Microsoft Sued for Stealing Phone Secrets
By Lucas van Grinsven
AMSTERDAM (Reuters) - British mobile phone maker Sendo said on Monday it had filed a suit in a U.S. federal court against its former partner Microsoft, accusing it of stealing its technology and customers.
The small British cellphone maker was Microsoft's key partner in entering the 400 million unit a year mobile phone market until the two companies unexpectedly cut ties last month without disclosing all the reasons why they fell out.
The court filings allege that Microsoft, in search of new growth markets but lacking mobile phone expertise, extracted crucial information about the industry from Sendo and passed it on to friendly low-cost contract manufacturers in Asia.
Privately owned Sendo may claim several hundred million dollars in damages, according to people familiar with the court proceedings.
"Microsoft's secret plan was to plunder the small company of its proprietary information, technical expertise, market knowledge, customers and prospective customers," the filing said. "Microsoft gained Sendo's trust and confidence through false promises that Sendo would be its 'go-to-market-partner'."
Microsoft executives in Europe declined to comment. But they told Reuters several weeks ago, when rumors emerged about a conflict between the two firms over misuse of Sendo proprietary information, that such allegations were without merit. Microsoft is a minority shareholder in Sendo.
The complaint, filed at the eastern district court in Texarkana, Texas, which has a reputation for speedy processing of cases, also alleges that Microsoft sidelined Sendo after obtaining the information that it needed.
"Microsoft used Sendo's knowledge and expertise to its benefit to gain direct entry into the burgeoning next-generation mobile phone market and then, after driving Sendo to the brink of bankruptcy, cut it out of the picture," the filings said.
Sendo in November canceled all cooperation with Microsoft when it was just weeks away from launching its z100 smartphone, running on Microsoft software. As a result, the launch was scrapped.
At the time Sendo declined to give all the reasons for the split, saying only it had not been given access to so-called 'source code' which would allow it to tailor the software.
The lawsuit could affect Microsoft's relationships with other small technology companies. It also comes at an awkward time for the Redmond, Washington-based software giant as it is conducting make-or-break negotiations with Europe's antitrust regulators about alleged abuse of its market dominance.
After breaking with Microsoft, Sendo went on to sign a contract with Symbian of Britain and Nokia of Finland, forgoing a potential 300 million-euro revenue stream from its Microsoft-based phone. It had already signed supply deals with many mobile telecom carriers around the world.
Sendo, already looking for fresh funding over the summer months, needs at least another 12 months to develop a new smartphone. Such phones give users access to data services like email, a personal organizer, messages and games.
The relationship between Sendo and Microsoft was always rocky, sources close to the companies said.
Several sources told Reuters last month that Sendo management believed certain special features it had put in its phone over and above Microsoft's usual standard operating system had emerged in other smartphones Microsoft was involved in.
In the filings, Sendo said that "Microsoft provided Sendo's proprietary hardware expertise and trade secrets to low-cost original equipment manufacturers (OEMs) who would not otherwise have had the expertise to manufacture handsets that would use (Microsoft software) and used Sendo's carrier-customer relationships to establish its own contractual relationships."
Among rival phones that also use Microsoft software is the Orange SPV, produced by Taiwan's High Tech Computer (HTC) for French-owned mobile telecom service provider Orange.
That phone, the world's first smartphone using a slimmed-down version of Microsoft Windows desktop PC software, was launched two weeks before Sendo decided to stop working with Microsoft.
(Additional reporting by Lisa Bose McDermott in Texarakana, Texas)