RockYou’s Past Catches Up

Netpickle, maker of the popular RockYou widgets, is in bit of a legal pickle. Anti-phishing company Iconix, the former employer of Netpickle co-founders Lance Tokuda and Jia Shen, claims that the duo was working on a slideshow application for Myspace as part of their jobs at Iconix at the end of last year, while concurrently building their own competitor, at that time called RockMySpace.

The allegations include code theft, misuse of company time, and failing to abide by employment contracts — your classic Silicon Valley geek said, geek said stuff. In September, a district court judge ruled that Iconix had presented sufficient evidence against Tokuda and Shen to issue a preliminary injunction. The news was first brought to light by Private Equity Week, which pointed out that this legal mess could result in Netpickle’s VCs – Sequoia Capital, Lightspeed Venture Partners, and First Round Capital – losing their investments.

The PE Week story, written by reporter Alex Haislip and published yesterday, brings out many interesting details, including quotes from entries on Tokuda’s blog and somewhat damning instant messaging conversations cited in court filings. However, more than a snippet of the article is not available without buying a $1595 subscription, so we cannot point to it. With all due respects to that Alex, we looked up the court documents and blog cache ourselves to reconstruct this tale for you.

As background, RockYou was the first company to seize on the popularity of distributing widgets through MySpace, and rocketed to popularity after launching a year ago (while Tokuda and Shen were still working at Iconix). It is now the second-most popular widget slideshow on MySpace, second to Slide, according to a survey by Mashable.

At the Widgets Live conference last week, Tokuda told the audience RockYou receives 100 million widget views per day and more than 100,000 widgets created per day. He said the site was set to surpass 10 million unique visitors in November.

In its defense, RockYou minimizes Tokuda’s role and responsibilities at Iconix, says RockYou does not qualify as an invention (therefore requiring disclosure) because it is not original, and says Iconix was not serious about implementing the customizable slideshow ideas.

Though they are not relevant to the claims in the case, Tokuda disclosed many details about the process of acquiring funding for Netpickle on his blog. He is quite specific, mentioning a $3 million term sheet from Sequoia for 28 percent of the company at a $10.7 million post-valuation in the beginning of March. This was before Iconix filed its lawsuit at the end of that month.

In June it was reported that Sequoia had invested $1.5 million in Netpickle, an amount that PE Week reports closed on May 23. That’s half of what Tokuda claimed that the vaunted VC firm wanted to invest in NetPickle before the lawsuit.

The full funding details, including when the other firms become involved, are unclear, though sources have indicated to us that Sequoia may taken a debt, rather than equity, stake in Netpickle order to minimize its loss should the company lose its legal battles. We have asked Sequoia for clarification on this aspect of the deal, and will post the firm’s response if we receive one. For now, take it as rumor.

RockYou is still up and running, and the court filings from the company and its VC firms are piling in each day in anticipation of a trial in April. RockYou did not return requests for comment.

Extended reading