By Joshua Ruthizer and Aubrey Pritchett
HBO’s Silicon Valley explores the tech startup industry, with a humorous point of view. Along with the laughs at the sometimes incompetent, sometimes genius programmers, the show also delves into many interesting legal issues faced by the Pied Piper team, including corporate law; intellectual property theft; non-compete agreements; trade secrets; and corporate espionage. All these real life legal issues play out to our amusement on the show, although sometimes the drama happens in real life as well: Jawbone’s recent failure has been cited as the “second-costliest-VC-backed startup failure of all time,” and who can forget the litigation between Marc Zuckerberg and the Winklevoss brothers (dramatized in the Oscar winning The Social Network).
We here at Wolf Popper enjoy Silicon Valley and, as we are lawyers, sometimes discuss the legal issues that drive the plot. We thought that we would discuss some of these issues that are presented in Season 5 here on our blog.
Spoiler alert: if you want to watch first (you do), detour to HBO, quickly binge watch seasons 1-4, and episodes 1 and 2 of the current season, and come back to read our take.
We begin Season 5 with Richard Hendricks, our favorite genius and anxious Pied Piper CEO, in quite the predicament: brand new gorgeous offices, a patent wanting to be fully realized into a new decentralized internet, and… no staff in sight but for three “magnificent stallions” as Gilfoyle and Dinesh lovingly [read: creepily] refer to them.
Richard, Gilfoyle and Dinesh drag their feet on hiring the remaining coders they need to staff up, and when all 63 well-qualified candidates are hired right out from under them by nemesis/all around creep Gavin Belson, they are left with few options other than to acquire Optimoji, an existing company nearing bankruptcy, and its staff of coders. Pied Piper makes an offer and gets a [debatable] oral agreement to buy Optimoji and keep on 12 of its 30 employees, but Optimoji’s CEO Kira is swayed to be purchased by Sliceline [to be clear: not a pun, just a rhyme], whose CEO Duncan (a coder Pied Piper rejected) makes her a better offer to take on her entire staff of 30. [We have made an internal decision to spare you an academic discussion of whether or not Pied Piper had an enforceable agreement to acquire Optimoji.]
Luckily, Richard and Pied Piper snuff out the weakness of Sliceline’s business model: while Sliceline aims to find you the cheapest delivery pizza in any given area, during it start-up phase it is buying pizzas from Domino’s and repackaging them in Sliceline boxes. Putting aside the legality (and morality) of passing another’s pizza off as your own, Sliceline is losing $5 per pizza until order routing and allocation is optimized. Richard and his engineers create a botnet program and thousands of fake users, indistinguishable from real ones, all over the city that will order pizzas, maximizing Sliceline’s delivery time and costs, all for the purpose of devaluing Sliceline so that Pied Piper can make a lowball acquisition offer that Sliceline cannot refuse. [Did anyone else wonder what they did with the roughly 2,000 pizzas they ordered?] Pied Piper wins again with the acquisition of Sliceline, firing Duncan and Kira, and successfully gaining 50 new employees, which is a few…err 38…more than they set out for. Queue all of Richard’s nerves.
But does Richard’s negotiation strategy cross a legal line? The threat and use of bots to order pizza and bleed Sliceline to bankruptcy, all for the purpose of devaluing the company, does sound shady. But is it extortion, or just hard bargaining? The California Penal Code defines extortion as “the obtaining of property or other consideration from another, with his or her consent, or the obtaining of an official act of a public officer, induced by a wrongful use of force or fear, or under color of official right.” “Fear” to rise to the level of extortion “may be induced by a threat… [t]o expose a secret affecting him, her, or them.” While we are not experts in the California Penal Law here at Wolf Popper, Richard’s actions do not seem to rise to the level of extortion. His threat is not to expose a secret, he was able to figure out Sliceline’s weakness on his own from public information. One can’t deny though, it seems sinister. On the other hand, one could argue that Richard’s tactic was merely a result of close observation and the need for vengeance; he didn’t rely on any facts that were not otherwise available, or perhaps obvious, to the public. Any other coder in the Valley, given the funds, could have made the same calculated move.
We leave off Episode 1 skeptical of how this trio of companies are going to interact, especially with Richard unable to take leadership and address the room. In the background another legal issue comes to the forefront. We haven’t seen Erlich in a while, thanks to Gavin (see the season finale of Season 4), and Jian-Yang decides to take over Erlich’s incubator house and business. Jian-Yang tries to pass a (clearly forged) letter off to Pied Piper’s in-house lawyer to assert that Erlich has given the house to him, only to find out from the lawyer that a) the lawyer does not represent Erlich personally, and b) Jian-Yang must prove that Erlich is dead in order to acquire the property.
Getting into Episode 2 we see that Jian-Yang is still serious about his endeavor when he reveals a dead pig corpse in the back of his car which he plans to cremate to replicate a dead Erlich’s ashes. [Are pigs and large humans close enough to pass? Maybe?] It’s a little concerning that Jian-Yang is able to have Erlich declared dead with nothing more than some forms and pig ashes. One would hope that the Court required a copy of a death certificate or other official document proving his death, and proof that he made a diligent search for family. Forging or filing fake copies of public record is typically a felony, and California law requires someone to be missing for five years before they are presumed dead.
When Jian-Yang makes it to court, the judge seems more sickened by cremated remains in a courtroom than incredulous of the identity of said remains, and delivers the biggest blow to Jian-Yang’s wild plan. If Jian-Yang wants to be executor of Erlich’s estate, he must also take care of Erlich’s debts and bills; and as it seems Erlich had quite a few debts to pay off. Mirroring the back and forth between Gilfoyle and Dinesh, Jian-Yang makes the decision that the reward of pride and being financially involved in Pied Piper’s presumed success is worth the costs and effort.