Growth Capital: 2 Things to Learn from the Carrier IQ Legal Mess

December 12, 2011 by

OK, this Carrier IQ situation is really crazy, but there are some things for every company seeking growth capital should think about.

1) Who is really at fault here: Carrier IQ or the carriers?

  • While this is a complex question (and as of today all of the facts are not known) what we do know is Carrier IQ is the software provider and the carriers have licensed their software for use on mobile devices for sale to consumers.
  • Two key issues are what type of monitoring the carriers were performing on the phones, and was it disclosed.
  • Seems to me that what was being monitored and whether there is an issue of ‘not disclosing’ something, really falls on the carrier’s shoulders. The carriers are the ones that determine what information to collect, transmit, etc., and also are the ones with the obligation to disclose these type of activities to their customers.
  • Oh, I am not simply making this up, as Tech Crunch (“Don’t Blame the Carrier IQ”) and CBS News (Carrier IQ wrongly accused of keylogging”) seem to be taking this view too.

2) What does the indemnity say between Carrier IQ and the carriers?

  • OK, I know indemnities are something that makes most people’s eyes glaze over, but this is important, so stay with me. Just as background, most software or SaaS providers should only be providing infringement indemnities, and not a typical general indemnity (here is some background on this issue from my blog).
  • Why, you say?  Well, this CarrierIQ situation should make you think about indemnities, as if Carrier IQ signed an indemnity (which is in essence an insurance policy) in which they indemnified the carrier regarding “their use of the software,“arising from Carrier IQ’s performance,” or something like that, then Carrier IQ has a huge problem. Carrier IQ could be on the hook for millions of dollars in legal fees and fines/judgments/settlement amounts, when (based on what we know now) they may not be the ones that really caused this messy situation.
  • What I am trying to say here, is if you are a tech company think really hard about indemnities, as in situations like this they can really become a big/huge/ bet the company legal issue for you.

If you think this is not serious business, read the top of a complaint filed in court on Dec 2nd, 2011:

ciqcomplaint2 2 Takeways From the CarrierIQ Situation, from a SaaS Attorney

We’ll see how this plays out, but at the very least, every company seeking growth capital ought to be able to learn a thing or two from this mess.

Resources: 

Carrier IQ Press Release December 1, 2011

Disclaimer: This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.