Jul 192010
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Mr. Gates had to personally put up a bond of more than $20 million

Technology start-ups and big companies work together all the time — refining ideas, seeking mutual advantage and accelerating the pace of development of new products and services. But these odd-couple relationships can be fraught with peril.

Steve A. Stone, a veteran product manager at Microsoft, had an idea for an innovative way to identify and track digital objects across the Web. So he set up shop for a new company in his garage in suburban Seattle, and convinced a few Microsoft colleagues to join him. They began building their software, working late many nights, fueled by spaghetti and takeout Subway and Quiznos sandwiches.

The start-up, Infoflows, began working with Corbis, the big photo library and licensing company owned by Bill Gates, Microsoft’s chairman, and in June 2006, the two signed a multimillion-dollar development agreement.

But four months later, things fell apart, culminating in a Washington State jury verdict against Corbis for misappropriation of trade secrets, fraud and breach of contract. The jury awarded damages of more than $20 million.

In a statement, Corbis said it was “disappointed by the outcome in the trial and believes that the trial court made substantial legal errors.” It plans to appeal and said it was “confident that it will ultimately prevail.”

The Infoflows-Corbis story is a striking case of a partnership between a start-up and a big company gone bad, and a catalog of pitfalls to avoid — courtroom battles, millions in legal costs and a business in limbo for years.

“What you want is the business equivalent of no-fault divorce,” said Josh Lerner, a professor at the Harvard Business School. “You want the ability to experiment, fail and disengage, and move on, to keep the innovation process moving forward.”

There was no amicable split between Infoflows and Corbis.

In court filings and testimony, Corbis asserted that Infoflows was a poorly performing contractor that Corbis had patiently tried to work with, but finally gave up on. Except for a small sliver of technology belonging to Infoflows, Corbis said, all the work produced and the intellectual property was owned by Corbis.

Infoflows saw things differently. “They took our ideas and tried to claim them as their own,” Mr. Stone said. “And they tried to crush a little company.”

Settlement talks a few months ago failed. Mr. Stone and his Infoflows colleagues were willing to be interviewed now because, they say, they want their account of events made public as they try to restart their business. They also say they hope the court ruling in their favor may deter other big companies tempted to bully a start-up, as they say Corbis did.

It is also the case that as a result of the ruling Mr. Gates — who owns Corbis, but is not a party to the suit — had to personally put up a bond of more than $20 million for damages assessed. Infoflows will not get a penny of that money until the appeal process concludes, if Infoflows prevails, or a settlement is reached.

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