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Macromedia crippling one of my fav companies!

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whitebloodcell

Member
Joined
Mar 30, 2005
Location
Wells, England
I just recieved an Email from the CEO of this Company, Tight Systems LLC. I started following them about 2yrs ago. They had by far the best PMP out there. Though they have never been able to bring it to Market due to lack of funding.

www.tightsystems.com

Well, now they are recieving the final nail in the coffin, as macromedia is seeking royaltys off of them, for using flash in the UI, of a product that never came to market. Its alot of reading, but if you interested in a huge company pointlessly destroying a small start up have a read.

Here is the Email I recieved

We Need Your Help!
We have never done an email like this before.

But these are extraordinary times at Tight Systems LLC and, as they say, extraordinary times call for extraordinary measures (or something like that).

I have published an article today on the Tight Talk forum boards detailing how 3.4 Billion Dollar Macromedia, Inc. is out to kill Tight Systems. We hope you will read it and we hope you will help us publicize the article as much as possible. If you have a blog, please link to our article. If you have friends that have blogs, please ask them to link to our article. If you know people that are business news reporters, please forward them a link to our article to see if they are interested in covering this story.

If you are a shareholder of either Macromedia, Inc. or Adobe (which is in the process of acquiring Macromedia, Inc.), send them an email expressing your outrage over how they are wasting shareholders' money on pointless litigation.

If you know people that work at Macromedia or Adobe (particularly, juicy, high ranking executives), send them an email asking them what's up.

Finally, please use the forwarding button below to forward this email to a couple of friends that you think might be interested in hearing about a start-up's battle against a relative corporate giant.

We think what Macromedia, Inc. is doing to us is pointless and stupid. It is indicative of the type of big company arrogance that threatens entrepreneurs and innovators everywhere. We want to get the word out as much as possible. Please help.

Thank you for your continued support!

Scott P. Jacobs, CEO

Tight Systems LLC Crushed by Macromedia, Inc. – Entrepreneurs, Innovators Beware! Is Adobe Overpaying for Macromedia???

And now the details....

A special note: The entirety of the following article is an expression of the opinion of the CEO of Tight Systems LLC in his capacity as such. The use of the term “I,’ “me,” “my,” and other terms referring to the writer, refer to Scott P. Jacobs, CEO of Tight Systems LLC, in his/my capacity as such. Having said that, I want to make it clear that, in my opinion, the following is a very accurate, sometimes summarized, description of the real world facts underlying an ugly and unfortunate situation coupled with some conjecture about why it may have happened.)

Macromedia, Inc. has filed suit against Tight Systems LLC. Macromedia’s claim, at its core, seeks to recover $250,000 in royalty payments for sending Tight Systems LLC a home-made looking CD Rom with some software code on it that was never used in any way by Tight Systems (in fact, we believe it was never even opened). Despite repeated attempts by Tight Systems LLC to settle this matter, Macromedia appears intent on driving Tight Systems LLC completely out of business. It now looks like Macromedia will succeed. The following offers my version of how this all came to be and one possible explanation for why a mammoth company like Macromedia would waste time and money driving the final nail into the coffin of a struggling start-up.

Tight Systems started like many companies, as the dream of an entrepreneur – me. My vision was to create a portable multimedia device that would make it really easy for people to play music, movies, pictures, etc. anytime and anywhere they wanted to. That doesn’t really seem groundbreaking today but when we started about 2 years ago it was a pretty new concept and, besides, we had some unique design, implementation and strategic partnership ideas that would have made our product desirable even if we weren’t able to beat others to market (which we were trying very hard to do).

Our concept product, called TAZ I, was pretty compelling to many people and it won the Best of Innovations Design and Engineering Award at the 2004 Consumer Electronics Show. The “Best of” designation meant that we beat out a bunch of very well established consumer electronics companies. We were proud of that.

One element of our overall goal to achieve tremendous ease of use for the end user involved our approach to TAZ I’s User Interface. We wanted to make it really, really easy for anyone to use. Our design mantra was “no instructions required.” We devised an approach that involved using Macromedia Flash as the main driver of our interface. Coupled with a touch screen, we would have been able to do some really cool things with motion, graphics and iconography that we thought would achieve our design goals so we began talking to Macromedia about licensing the right to develop our concept in Flash.

We negotiated the license agreement with Macromedia and, throughout that process, made it clear that Tight Systems would not be able to meet its contractual obligations to pay royalties if it did not succeed in getting TAZ I to market. Macromedia would not agree to link the royalty payments directly to the successful production of TAZ I. All they would agree to, and this is reflected in the contract, is to push out the first round of payments to a date after which Tight might, if everything went right, be able to get the product to market.

I have a feeling Macromedia refused to make royalties contingent upon TAZ I production for accounting reasons. What I mean by that is that if the royalties weren’t “contingent,” Macromedia might have a better argument under accounting rules for booking the contract payments as future income – to be honest, I don’t know if that is true or not but if Macromedia was already in acquisition discussions with Adobe, or anyone else, it is at least plausible that Macromedia would be trying to juice the books as much as possible to drive up the purchase price.

