ADT Holdings Inc. is suing the big Wi-Fi Doorbell maker Ring, claiming it misappropriated IoT technology from Zonoff that actually belongs to ADT. Former Zonoff CEO Mike Harris is also named in the suit.
In an interview with CE Pro, Ring CEO Jamie Siminoff called the lawsuit “ridiculous,” saying the company rescued 80 employees when Zonoff was forced to shut down.
He says it was the case of a “fast-moving opportunist company making the situation better for 80 families and also hopefully building something great for the customers.”
Zonoff was one of the most promising SHaaS (smart home as a service) providers when it abruptly shut down in March. At that time, Ring hired all Zonoff employees and established a new office near Zonoff’s Philadelphia-area headquarters.
Harris was named president of the new “Ring Solutions” group.
Both Harris and Siminoff told CE Pro that bringing the whole Zonoff team to Ring was a spur-of-the-moment decision, initiated and finalized three days after Honeywell (as speculated) reneged on a plan to acquire Zonoff.
In a lawsuit filed in the Delaware Court of Chancery, ADT alleges Harris stole the intellectual property that rightfully belonged to ADT as a secured lender to Zonoff.
Law360.com reports that ADT was Zonoff’s largest investor (there had been speculation), and that the security and home-automation giant had made equity investments as well as “large, secured loans” to Zonoff beginning in 2014.
CE Pro broke the news last month that ADT might have provided debt financing to Zonoff, in which case: “If, as likely, Zonoff files for bankruptcy, ADT might come to own its assets.”
Indeed, ADT is laying claim to the assets, particularly the newer Z1 software suite, allegedly developed with and for ADT.
According to Law360:
Zonoff defaulted on a required interest payment on a note held by ADT in February, an event that triggered ADT’s right to act as attorney-in-fact for Zonoff, the complaint says. By March, however, Harris and dozens of Zonoff’s employees were taken on by Ring, in a newly formed “Ring Solutions” unit with Harris as its president, and without notification to ADT.
“Harris followed his own self interest, misappropriated the assets and personnel of Zonoff and orchestrated a scheme, with the assistance, participation, and encouragement of Ring, to steal the Z1 platform and hand that asset and, in effect, Zonoff’s entire business to Ring,” the suit says.
At the time, the complaint adds, Ring was aware of ADT’s superior rights and first-priority lien and knew or should have known of Zonoff’s insolvency.
Law360 further reports that, as Zonoff’s insolvency loomed, “Harris made a complete hard drive backup of the Z1 platform and notified Ring CEO James Siminoff that it would be made available.”
ADT claims that, had Honeywell (or other party) actually acquired Zonoff, ADT could be compensated for its claims against Zonoff. Instead, the suit alleges, Harris might have given the IP to Ring gratis, likely in exchange for equity in Ring or some other favor.
In the lawsuit, ADT claims Harris agreed on January 30, 2017, to create a platform “substantially similar” to the one Zonoff created with ADT, with terms that included “an upfront payment approximating one month’s payroll for Zonoff’s development team,” according to Law360.
“We had a contract with Zonoff. We spent a significant amount of money. It was a common contract. It was the collapse of Zonoff that led us to do this.”
Ring CEO: Zonoff Relationship Perfectly 'Normal'
Indeed, Zonoff had been contracted to help Ring expand beyond smart doorbells and cameras to create an entire ecosystem of connected solutions. But according to Siminoff the relationship was nothing unusual, as ADT paints it in the lawsuit.
ADT claims there was a non-cash transfer of intellectual property from Zonoff to Ring in order to provide cheap IP to Ring while enriching Harris, whose 1.4 million Zonoff shares would otherwise be worthless.
Siminoff says such claims are nonsense. In fact, Ring ponied up cash up front for Zonoff development.
“There was nothing stealthy about what we did,” he says. “The money we put up was very large for our sized company. The contract was done as 'normally' as you would do with any company.”
In any case, Siminoff explains, ADT had a seat at the Zonoff table as a board observer.
If anything, Siminoff suggests, “We're more harmed in this than anyone. We spent money in advance, and shortly thereafter they stopped funding it.”
While Siminoff may be referring to a universal “they,” clearly ADT had the power to keep Zonoff afloat. When Honeywell reneged on the acquisition (again, as rumored), and other parties including ADT refused to plow more money into Zonoff, “people were literally fired,” Siminoff says. “They had no healthcare. They walked out of the door with nothing.”
He adds: “We had a contract with Zonoff. We spent a significant amount of money. It was a common contract. It was the collapse of Zonoff that led us to do this.”
Bringing on the Zonoff team will help Ring “complete the work we started,” says Siminoff, who explains the overarching mission of Ring is to “reduce crime in neighborhoods.”
“I'd rather put this money into R&D and build better products,” he laments. “Sadly, reducing crime in neighborhoods seems to scare someone.”
Note: The lawsuit is not yet available through online services such as Pacer, but CE Pro will report more details once the legal documents are secured. In the meantime, visit Law360.com for more details on the case.
ADT, Alarm.com, Icontrol, Comcast: A Tangled IP Web
There’s still a tricky IP situation involving Zonoff and a big cast of characters that includes ADT, Alarm.com, Icontrol and Comcast.
Zonoff was being sued by Icontrol for allegedly infringing on SHaaS-related patents. Icontrol was split in two and sold to competitor Alarm.com and erstwhile customer Comcast/Xfinity. Now the two buyers own the intellectual property. Since Icontrol and Alarm.com shared several patents, it’s not clear if Comcast or Alarm.com now owns the IP associated with the Zonoff suit (which was stayed).
We suspect Honeywell quashed a (purported) Zonoff deal because Alarm.com and/or Comcast would not agree to drop the original Icontrol lawsuit.
Since the acquisition, Icontrol customer ADT has agreed to patronize Alarm.com’s SHaaS service for a minimum of five years.
Meanwhile, ADT continues to support a product – LG’s Smart Security – that is still being powered by Zonoff (so we hear). Icontrol had sued ADT two years ago to halt the sale of that product. It is possible that Alarm.com agreed to let the LG product go forward, or to allow ADT to use the Zonoff technology, in exchange for the five-year deal between alarm.com and ADT.
It should be noted that the deal only pertains to professionally installed solutions, not DIY products like LG's. According to Alarm.com:
Alarm.com will serve as the exclusive provider of services for ADT’s professionally installed residential interactive security, automation and video service offerings for a period of up to five (5) years “
Back in March, Siminoff told CE Pro that he wasn’t terribly concerned regarding speculation that Ring could have difficulty related to the patents for which Zonoff alleged infringed. The patents in question are primarily focused on cloud-based integration of professionally monitored security systems and home automation.
“We don’t fall into that category,” he said.