LifeLock Sues Xapo Executives Over Bitcoin Wallet Intellectual Property

Bitcoin bank and payment processor Xapo faces uncertain waters as much of the company’s executive team is being sued for contract violations.

The misgivings center on the last months that Xapo co-founder and CEO Wences Casares, along with other Xapo employees, worked for the mobile wallet Lemon.

In December 2013, the $1.5 billion online security company LifeLock acquired the mobile wallet for $42.5 million (and rebranded it LifeLock Wallet). As reported by Fortune, the lawsuit is over whether Xapo was originally developed during his and other Xapo employees’ time working for Lemon. Or as LifeLock’s compliant puts it, “using a product developed by Lemon employees, in Lemon’s facilities, on Lemon’s computers, and on Lemon’s dime.”

Several months before Lemon would be acquired by LifeLock, the mobile wallet startup started working on a Bitcoin product, but the project was quickly terminated by its board of directors. Casares, Lemon CEO at the time, pushed on with the digital currency product, which was a Bitcoin storage service for himself and other Lemon executives (one of Xapo’s core services).

He approached LifeLock’s board with a letter that asked them to acknowledge they sought no stake of his Bitcoin vault’s intellectual property. In a letter dated February 12,  2014 and signed by LifeLock president Hillary Schneider, LifeLock acknowledges that it does not hold any claim to Bitcoin intellectual property and transfers all rights to Casares.

Casares also asked for letters requesting permission for Lemon/LifeLock employees to work on his bitcoin project in their free time. When four out of five of these requests were rejected by Schneider, Casares announced he would resign from his role as Lemon’s CEO. A week later, on March, 13, 2014, Xapo’s launch was announced, along with a $20 million funding round raised from Benchmark, Ribbit Capital and Fortress Investment Group.

According to LifeLock, the security company has found overwhelming evidence that Casares, former Lemon engineer Frederico Murrone (Xapo co-founder and COO), and former Lemon general counsel Cynthia McAdam (Xapo president), along with two other former Lemon employees, were developing the Bitcoin startup with Lemon’s resources.

LifeLock is not suing Xapo, at least not yet (a judgment in Lifelock’s favor in current lawsuits could open the door to the Bitcoin startup being next). But the security company is seeking damages from its former employees for their alleged misactions. Specifically, they are seeking reimbursement for “the value of the Xapo product attributable to Defendants’ misrepresentations, omissions, breaches of duty, and other wrongful conduct.”

Besides having to potentially pay back a large settlement to their former employer, having much of Xapo’s executive team losing a civil lawsuit could be damaging for the financial service startup’s reputation and relationship with existing financial institutions, such as banks.

Neither Xapo nor any of the accused former Lemon employees have made any public statements on the lawsuit, but Casares’ attorney Steven Ragland, who also is representing McAdam, provided Bitcoin Magazine the following:

“This is a baseless lawsuit. LifeLock has no right to any Bitcoin-related business or IP that Wences Casares or his colleagues may have worked on during their time at Lemon or after. As LifeLock’s President has attested in a legally binding document, LifeLock does not have any right, claim or interest to any Bitcoin IP. LifeLock’s claims lack merit and we look forward to proving their allegations false.”

This story has been updated with additional information about the letter regarding Bitcoin intellectual property signed by Caesares and Schenider.

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