Mobile Phone Maker Sues Microsoft

British mobile phone manufacturer Sendo Holdings has filed suit against Microsoft in a U.S. federal court, alleging the company stole Sendo's proprietary technology and trade secrets, then used them to launch itself into the mobile phone market. Although no amount was specified in the complaint, the company will seek "hundreds of millions of dollars" from Microsoft, according to Sendo spokesperson Marijke van Hooren.

Sendo Holdings, of Birmingham, England, Sendo, Sendo International, and Sendo America filed suit Friday with the U.S. District Court for the Eastern District of Texas in Texarkana, seeking a jury trial against Microsoft of Redmond, Washington, Microsoft Licensing, and Microsoft Capital.

"We believe the allegations are serious and substantial," van Hooren said.

Microsoft declined to comment. "We haven't seen the complaint, so at this point I'm unable to provide further comment," said John Murchinson, a Microsoft representative.

Although van Hooren offered few public comments on Sendo's case against Microsoft, a copy of the plaintiff's complaint obtained by IDG News Service indicates that Sendo is charging Microsoft with using false promises of partnerships to deliver the Microsoft Smartphone platform to gain access to Sendo's mobile phone expertise.

Trade Secrets

The complaint, which was filed December 20, lists 13 counts against Microsoft, including fraud, negligent misrepresentation, breach of contract, and civil conspiracy.

The document paints an unflattering picture of Microsoft's dealings with Sendo, alleging the software giant acted in bad faith, developing a "secret plan" to steal Sendo's technology and business relationships for its own purposes, even while it wooed the smaller U.K. firm with investment money and promises of being its exclusive "go to market partner" in the burgeoning market for smart phones.

After being introduced to Sendo at a telecommunications trade show in late 1999, the complaint alleges, Microsoft proposed partnering with the company to develop a new smart phone that would run software Microsoft code-named Stinger, delivering Internet access, e-mail, and other information management applications to mobile phones.

As part of the partnership, Microsoft and Sendo entered into a number of nondisclosure agreements as well as a Strategic Development and Marketing Agreement in late 1999 and 2000, according to the complaint.

The agreements gave Microsoft access to Sendo's confidential technical and marketing information in exchange for a $12 million investment and promises that Sendo's Z100 Smartphone, originally set for release in August 2001, would be a priority for Microsoft.

As a minority shareholder, Microsoft was also entitled to name an appointee to the Sendo board of directors, according to Sendo's complaint.

Delays Alleged

Almost immediately, however, problems arose in the partnership.

According to Sendo's complaint, Microsoft overstated the readiness of its Stinger software, saying it was nearly complete when serious software flaws existed that prevented it from working properly on Sendo's hardware. Microsoft also repeatedly withheld promised cash infusions from Sendo, hurting the company's cash flow and jeopardizing the Z100 development effort.

At the same time as it was hobbling the Z100 development effort, Microsoft was collecting as much information as possible about the mobile phone business from the small company, Sendo alleges.

On numerous occasions, Microsoft demanded detailed and sensitive information from Sendo. The company requested 300 test copies of the Z100 phone and staged an unscheduled four-day "review" of Sendo that yielded technical drawings, schematics, tours of its facilities, and interviews with its engineers, according to the complaint.

On the business front, Microsoft accompanied Sendo to meetings with mobile carriers such as Orange, Cingular Wireless, and T-Mobile UK, providing it with valuable contacts and relationships within those companies, Sendo said.

Finally, Microsoft's appointee to the board of directors, Marc Brown, was privy to the intimate details of Sendo's business plans and financial standing.

After gaining access to Sendo's mobile phone experts and technologies, Microsoft then passed on Sendo's proprietary hardware expertise and trade secrets to other manufacturers, notably the Taiwanese vendor High Tech Computer. Those vendors would release their own phones, competing with Sendo's technology, the complaint alleges.

In essence, Microsoft used Sendo's knowledge and expertise to launch its own entry into the mobile phone market, Sendo alleges in its complaint.

Change of Plans

Sendo recently abandoned plans to produce a smart phone, the Z100, based on Microsoft's Windows Powered Smartphone software, preferring instead to use software licensed from Nokia, of Espoo, Finland.

The Z100 will now never see the light of day because Sendo terminated its license for Microsoft's software, van Hooren said.

As part of its case, however, Sendo may seek an injunction barring the sale of the Orange phone as well as phones produced by other OEMs that may have used technology obtained illegally from Sendo.

Microsoft is still an investor in Sendo, with a holding of less than 5 percent, according to van Hooren.

Sendo repaid a loan to Microsoft Capital after the release of the competing smart phone by Orange and the dissolution of the partnership between the two companies. Van Hooren would not comment on whether Sendo seeks to have Microsoft further divest from the company.

Because Sendo's U.S. headquarters is located in Irving, Texas, the suit was filed in the U.S. District Court for the Eastern District of Texas, Texarkana Division, according to van Hooren, who said Sendo is not planning to sue Microsoft outside of the United States.

However, the move may also have been intended to speed up the litigation process, according to a source close to the case. The eastern Texas district has a reputation for quickly disposing of litigation and will require Microsoft to respond to the Sendo complaint within 20 days of its filing, with a trial likely within the year, according to the source.