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Results: Digg Settles Unfair Competition Claims

April 15, 2019

In November 2017, Slarskey LLC brought suit on behalf of Wiser & Co., a start-up technology company with innovative search and content-generation technology. Wiser sued social-media pioneer Digg, Inc., a portfolio company of renowned technology incubator Betaworks, based on Digg's conduct in connection with its attempted acquisition of Wiser.

 

Wiser alleged that Digg, with the assistance of Betaworks, executed a non-binding term sheet with Wiser, but then used the due diligence period to extract the value of the acquisition -- becoming familiar with Wiser's technology, business strategies, know-how, and investor table -- and terminated the acquisition without payment, even though the companies were already fully intertwined with Wiser’s employees working out of Digg’s offices. Wiser later discovered that during the diligence period, Digg had improperly downloaded tens of millions of documents for its own use, using Wiser’s access key to subscription services.

 

Wiser sued, alleging unfair competition, breach of the parties' non-disclosure agreement, and misappropriation. A key break in the case came from Digg’s Slack instant messaging communications, which revealed that Digg had run machine learning scripts on the improperly downloaded data, but then deliberately wiped the servers once the lawsuit was filed, despite its known obligations to preserve data in litigation.

 

“Digg’s behavior is a perfect example of a danger that companies face in pursuing a merger or acquisition,” said David Slarskey, of Slarskey LLC who represented Wiser in the litigation. “Non-disclosure agreements are often disregarded. And more powerful companies may use the diligence process improperly to obtain corporate intelligence. If a transaction fails, a party may effectively find its technology or know-how in the hands of a competitor, which, in the case of Wiser, led directly to the death of the company,” said Mr. Slarskey.

 

Wiser also learned through discovery that Betaworks Studio, which had purchased the Digg assets in 2012, had assisted Digg in the transaction, and that a Betaworks data scientist had overseen the machine-learning testing of the misappropriated data. In addition, shortly after the lawsuit was filed, Digg underwent a series of corporate transactions that rendered Digg insolvent, distributing Digg, Inc.'s valuable assets to two successor entities.

 

Wiser was granted permission to add Betaworks as a defendant, and other related entities, for allegedly aiding and abetting Digg’s unfair conduct and/or as successors to the now-insolvent Digg. Wiser also sought sanctions for Digg’s willful destruction of documents that it knew were material to the litigation. Shortly thereafter, the parties settled the lawsuit on terms to Wiser’s satisfaction.

 

“Uncovering the use of instant message communications from Slack was critical to bringing to light Digg’s misconduct, including its destruction of documents during litigation. In litigation, all forms of common communications need to be searched, especially those where many of the most candid conversations are recorded,” said Mr. Slarskey.

 

The litigation, which proceeded in NY State Supreme Court, was titled Delve Media, Inc. (d/b/a Wiser & Co.) v. Digg, Inc., Index No. 656251/2017. David Slarskey and Evan Fried represented Wiser.

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