might seem like a lot to you, but this is mostly budgeted already. If, like most startups, this is relatively short-lived, you may want to recoup via a license, although this is a new contract that would need to be drawn up fresh.

[rbobby]

> Third, I think it makes sense to bring this to the attention of the VCs

Don't do anything without talking to your lawyer. This advice could lead to claim a of tortious interference.

Hell this whole post could be tortious interference.

[mncolinlee]

"Third, I think it makes sense to bring this to the attention of the VCs - it won't hurt (the way publicly outing them might) and they could possibly work at mitigating/mediating this."

This seems like the best option. The VCs will want to minimize risk. If they think they can pay you a reasonable sum to make the past dispute go away, this may be your best option. It will most likely not involve expensive lawyers for too many billable hours.

[dman]

Find a lawyer. Dont comment any further on the matter in public.

[adventured]

This is the only advice to listen to. Succinct.

Already commenting on HN is too far. It should have all been private. Do no further damage.

For qeorge: If you win in court, depending on the outcome and or any settlement, you can potentially still write about the whole thing in a blog entry if you still feel the need to be public about it.

[andy_ppp]

Oh dear, airing dirty laundry in public. Maybe there were reasons why Fredrick and Alfonzo didn't pay you? We wouldn't know as hacker news and you are unlikely to tell us. I would suggest letting a judge decide and hiring good legal council.

However, I would say that your judgement in maybe panicking and posting so publicly is far from the mark. You should remove this post if you can as soon as possible. Only bad things can come of this!

[shannmcnicholl]

How do you know that they are using any of your IP (code)?

I presume that they approached you, originally, to create software for them, but the idea was theirs. If they terminate a contract with you, however unsatisfactorily, they are still free to start over with another dev agency.

3 years is a long time in terms of what can be delivered in software. The system doesn't sound all that difficult to replicate.

[austenallred]

1. Stop talking about it publicly.

2. Hire a lawyer.

[pkfrank]

I feel like this is the only right answer.

It's been said, but there's not much value in discussing this in public; it just introduces risk/complication.

Are you really going to put any weight on insight gained from this thread? If not, the cost/benefit of keeping this up is out of whack.

In that case, the "benefit" become solely the name/shame which isn't an awesome reflection of professionalism, either.

[sjtgraham]

Read earlier today that one of the founders was convicted of drugs trafficking and served four years in the pen. http://www.forbes.com/sites/hollieslade/2014/08/21/how-this-...

[aepearson]

What could this possibly have to do with anything?

Maybe do a little research about the project first...you come off as pretty ignorant with a statement like that.

[nakovet]

Edit their names out of this post, this will definitely be used in court, get a lawyer.

[AngeloAnolin]

Disputes like this at the very least becomes very costly for both parties, notwithstanding the fact the damage each one may inflict in just trying to get the upper hand over the other.

Considering that you've brokered into an agreement before, haven't you explored the possibility of just resolving this amicably, with both parties finding a common ground to ensure a win-win situation for both.

Going through the lawyers and courts should be the last resort. I know to some degree this advice (which you could take with a grain of salt) may not hold some ground with the others. But just the same, you've worked together before and there should be no reason for you not to be able to settle things properly.

[mattwritescode]

Personally I would not be posting things like this one the internet. The reason being if you sue them and in fact they aren't in the wrong they might decide to sue you back. Your making some very big claims.

You could be sued for liable or malicious falsehood.

[ChuckFrank]

Thank you for sharing this information. I think that while jumping into the more expensive lawyer arena is one choice. A shot across the bow of Pigeon.ly is a good alternative. I think hiding behind lawyers benefits only the lawyers. As a civil society, I think people should be called out for their poor behavior, and explain themselves. You've made your case, now Pigeon.ly should explain themselves. A public court of opinion is, in the end, the only court that truly matters. Or so I think.

[rabidonrails]

In cases like this, do investors usually have protections built into their investment contract that if something like stolen IP or possible fraud wasn't initially disclosed they can recall their investment?

I imagine this can't be the first time something like this has come up.

[Domenic_S]

Sounds like the perfect use case for insurance, kind of like title insurance in real estate.

[bdcravens]

Seems to me that your damages would be limited to the amount you originally agreed to. The fact that they had a funding round and press shouldn't matter.

Payment + chargeback is a bit different than non-payment; complicating the fact is that you received some money from PayPal.

Aside from PayPal, did you pursue any recourse?

Does your contract have a mutual non-disclosure clause? If so, I suspect you just violated it.

I'm sure when you saw their funding event, you were upset. Bottom line: if everything had gone according to plan, you would have been paid, and they'd still have their funding event.

[partisan]

I can appreciate the frustration you must be feeling. Working with clients seems to highlight the best and worst of humanity.

I believe that you should always lead with your best. A situation such as this can definitely impact your business in a negative way. It's more of a one-sided allegation and your choice of wording is defamatory. At this point, consider hiring a lawyer. They may not be able to tell you what you should do, but they can definitely tell you what NOT to do, which is just as important sometimes.

Good luck.