Today it was announced that a California jury has awarded NEA-backed TechForward $22 million in damages for improper use of the company’s trade secrets, determining that retail giant Best Buy and two of its subsidiaries misappropriated TechForward’s trade secrets relating to the company’s Guaranteed Buyback Program. The court also awarded TechForward an additional $5 million in punitive damages, for a total of $27 million. This outcome marks the final chapter in an unlikely tale of two founders who fought the big guy and won, flanked by VC partners who shared their conviction.
Less than three years after NEA led TechForward’s Series A round, the company’s Guaranteed Buyback Program (a proprietary program allowing customers to purchase the right to return an electronic device at a future date for store credit and apply it to the purchase of new devices) was taking off. The company had raised a Series B round, built some notable partnerships and gained a lot of momentum. When Best Buy engaged TechForward to implement its Guaranteed Buyback Program in select stores in 2010, the company’s prospects looked even brighter. While under NDA, TechForward shared its product details and trade secrets with Best Buy in the context of a growing partnership that included a 12-store pilot in California. The company put numerous initiatives on hold in order to serve what could have been a game-changing partnership. However, after months of working together, Best Buy abruptly ceased working with TechForward and then proceeded to launch an identical product—announced with great fanfare in February 2011 with a Super Bowl commercial featuring Justin Bieber and Ozzy Osbourne.
TechForward’s relationship with Best Buy proved to be game-changing, indeed. Just not in the way anyone had hoped. The company was utterly knocked down. Several opportunities had withered on the vine as TechForward focused on making Best Buy successful, other potential partners shied away from doing business with TechForward, wary of jeopardizing a current or potential relationship with Best Buy. It was a classic David vs. Goliath story and it looked like Goliath was winning this round.
TechForward founders Jade Van Doren and Marc Lebovitz, motivated by the knowledge that they had been wronged and equipped with the evidence to prove it, wanted to pursue justice. The board was fully supportive, and acted quickly and unanimously to move towards a sale of the assets that would provide resources to pursue a lawsuit against Best Buy. NEA and our co-investor First Round Capital backed the company with funds needed to get this strategic sale done.
As the awards totaling $27 million prove out, the decision was the right one. Best Buy behaved improperly, misjudged the conviction of Techforward’s team and investors and will pay a price for their actions.
What can entrepreneurs learn from this saga?
- Be careful about who you engage with for partnership discussions. Most large enterprises do business the right way, but clearly there are exceptions. Always keep a paper trail. If you trust a potential partner, make sure to substantiate that trust every step of the way.
- Emphasize the importance of trademarks, patents, trade secrets, and NDAs when dealing with large strategic partners. Engaging a start-up is usually a build vs. buy/partner for them. Protect your intellectual property.
- Ensure that your product is not that easily replicated. Barrier to entry can keep the bigger guys from taking you down in a moment’s notice.
- If there is gross misbehavior on the part of a partner or customer, don't be afraid to call them on it. Prepare intensely and surround yourself with the best people to help you do battle.
While the court’s ruling represents vindication, the outcome doesn’t put TechForward back in play to achieve its true potential and it is not the outcome we sought as investors. Jade and Marc are talented entrepreneurs -- we were proud to support them in this, and we hope to work with them again. Meanwhile, we hope other entrepreneurs find value in the takeaways, and will be empowered to protect and, if necessary, defend their business.