business

ADT slugs it out with Ring for defunct Malvern firm's software

Joseph N. DiStefano

Updated: Saturday, May 6, 2017, 11:20 PM

A screen grab from a Zonoff information video showing the use of an iPad to control a thermostat.

Both versions can't be right:

A fast-moving Delaware court fight -- much of it marked "confidential" in the courthouse in Wilmington, though parts are public -- tells two competing tales to explain the March disappearance of Zonoff, the Malvern-based "Internet of Things" developer. Zonoff's Z1 software platform lets you check on your property, run gadgets, and summon help via smartphone, portal, and alarm service.

Zonoff went kaput on March 2, and its CEO and software developers went straight to work for Texas-based Ring, developer of the "video doorbell" that greets home guests remotely.

ADT, the home-alarm giant, wants to stop them. In court papers, ADT says it lent Zonoff money it never got back -- giving it the right to demand the "return or destruction" of Zonoff's Z1 software.

Ring, which has raised more than $100 million from investors including Goldman Sachs, plans to sell shares to the public later this year. Ring insists it had the right to hire Zonoff people and keep a version of Z1: They had a deal, too.

"We are really lucky" to attract Zonoff CEO Mike Harris, tech chief Mike Balog, "and some other really talented Pennsylvanians," Ring founder Jamie Siminoff told me after Harris joined and before ADT sued.

Not so fast, says ADT, which is controlled by Apollo Global, the big buyout firm.

Austin blogger Stacey Higginbotham reported that Zonoff blew up after a plan "fell through" to sell it to Honeywell Inc. for around $40 million.

But in its court filings, ADT says it was in Harris' interest for the Honeywell deal to fail, because Honeywell's price was only enough to pay off Zonoff's creditors -- including ADT -- leaving nothing for Harris and other founders.

Indeed, the Honeywell sale failed "at least in part as a result of the illicit activities of Harris to scuttle the potential acquisition." At Ring, Harris can get new shares and profit from the planned public offering, ADT says.

Zonoff started in 2011, and raised more than $30 million from investors. While Zonoff had increased its Malvern staff to around 80, Zonoff engineers began suffering "significant development delays," and the firm's financial situation was "deteriorating," according to ADT.

After paying back an initial small investment from Ben Franklin Technology Partners, Zonoff burned through its venture capital and became dependent on ADT loans, secured by its software, ADT says.

Less than a month before he joined Ring, Harris "placed the Z1 platform on a portable hard drive and without authorization" copied it and gave it to Ring "in exchange" for a job as head of a new division, Ring Solutions, according to ADT. He was joined by "all of Zonoff's software development team."

At Zonoff's former offices, "they merely changed the sign on the door," ADT says, "leaving nothing more than a battered Zonoff sign" and random office hardware.

Ring and Harris failed to ask permission from ADT or Zonoff's other shareholders and creditors. They had a claim on Z1 software and other Zonoff assets since Zonoff failed to make a scheduled February loan payment to ADT, according to court papers.

ADT's lawyer, Steven Caponi of K&L Gates' Wilmington office, wants Chancery Court to issue an injunction stopping Ring from profiting from the software Harris took with him. ADT accuses Zonoff and Harris of fraud, misappropriation of trade secrets, and contract interference.

In Harris' defense, Ring officials say they met Zonoff's leaders at the Consumer Electronics Show in Las Vegas in January. Within 10 days, they had a deal for Zonoff to develop a version of its system with Ring. Harris gave only that version to Ring, and rightly, Ring says.

In filings last week, ADT argued that Ring's Z1 isn't really different from the original Zonoff's.

Ring countered that it may ask for an injunction of its own to protect its ex-Zonoff people. The case is moving toward trial, or a quiet settlement, more common in business-friendly Delaware courts. Ring's lawyer, Megan Ward Cascio of Morris, Nichols, Arsht & Tunnell LLP, didn't reply to messages.

Joseph N. DiStefano

Read full story: ADT slugs it out with Ring for defunct Malvern firm's software

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