Case 2:13-cv-02617-RDR-KGS Document 11-1 Filed 01/27/14 Page 1 of 4

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF KANSAS

MARTIN MEISSNER. Plaintiff,

Case No. 13-2617-RDR-KGS

BF LABS INC., Defendant.

DECLARATION OF DAVID MCCLAIN IN SUPPORT OF OPPOSITION TO PLAINTIFF'S MOTION FOR DEFAI,]LT JI]DGMENT
I, David McClain, hereby declare and state as follows:

l. 2. 3.

I am the Large Accounts Manager at BF Labs, Inc. ("BF Labs").

BF Labs manufactures a line of high speed encryption processors for use in

Bitcoin mining, research, telecommunication, and security applications.

As is industry standard practice and consistent with significant

competing

manufacturers of similar equipment, BF Labs uses a fully prepaid pre-order process where the
funds paid by a customer are applied to pay for the purchase of parts and labor used in the multi-

month manufacturing process, making it impractical to reverse an order.

4.

The Bitcoin market price fluctuates widely and frequently. BF Labs has also

observed that a small number of customers have placed orders as part of a Bitcoin price hedging

strategy that involves multiple requests

to cancel and then reinstate their orders as market

conditions change. In order to prevent people from placing, canceling, and later reinstating their
orders based on whether the market value ofbitcoins is going up or down (which would increase

customer service costs and wreak havoc on the supply chain management

of

parts and

components that have to be ordered and paid for in advance, with long lead times, fiom foreign suppliers), the industry practice has been to require non-refundable

full prepayment ofthe order.

Case 2:13-cv-02617-RDR-KGS Document 11-1 Filed 01/27/14 Page 2 of 4

5.
case basis.

However, BF Labs has reserved the right to handle refund requests on a case-by-

6.

As is the case with most technology, new generations of products are introduced

over time with more advanced capabilities. In the case of the product generation (65nm) that

Plaintiff pre-ordered, BF Labs experienced technical delays in its development that held up
manufacturing the new technology at commercial scale.

7.

Wlen BF Labs had resolved the issues

and was ready to commit the orders to the

final stage of manufacture, an email notice was sent to customers advising that orders would be
shipped as produced and that

if

anyone was unwilling to endure the wait, they had a frnal

opportunity to cancel their order and receive a firll refund.

8.
after May

This notice was sent May 1,2013 to customers with fully paid up orders, and

l,

2013 anyone who placed a new order viewed an oo.Screer "pop-up" message that

advised them of these terms.

9. 10.

In this case, Plaintiff filled out an online order form on March 25,2013, but did

not follow through with his promised payment, effectively abandoning his potential order.

Thirty days after Plaintiff abandoned his potential order, on

Apil 24,2013,

after

the price of Bitcoins had risen significantly and BF Labs had increased its device prices,
TradeMost Enterprises, Ltd. ("TradeMost") remitted payment of $62,598 but failed to place any
order number on the memo in the wire-transfer as instructed by BF Labs. As a result, BF Labs

believed

it

had received payment for a non-existent order and had to wait for TradeMost to

contact it to resolve the unmatched payment. After the payment was finally identified as being related to the potential order, TradeMost was allowed to make payment at the original, lower
price.

Case 2:13-cv-02617-RDR-KGS Document 11-1 Filed 01/27/14 Page 3 of 4

l.

It was not until May 5,2013 that BF Labs was able to apply the funds remitted to

the associated order.

12.

Because the payor name and name on the original order form were different, this

payment could not be matched to the potential order until after May 2, 2013 when the Plaintiff contacted the Defendant to inquire about this payment, and Plaintiff thus did not have a paid
order as of May

l,

2013.

13.

Because

of the unusual circumstances

involving the delayed payment' the

Plaintiff did not receive the system notice via email, nor did he see the pop'up advisory giving
him one final opportunity for a refund.

14.

On September 16, 2013, TradeMost asked for a refund claiming that BF Labs

refused to provide certainty on a shipping date. BF Labs rejected TradeMost's request on

September l'7, 2013 based on BF Labs' all sales final policy which t}re customer had agreed to when he originally placed the order.

15.

In the case of the 65nm technology, the SHA256 processor chips consumed more

power than engineering design simulations indicated they would, which required that the power

regulation, case

work

and heat removal systems be reworked in order to satisry the speed

specifications that the company had advertised.

16.

Once the necessary product updates were complete and available for manufacture,

BF Labs proceeded expeditiously with production. However, parts

delayed production even after the designs had been updated.

shortages periodically

l'1.

Initial production began in March 2013 but stalled due to lingering technical

issues. Full production started in the last week of April 2013 and ramped up steadily each month
thereafter.

Case 2:13-cv-02617-RDR-KGS Document 11-1 Filed 01/27/14 Page 4 of 4

t8. 19. 20. 21.

Production peaked in November and had fully completed by December when

off

the shelfstock sales began for the 65nm product.

Forty to forty-five thousand devices were produced and shipped during April-

December 2013.

Units that were completed by BF Labs were shipped out within 72 hours of

completion in nearly I 00% of cases and generally within 24 hours.

On January 3, 2014, BF Labs leamed of issues related to the current mailing

address used by its registered

agent. BF Labs was under the impression that it had not been

served with process of this lawsuit.

22. 23.

BF Labs intends to remedy these issues related to the mailing address used by the

registered agent.

The amount of consequential damages that Plaintiff seeks here are based on

"calculations" that rely on guesses and assumptions, and which ignore the critical fact that, had
TradeMost received the miners when Plaintiff posits it should have, so would everyone else who was awaiting devices ahead of him which would &amatically change the eamings calculations.

In addition, Plaintiffs calculations are entirely dependent on a fluctuating market price for
Bitcoins. If the price for a Bitcoin had dropped to zero in the time after TradeMost pre-ordered the Devices, Plaintiff would have no damages and surely would not have wanted the Bitcoin
Miners. As a result, Plaintiff s calculations are inaccurate and misleading.
Pursuant to 28 U.S.C. $ 1746,
and correct.

I declare under penalty ofpefury that the foregoing is true

0teV/"tb
David McClain
4