(A sidebar may be necessary here to explain that last point. Again, I’m absolutely not saying that Macromedia did this. I have no idea what their motivations are/were. But since the motivations don’t have any other rational explanation that I can figure out maybe it’s plausible.

When a company gets purchased, one way that the purchase price is sometimes calculated is as a multiple of earnings. In a really simple example, if a company earns $100 a year and the purchase multiple is 10x (a fairly common multiple), the purchase price would be $1000. So, a company that is looking to be acquired is highly motivated to make its earnings look as good as possible because, using the simple example again, $1 dollar of additional earnings can be worth $10 of additional purchase price. If you apply the 10x multiple to the seemingly inconsequential (to Macromedia) Tight Systems contract, you end up with a $2.5 million bump in the purchase price. Of course, $2.5 million may not even rise to the level of a serious rounding error for a company that is supposedly worth $3.4 billion, the price reportedly being paid for Macromedia by Adobe. Still, if there are a bunch of these contracts lying around at Macromedia, eventually you’re talking about real money. And if Macromedia followed an institutionalized policy like that with puny little Tight Systems, it is certainly possible that policy is reflected in more individually meaningful contracts as well.

As a further aside, I should mention that when litigation is involved, as it is with Tight Systems, the Company (Macromedia, Inc., in this case) and its accountants and attorneys are required by accounting rules to work together to determine whether or not the Company (Macromedia) is justified in keeping any earnings attributable to the contract on its books. If Macromedia has dealt with this particular situation in accordance with relevant accounting practices (as I understand them, and I’m no expert), then in all likelihood their earnings don’t reflect a single penny of income attributable to the contract with Tight Systems or similar contracts. That is because as they know – or should know – there is almost no hope of ever recovering any meaningful amount on the Tight Systems contract because Tight Systems has no current ability to pay and no meaningful prospect of being able to pay – ever. In my opinion, if there is a single penny of income on Macromedia’s books attributable to Tight’s contract or other contracts like it, then Macromedia’s attorneys and accountants should be dusting off their malpractice insurance policies.

Since Macromedia would not agree to make the royalty payments contingent upon production of TAZ I (even though we made it clear we wouldn’t be able to pay if we didn’t get the product to market), we were faced with the choice of either signing up for the payment program dictated by Macromedia or going without our much desired approach to simplify user interaction with the device. We knew it was risky. But we were confident. Maybe even overly confident. Entrepreneurial ventures have confidence or they die. And, besides, we had a number of seemingly promising financing options and given the momentum we were generating for the device, we honestly believed we could get TAZ I to market quickly.

Macromedia was all anxious to get the contract signed before the end of some quarterly reporting period (probably so they could book income for reporting purposes or so some guy could get a quarterly bonus or something). So we signed the contract.

To cut to the chase, we did not get TAZ I to market, we did not get financing, we had (and still have) no meaningful source of income and, eventually, Tight Systems defaulted on its obligations to pay royalties to Macromedia for software that we never touched.

Several months ago, Macromedia, Inc. filed suit against Tight Systems LLC. To simplify a little bit, Macromedia is seeking to recover all royalties that Macromedia was ever entitled to receive over the life of the contract. From a purely technical reading of the contract and since Macromedia refused to link royalty payments to production of TAZ I, they may very well be entitled to that. But, back in the real world, since TAZ I was the initial (and thus far only) product of Tight Systems and since that product has never made it to market, Tight Systems generates almost no revenue (aside from some relatively small contractual payments through our agreement with the separately owned and operated DVG Store that operates on our website) and therefore has absolutely no ability to pay the royalties demanded by Macromedia, Inc.

Macromedia, Inc. knows – or, in my opinion, should know – that Tight Systems has absolutely no ability to pay the amounts Macromedia, Inc. is seeking to recover. Tight Systems has sent bank statements to Macromedia and its attorneys that should make that abundantly clear. Tight Systems has made repeated offers to settle this matter but each of those offers has been rejected and Macromedia, Inc., through its attorneys, has refused to make a counterproposal.

In the latest round of threats, Macromedia’s attorneys are threatening me with personal liability meaning, I guess, that they intend to come after my house and my car and whatever other paltry assets I have remaining after basically losing everything on Tight Systems. Now, I’m really not looking for sympathy here but is absolutely beyond me why Macromedia, Inc. (supposedly worth $3.4 BILLION) feels it is important to try and make sure that it is even more difficult for me to keep my daughter in college and my 2 year old son in diapers. Believe me, it’s hard enough to do those things already given Tight’s inability to get its product line to market.

