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11-1 BFL

11-1 BFL

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Published by Ars Technica
11-1 BFL
11-1 BFL

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Published by: Ars Technica on Feb 05, 2014
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02/06/2014

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IN
THE
UNITED
STATES
DISTRICT
COURT
FOR
THE
DISTRICT
OF KANSAS
MARTIN
MEISSNER.
Plaintiff,
BF
LABS INC.,
Case
No. 13-2617-RDR-KGSDefendant.
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.
I
am
the Large
Accounts
Manager at
BF
Labs,
Inc.
( BF
Labs ).
2.
BF
Labs
manufactures
a
line
of
high
speed
encryption
processors
for
use inBitcoin mining,
research,
telecommunication,
and
security
applications.
3.
As
is
industry
standard
practice
and
consistent
with
significant
competingmanufacturers
of
similar
equipment,
BF
Labs
uses
a
fully
prepaid pre-order
process
where
thefunds
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
alsoobserved
that
a
small number
of
customers have placed orders
as
part
of
a
Bitcoin
price hedgingstrategy
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
andcomponents
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 1 of 4
 
5.
However, BF
Labs
has
reserved the
right
to
handle
refund
requests
on
a
case-by-
case
basis.
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
upmanufacturing
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
frnalopportunity to
cancel
their
order
and
receive
a
firll
refund.
8.
This notice was
sent
May
1,2013
to
customers
with
fully
paid
up
orders,
and
after
May
l,
2013
anyone
who
placed
a
new
order
viewed
an
oo.Screer
pop-up
message
that
advised them
of
these
terms.
9.
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.
10.
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 anyorder
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
tocontact
it
to
resolve the
unmatched
payment.
After
the payment was
finally
identified
as
beingrelated
to
the
potential order, TradeMost was
allowed
to
make payment
at the
original,
lower
price.
2
Case 2:13-cv-02617-RDR-KGS Document 11-1 Filed 01/27/14 Page 2 of 4
 
I
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,
thispayment 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 onSeptember
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
morepower 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
shortages
periodically
delayed
production
even after the designs
had been
updated.
l'1.
Initial
production
began
in
March
2013
but
stalled due
to
lingering
technicalissues.
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 3 of 4

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