Acquisition talks fall through all the time, but a new lawsuit from social media startup CultureSphere accuses global IT company HCL of something more serious — using those talks as a way to get access to confidential information for use in a competing product.
HCL, meanwhile, has said the CultureSphere’s allegations are “totally baseless.”
We wrote about CultureSphere after its launch in 2015 — its mobile app gives companies a way to enable and encourage employees to share content on social media.
According to the lawsuit, the startup met with HCL’s BEYONDigital unit during the summer of 2016 to discuss a potential acquisition. Eventually, the discussions progressed far enough that CultureSphere was willing to share “the inner workings of CultureSphere’s proprietary platform,” which HCL executives agreed to treat as “highly confidential.”
The lawsuit says this information “far exceeded any other disclosures that CultureSphere made to any other company that expressed interest in a potential acquisition,” and included technical and product details, as well as marketing plans.
The suit goes on to claim that CultureSphere and BEYONDigital agreed on “key details” at the meeting, including an acquisition price of around $20 million and a closing date of September 15. Afterwards, however, CultureSphere alleges that BEYONDigital executives stopped communicating, and only resumed to say that the deal was being delayed due to broader corporate considerations.
Then they reconsidered: “In a moment of candor, [HCL executive Anand] Birje explained [via email] that HCL was now exploring whether it could build the same platform itself and any acquisition discussion would have to occur in mid to late October.” (The suit describes CultureSphere founder and CEO Danny Gordon as “justifiably outraged at HCL and BEYONDigital’s actions.”)
In September, according to the lawsuit, HCL told CultureSphere it would not be going through in the deal. Then in November, an HCL executive tweeted about what the CultureSphere team saw as a competing product that would “put HR in the driving seat to transform employee experience.”
The lawsuit alleges that HCL “could not create a platform or application as complex and as sophisticated as CultureSphere from scratch in two months” and that the company “induced CultureSphere to reveal its confidential and propriety materials and information through false promises of confidentiality and non-use restrictions and the promise of acquisition that, with the benefit of hindsight, HCL and BEYONDigital never intended to honor.”
CultureSphere is seeking unspecified monetary damages and “injunctive relief” (presumably stopping HCL from releasing its product) in its suit. In a statement provided to TechCrunch, CultureSphere co-founder and CEO Danny Gordon said:
Going into 2017, there’s not a single enterprise which doesn’t need our technology. I know the industry like the back of my hand and there’s not a single platform that’s gotten the formula right except us. Our one obstacle is scaling fast enough to capture the massive market opportunity. That was the premise for our agreed acquisition with BEYONDigital and HCL — to put our platform’s proprietary experience into as many companies as possible, giving them unparalleled advantage in reach, data and growth by combining the employee experience and customer experience in one. As a platform offering under a Global 2000 brand, we’d be able to scale 10x faster than as a solo company. HCL is the first and only company we shared the inner workings of our technology with. We haven’t released it anywhere for the exact reason of knowing it must be offered under a global enterprise brand to scale quickly. [BEYONDigital Global Head Jaco Van Eeden] was nothing short of excited to integrate and offer our platform to HCL clients and the overall market.
As for HCL, a spokesperson sent us this statement: “It is inappropriate for us to comment on pending litigation, however, we believe the allegations in the lawsuit to be totally baseless.”
You can read the full complaint below.