So here is my admittedly biased, but I think accurate, view of what is going on here:

• Macromedia, Inc. is suing Tight Systems LLC to recover $250,000 (plus the fees of Macromedia’s attorneys, plus interest, etc, etc.) for sending Tight Systems a home made looking CD Rom with some code on it that, as far as I know, was never even opened or used in any way by anybody at Tight Systems and definitely was NEVER incorporated into any product by Tight Systems in even the slightest way;

• There is absolutely no hope that Macromedia, Inc. can recover anything close to that amount because Tight Systems simply does not have it and does not have any hope of having it any time in the foreseeable future;

• Notwithstanding that, Macromedia and its, in my opinion, incredibly uncreative and generally not very smart attorneys have thus far refused to make any offer other than payment in full to settle this matter;

• In order to try and force essentially broke Tight Systems to pay $250,000 to 3.4 Billion Dollar Macromedia, Inc. (again, money that Tight Systems simply does not have), Macromedia and its aforementioned attorneys are now threatening to take away my house.

Now I want to be clear that the above summary is presented as my opinion in my capacity as CEO of Tight Systems LLC (sorry -- I need to keep saying that over and over again for the benefit of Macromedia’s attorneys). But I also want to be clear that since Macromedia, Inc. has made it abundantly clear that they are willing (seemingly anxious?) to come after me personally, I would be crazy to write this stuff if it was not based in fact.

So, since Macromedia, Inc. has evidently decided that it is critical to them to put Tight Systems LLC out of business for no apparent economic or strategic benefit to Macromedia (unless maybe there is something to the accounting angle I mentioned above), Tight Systems LLC, on its way out of business, wants to warn entrepreneurs and innovators everywhere to be very wary of working with Macromedia, Inc. in any capacity. The conclusion Tight Systems LLC has drawn from its experience with Macromedia, Inc. has been that if there is a hiccup in your business plan, Macromedia will take a blindly aggressive, vindictive, vendetta-like approach to put you out of business regardless of whether or not Macromedia, Inc has anything to gain by doing so – which they very clearly do not in the case of Tight Systems LLC.

Finally, one question Tight Systems has is just who is driving the boat on this issue at Macromedia, Inc.? If it’s just some low level person in Macromedia, Inc. working with the second or third string law firm, that’s one thing but if this is actually some policy of Macromedia, Inc. (and their soon to be parent, Adobe? – who knows?), then it is something Tight Systems wants people to be aware of.

The law firm involved is Bialson Bergen & Schwab. Their website (http://bbslaw.com/) says that they “strive to be pragmatic in approach, creative in [their] solutions, and economical in cost.” They definitely do not seem to be meeting their stated goals in this case (although if they are anything other than “economical in cost,” Macromedia is getting screwed). I don’t know what the dude’s name at Macromedia is. I know him only as [email protected]. I have repeatedly asked BB&S attorney David Cooper (he goes by David L. Cooper) to put me in touch with Macromedia directly to try and work something out but nothing ever came of it. I only know “mabbott” and BB&S name partner Lawrence Schwab because they get copied on emails so I’m assuming they know what’s going on here.

In an effort to flush out the answer to the “who’s driving this boat anyway” question, Tight Systems made sure that “mabbott” (the Macromedia employee) and the Schwab lawyers directly involved with this matter very clearly understood that Tight Systems intended to go public with this information (Macromedia’s lawsuit makes much of it a matter of public record anyway). We pleaded with them to try and make a basic economic assessment of whether their realistic possibility of maybe someday recovering a few thousand dollars was worth risking even the possibility that future potential customers of Macromedia, Inc (and, soon, Adobe) might be frightened away by what we had to say. Tight didn’t want to go public with all of this, we just wanted to settle the matter. We even sent them a copy of this specific article before we posted it here (and with plenty of advanced warning that it was coming) but they never even responded so evidently they didn’t care.

The point of that last paragraph is only this: on the off chance that anyone higher up the food chain at Macromedia or Adobe ever reads this and concludes, as Tight Systems LLC has, that it was really boneheaded of “mabbott” and the law firm involved to let this article get published in order to continue pursing an expensive litigation with no realistic hope of meaningful recovery, Tight Systems LLC hopes that whoever that higher up is will conclude that the individuals responsible for not getting this matter settled should be fired immediately because they are idiots and they are hurting your company(ies). (Sorry to keep beating on this but it really makes me wonder if there isn’t something to the accounting angle I mentioned above.)

So . . . the current plan is for Tight Systems LLC to close its doors forever any day now. We are working out the details. We hope to find a way to allow the separately owned and operated DVG Store to continue to operate but we don’t yet know if that will be possible. The DVG Store is a very small operation and they are not interested in getting tangled up with this Macromedia, Inc. mess – who can blame them?

and finally the thread in their forums http://www.tightsystems.com/bb/showthread.php?t=740

I think this is just cruel of Macromedia and completely uneccessary. Id appreciate it if you could spread this around and try and help put Tight.
 
How, exactly, is it even possible to collect royalties on a product that was never sold?

Sounds bogus to me....
 
Elif Tymes said:
How, exactly, is it even possible to collect royalties on a product that was never sold?

Sounds strange but that is what is happening, due to contractual obligations Tight have to pay royalties on the products they never had chance to sell.

Elif Tymes said:
Sounds bogus to me....

I believe it, why would Tight make it up? They have been a struggling company for about 2yrs, they are not asking for Donations to help them, they are just inofrming people what is happening to them.
 
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