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COMPLAINT FOR DAMAGES - 1
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98104(206) 622-2000
SUPERIOR COURT OF WASHINGTON IN AND FOR KING COUNTYPlaintiff alleges as follows:
I. PARTIES, JURISDICTION & VENUE
1. Intellectual Ventures Management (“IVM”) is an LLC doing business in KingCounty, Washington. All the actions complained of herein occurred in King County.2. Cassius Elston, Jr., is a resident of King County, Washington.3. Venue is proper because IVM conducts business in King County and theactions complained of occurred in King County.4. Jurisdiction is proper under this Court’s general jurisdiction.
II. BACKGROUNDA. IVM and Mr. Elston
5. IVM oversees and manages investment funds. The funds raise money –billions of dollars – from institutional and individual investors. The money is used topurchase patents from others and develop patentable inventions internally. IVM then tries toCASSIUS ELSTON, JR.,Plaintiff,v.INTELLECTUAL VENTURESMANAGEMENT, LCC,Defendant.))))))))))) No.COMPLAINT FOR DAMAGES
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COMPLAINT FOR DAMAGES - 2
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“monetize” the patents by selling licenses to the patents and suing those who allegedlyinfringe the patents.6. Mr. Elston worked at or with IVM for over four years. Up until September2010, he was Director of Acquisitions, i.e., in charge of acquiring patents, and managedIVM’s acquisitions team. During his tenure with IVM, Mr. Elston was personally responsiblefor leading and managing hundreds of patent acquisitions totaling hundreds of millions of dollars.7. In May 2010, Mr. Elston notified IVM leadership that he intended to leave hisrole because of concerns involving internal controls for “IP for Currency” transactions andother acquisitions issues. At the request of IVM executives, in particular IV’s President, andin reliance on the commitments made and terms negotiated at that time, including IVM’s rightof first refusal on deals Mr. Elston sourced, Mr. Elston agreed to stay on first as an employeeand later as a consultant pursuant to a Consulting Services Agreement (“CSA”).8. The CSA provided that Mr. Elston would source patents for acquisition byIVM, and “manage
his
transactions full cycle, from initial patent qualification to funding,providing services beyond the typical ‘finder’ relationship.” It also established a formula bywhich he would be paid for his transactions.9. Although leads on potential acquisitions and acquisitions in progress (the “dealqueue”) were Mr. Elston’s transactions, IVM continued to have a right of first refusal on anydeals sourced by Mr. Elston.
B. Shooting the Messenger
10. This lawsuit is the result of multiple events arising after Mr. Elston’s transitionto consultant under the CSA. These events included a major transaction internally namedProject Casablanca involving the appropriation of tens of millions of dollars in IVMinvestment funds. When he learned of the circumstances surrounding Project Casablanca, Mr.Elston emailed his concerns to the President of IVM directly, explaining in detail why he
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COMPLAINT FOR DAMAGES - 3
38
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would not support it, including a lack of independent valuations and a deal structure thatappeared to be designed to avoid existing cross-license obligations. The transaction wasconcluded nonetheless. In early 2011, other concerns arose as a result of the hiring of a seniorexecutive at IVM, and senior management’s failure to respond to various issues relating tothat individual. Shortly after this individual started, Mr. Elston and other members of theacquisition team began to have various concerns about the executive, mostly centered arounddeal diversion and prioritization, future reduction in finder and broker commissions, assetvaluation issues and certain new (and unusual) finder relationships. Things reached a head inlate April 2011, when, at the urging of several IVM executives, Mr. Elston felt compelled toadvise senior management of an ongoing situation involving the executive, a potentialmultimillion dollar transaction and an entity apparently brought into the transaction by theexecutive. IV did not have any prior experience with that entity. As detailed in an email sentby Mr. Elston to senior management on April 28, 2011, the transaction appeared to involveterms that were not in IV’s best interests, but instead driven by the self-interest of theexecutive and/or certain entities outside IV. Additionally, longstanding IV channel partnerswere questioning what was occurring. Given that IV’s acquisitions are made with investors’money, and after being implored by as many as six other IV employees to raise these issues,Mr. Elston concluded he had no choice but to make senior management aware of the facts.11. Mr. Elston sent the email on the morning of April 28, 2011. By the evening of April 29, his corporate email, VPN access, and personal phone had been shut off withoutnotice. Stated bluntly, IVM shot the messenger.12. After terminating Mr. Elston and shutting him out of the system, IVMcommandeered Mr. Elston’s deal queue (his transactions and strategic relationships),exercising its right of first refusal en masse. It did not, however, offer to compensate him.When Mr. Elston pointed out that pursuant to the CSA these were “his transactions,” one of
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