A tech company accusing a Google-backed UK rival of copying code is now suing its customers

London startup Yieldify has been hit with a second lawsuit from competitor Bounce Exchange, again alleging that it copied its code. The more recent suit also names some of Yieldify's customers as defendants in the suit.

Bounce Exchange, a New York-based company, alleges in New York and Texas court filings that it gave Yieldify executives a demonstration of its product in 2013 and that Yieldify went on to launch a very similar competing product.

Founded four years ago, Yieldify builds e-commerce software that helps online retailers convince people to buy products online by tracking customer behaviour and providing prompts where necessary.

In June 2015, it received $11.5 million (£8 million) in venture capital investment, with the round led by Google venture capital arm Google Ventures (now called GV) and Softbank.

In 2015, Bounce filed a suit against Yieldify in a New York district court, accusing it of copying its code and infringing its patents, in a case that first came to light earlier this year in a report from The Financial Times. Yieldify denies the allegations.

Bounce has now filed a second case - this one in a Texas district court - repeating these allegations and adding some of Yieldify's customers as defendants. The customers (alongside Yieldify) are accused of  "actively inducing others to infringe and/or contributing to the infringement [of Bounce Exchange's patents]." 

Scroll down for the full filing.

Yieldify's VP of marketing Shawn Cabral told Business Insider that the company "cannot comment on pending lawsuits, but [would] like to reiterate that our company has done nothing lawful or in any way improper."

Bounce is accusing Yieldify of copying code and marketing material

In court filings relating to the New York case, Bounce Exchange provides several examples of what it alleges is copied code (see below for an example). The suit alleges that Yieldify "copied hundreds of lines of code and generally replicated the overall structure, sequence, and organization of the Bounce Exchange Software."

In a response to the New York case, Yieldify's lawyers deny that its executives stole code from Bounce following the product demonstration. Here's Yieldify's account of what happened:

Plaintiff claims that Defendant stole its proprietary source code. This is patently false. The facts are as follows: In March 2013, Mr. Jay Radia, Defendant's Chief Executive Officer, and Mr. Meelan Radia, Defendant's Chief Technical Officer, met with representatives of Plaintiff. At that meeting, Plaintiff demonstrated certain public-facing aspects of its behavioral marketing automation software. Plaintiff did not reveal any confidential information to Defendant, and did not show Defendant any of its source code, either at this meeting or otherwise.

Yieldify changed its code after Bounce's initial complaint. But it denies Bounce's allegations, saying it made the change only "in the interest of resolving this matter quickly and without needless litigation."

In the new Texas suit, filed on April 14, 2016, Bounce Exchange alleges that Yieldify also duplicated its marketing material: "Not only did Yieldify copy from Bounce Exchange the functionality of the Bounce Exchange Software, Yieldify also copied the very marketing information that Bounce Exchange used to promote its software." An alleged example of this is below.

Bounce's Texas suit also accuses Yieldify of infringing on its patents.

Yieldify's customers are now being dragged into this too

Bounce Exchange is now also going after Yieldify's customers. According to New York court filings, companies that use Yieldify software have been targeted by letters from Bounce's lawyers detailing the ongoing lawsuit. The letters lay out what Bounce alleges are the facts of the case, and warns that customers could be "subject to an injunction" preventing them from working with Yieldify (something Yieldify denies is the case).

Yieldify claims that these letters were sent by Bounce to gain "leverage" over it by spooking its clients, by timing them to arrive before important meetings with the company. Here's the relevant section of one of Yieldify's filings (emphasis ours):

Bounce sent its letters out on Thursday and Friday January 28 and 29, 2016, while Yieldify's senior management team was en route to New York, where Yieldify's CEO, Jay Radia, and Bounce's CEO Ryan Urban, were scheduled to hold a settlement meeting on Tuesday, February 2, 2016. In other words, Bounce sent letters to 21 of Yieldify's biggest customers with the specific intention that they arrive the day before the planned settlement meeting (i.e., Monday, February 1, 2016) for the sole, undisguised purpose of attempting to gain improper leverage - communicating, unsubtly, that if Yieldify did not cave to Bounce's demand for millions of dollars, Bounce would resort to underhanded tactics like web scraping and contacting customers to destroy Yieldify's business.

The Texas suit steps up this tactic - actively naming three of Yieldify's customers as defendants in the suit. These are hotel company Omni Hotels Management, beauty products company Laura Mercier, and keyboard manufacturer Das Keyboard. The three businesses did not respond to requests for comment.

"Yieldify and other Defendants continue to knowingly induce [patent] infringement and possess specific intent to encourage their customers' and other users' infringement," the lawsuit alleges.

Bounce Exchange is seeking a jury trial for the Texas case and is seeking unspecified damages and relief from the defendants.

In a statement, Bounce CEO Ryan Urban said: "Because the case is pending I can't comment other than to say that Bounce Exchange is happy that the facts are coming to light. We believe that protecting intellectual property rights is in the best interest of all software developers. When developing new products of our own, we do so with integrity - always seeking to innovate and further the technology to the benefit of the marketplace."

In a previous response to the New York case, Yieldify VP Shawn Cabral told Business Insider: "Our policy is not to comment on pending lawsuits - except to say that the case has absolutely no merit whatsoever, and that our company has done nothing unlawful or in any way improper. We are fighting the lawsuit vigorously and are confident that we will be vindicated in the U.S. legal proceeding. It is important that our valued partners and clients know that Yieldify conducts itself at all times with the utmost integrity."

Here's Bounce Exchange's full complaint filed at the Texas court: