Once it wasn’t uncommon for large tech companies to bully smaller companies into submission or death. Microsoft was an infamous offender, but they certainly were not alone. One of the most insidious tactics was to file a lawsuit claiming an intellectual property violation of some sort. At times there were actual infractions, but often these were “empty lawsuits” used as a hammer tactic to smash under-resourced companies.
Until recently I thought such practices had mostly faded away. Social media makes it far more difficult to act like an ass and get away with it. But, like road rage in the era of video cameras, it may take some time for the last vestiges to leave the system.
Shred Video, one of the companies in YC’s Summer 2015 batch, appears to be under such an attack from the music app company Smule. We cannot find any way to interpret Smule’s lawsuit other than as an inexcusable attempt to kill a promising startup. This seems strange: Smule appears to be a well-run company, with an experienced CEO and solid VCs including Shasta and Bessemer on their board. It is hard to imagine why they are taking this route.
At first, Smule claimed that Shred’s founders, who are former employees of Smule, had stolen their code. We are proud of our ethics policy at YC. We ask our founders to live by a strong standard and do so ourselves, and founders who run afoul of that policy will not be allowed to remain at YC. Stealing another company’s code would mean instant removal. We asked Shred’s founders about this, and they swore they had not taken a line of Smule’s code. They offered to submit to a third party code review in order to verify their claim (or Smule’s). Bizarrely, Smule refused this offer, which has since been reiterated several times, claiming, although they most certainly know better, that Shred could have successfully obfuscated their code making such a review useless.
Tellingly, in one interaction Smule even went so far as to say that it really wasn’t about the code anyway, that the issue is with “ideas” that had been stolen. However, Smule has consistently refused to say what those ideas might be, while continuing to proceed with a legal process that drains significant amounts of both time and money by the day. Shred has posted a more complete story of Smule’s lawsuit here, and Business Insider received audio that captured Smule CEO Jeff Smith saying, “If we’re wrong, we’ll win.”
I cannot know whether Shred actually stole code from Smule or not. My guess is they did not, because they have consistently offered to put this to the test. Smule seems to be neither honest nor sincere in their efforts to resolve this. In my opinion this is a lousy way to treat ex-employees, and an outrageous way to treat a startup with an innovative product that’s fighting to survive. Smule should accept Shred’s offer to submit the code to an independent test, and be satisfied with the outcome. If they have other IP which they believe is stolen which is not code, they should say clearly what it is and why they believe Shred is guilty of some violation. Otherwise, they should stop wasting shareholder value and instead focus on building products based on those awesome ideas.