When a partnership is likely to develop, the next important step would be to create a legally binding document that guides the partnership. Everything from the roles and responsibility of each partner to decision making, conflict resolution, and ownership and rights of the parties involved should be discussed and agreed upon. In the absence of any written agreement, disputes can occur and will likely lead to a messy legal battle as shown in the following example.
In 2008, Michael Arrington, the founder of TechCrunch begin work an idea he had for an affordable touchpad. Taking advantage in what he believed to be a little known market, Arrington and TechCrunch set off to develop a simple and cheap machine that can be bought for about $200. The project was soon underway and two prototypes were eventually produced. Singaporean software company Fusion Garage was later invited to assist in the development of the software. For a while, the project looked promising and many were optimistic about the new tablet. The Crunchpad was even featured in Popular Mechanics’ list as one of the “10 Most Brilliant Products of 2009.”
Unfortunately, their partnership was short-lived as by late November 2009, two weeks before the public launch, TechCrunch released an article stating that the CrunchPad is dead and they are no longer involved in the project. Instead, Fusion Garage had terminated the partnership and with pressure from its shareholders, will take full responsibility for the selling and distribution of the product, now renamed to JooJoo. In TechCrunch’s eyes, the entire project was destroyed over “nothing more than greed, jealousy, and miscommunication.”
A lawsuit was filed by TechCrunch shortly after with accusations that include Fraud and Deceit, Misappropriation of Business Ideas, Breach of Fiduciary Duty, Unfair Competition and Violations of the Lanham Act. Fusion Garage for their part denied any wrongdoing and accused TechCrunch of making misleading and false allegations especially in regards to financial status, intellectual property ownership, and undelivered promises. Ultimately, the court threw out most of TechCrunch’s claims as it wasn’t specific enough. The details of their partnership apparently weren’t documented properly and there was no clear vision. The court, however, did acknowledge that Fusion Garage did breach its obligations to TechCrunch.
Fusion Garage did continue with their plans to sell the JooJoo. Unfortunately for them, sales of the product were disappointing with documents showing that only 90 pre-orders had been made before shipping. By November 2010, Fusion Garage confirmed that the JooJoo is dead and that the company will be moving on to other things. Fusion Garage would also fall into disarray later and as of 2012, the company is defunct.
The problem in this mess that many had taken notice was the lack of enforceable contract in their partnership and the fact that TechCrunch failed to prepare one beforehand puts them in a very weak position. The whole idea behind a contract to provide a clear definition of the nature of the partnership to protect both parties and avoid conflict. Having a well-defined and clear partnership agreement drawn out before commitment can prevent many problems like this in the future.