The founders of Web 2.0 startup RockYou (a.k.a. NetPickle) have settled a lawsuit filed against them by their former employer, Iconix, which accused them of using its intellectual property as the basis for their company.
The CFO for Iconix told PE Week that the case was settled and that the terms of the settlement were confidential. The settlement came less than a week after PE Week first wrote about the lawsuit online (www.PEWnews.com).
Judge Saundra Brown Armstrong had issued a preliminary injunction that favored Iconix, which had previously employed both Lance Tokuda and Jai Shen, the co-founders of RockYou. She ruled that there is enough evidence to suggest that Iconix owns the IP underlying RockYou’s websites, according to court documents.
RockYou raised $1.5 million from Sequoia Capital, Lightspeed Venture Partners and First Round Capital earlier this year.
“We’re glad to have it behind us,” Bob Zager, the CFO of Iconix, told PE Week. “Hopefully both companies can move on to more productive things.”
He would not disclose the terms of the confidential settlement. “No more documents will get added down on the docket, where anyone, for 8 cents a page, can get it,” he says. “All of this stuff is really public now, not just mythologically public as it was in the old days. In the old days, it was Raiders of the Lost Ark.”
Once the details of the injunction were published in PE Week, and picked up by Silicon Valley blogs, the two parties quickly arrived at a settlement.
Sequoia and the other VCs were in an awkward position because they may have known about the suit before they invested. A regulatory document shows that they funded RockYou on May 23, nearly two months after Iconix filed suit against RockYou and its founders on March 27. The company could have been required to turn over to Iconix any revenue, profit or proceeds from stock sales.
As previously reported, the evidence underlying the 23-page ruling consists of files that Iconix claims to have found on computers once used by Tokuda and Shen, including the following: source code for an online photo slideshow site; a database of users for a service they had launched while working at Iconix; a bridge loan term sheet; a taxpayer identification form for RockYou; and Tokuda’s PowerPoint presentation hawking his new company for investors.
Iconix also presented evidence to the judge that Tokuda had an instant messaging conversation about RockMySpace.com while participating in an Iconix executive meeting. In one of the IMs allegedly saved on Shen’s computer, Tokuda is said to have written: “Yeah, we actually lucked out with iconix being so bad it was an easy call to leave versus trying to save them with our best ideas.”
The complaint filed by Iconix makes the following claims:
• While he was CTO and vice president of engineering for Iconix, Tokuda came up with the idea to make a slideshow widget that could be plugged into social networking sites in September 2005. The idea was to launch the widget as part of a website called UberFuze, which targeted social network users with the aim of attracting more users to the Iconix email service.
• Tokuda registered the domain name RockMySpace.com in September 2005 to explore the opportunity a Flash slideshow player might offer without telling Iconix. He and Shen launched the website on Nov. 13.
• Tokuda gave notice to Iconix in December 2005. Before he left, he talked with Iconix Vice President of Sales Bill Ames about securing funding for RockMySpace.com. Tokuda asked Ames not to talk about the startup he was planning to launch. Tokuda’s last day was Jan. 23.
The story continues on Lance Tokuda’s personal Blog, which has since been taken down.
• On Feb. 2, Tokuda wrote that Iconix fired Shen and he joined him at RockYou.
• On Feb. 3, Tokuda wrote that he heard from Auren Hoffman, who offered to lead an investment in RockYou for 7% to 8% compensation at a $5 million valuation. Tokuda wrote that the deal was attractive because Hoffman knew Jeremy Philips, an executive vice president at News Corp., who had a billion-dollar acquisition budget.
• On Feb. 4, Tokuda said he met with Mike Maples, an early investor in Digg.com and a former executive vice president at Microsoft Corp. Maples expressed interest in investing, but wanted different deal terms. Tokuda went on to say that he met with Mark Sherman, a general partner at Battery Ventures, but came away feeling that Sherman thought RockYou was just a MySpace play.
• On Feb. 20, Tokuda wrote:
Sequoia in progress NEA said they would invest at 15% with any partner we chose DFJ willing to invest at 15% – we like Emily Melton the most for our team True – will be low in their offer but they are good people Bridge with Mike Brown [Partech International], Josh Kopelman [First Round Capital], and Ariel Poler an option.