Microsoft in court again as Sendo sends in the lawyers

Divorce turns nasty as plucky Brit firms continues to punch above its weight...
Written by Ben Charny, Contributor on

Divorce turns nasty as plucky Brit firms continues to punch above its weight...

UK-based mobile-phone software maker Sendo has filed a lawsuit accusing Microsoft of engaging in a "secret plan" to push it into bankruptcy. The lawsuit, filed last month in a federal court in Texarkana, Texas, accuses Microsoft of misappropriation of trade secrets, unfair competition and fraud, and provides the first glimpse behind the scenes of the recent dissolution of a relationship between Sendo and Microsoft. The 27-page lawsuit seeks unspecified damages. Jon Murchinson, a Microsoft representative, denied the allegations. He said: "We look forward to refuting Sendo's baseless claims." Microsoft is scheduled to file a more formal denial in court later this week. Beginning in 1999, Sendo was supposed to develop a GSM phone based on a new operating system from Microsoft, then called 'Stinger' and now known as Smartphone 2002. The OS is designed to combine the functions of a mobile phone and a personal digital assistant. Microsoft was expected to provide financial support for Sendo's research. In November 2002, however, Sendo announced it would be dropping the Microsoft software in favour of the rival Symbian OS, developed and owned by some of the biggest phone makers in the world, including Ericsson, Motorola and Nokia. As part of the original deal, Microsoft had agreed to invest $12m in Sendo, an investment that entitled Microsoft to a position on Sendo's board of directors, according to the lawsuit. Sendo's work on the new phone began immediately, but so did the problems, Sendo said. The company said Microsoft was supposed to send software that was "code complete" - meaning it worked. Instead, Sendo alleges Microsoft gave it a program with "numerous critical problems" and "failed to take steps to remedy". The Stinger phone was supposed to debut in August 2001, but the software problems forced Sendo to push the release date back to December 2001, Sendo said. Sendo attorneys wrote in the lawsuit: "Despite numerous previous representations by Microsoft that Stinger software was [ready], it was becoming clear that it was not." Sendo counted on revenue from the sale of the phone it was developing, so the launch delay created a "cash flow crisis" that was discussed at board meetings attended by Microsoft's appointee, according to the suit. In December 2001, after yet another launch delay, Sendo tried to pressure Microsoft for the $12m it promised to invest, Sendo alleges. But Microsoft refused, knowing "full well it would push Sendo towards insolvency," Sendo attorneys claim in the suit. Although Microsoft refused to invest the $12m, it did ultimately agree to loan Sendo $14m. Terms of the loan were finalised in February 2002. But Microsoft refused to release any of the loaned money and simultaneously demanded that Sendo build 300 test phones for Microsoft engineers to look at, Sendo alleges. Microsoft also demanded that Sendo spend all its time and resources on the phone, Sendo claims. The phone maker said it obliged, turning its attention to making the 300 phones, which forced delays in other products it was developing and cost about $3.6m, the company said. On 27 May, 2002, Microsoft also began a review of Sendo's work on the phone, ordering a "multiday, full review of Sendo and its progress," according to the suit. Sendo honoured Microsoft's request, the phone maker said, providing the software giant with the work and the materials to review. This, according to the lawsuit, amounted to "unbridled access to Sendo confidential and trade secret information". But a few months later the partnership unravelled. On 23 September, 2002, Sendo learned that Microsoft would not invest the $12m and the relationship formally ended, Sendo said. Ben Charny writes for News.com
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