This is a statement issued by GeoSolutions:
"Chinese media conglomerate Sina Corporation (NASDAQ: SINA) and its subsidiary Weibo Corporation (NASDAQ: WB) used their unusually complex corporate structure to steal technology to enhance and monetize their leading “Weibo” social network—a Chinese-based hybrid of Twitter and Facebook. This is according to a new lawsuit filed on March 15, 2021 in a California court.
The scheme enabled the Chinese companies to avoid paying rightful revenues to the creators of the software, GeoSolutions B.V. and GeoSolutions Holdings N.V. (GeoSolutions), the companies who filed the lawsuit in the Superior Court of the State of California in Santa Clara County. GeoSolutions’ location-based services (LBS) technology is the driving force behind Weibo’s nearly $12 billion market cap.
The lawsuit alleges that Sina Corporation (Sina), Weibo Corporation (Weibo), and at least 10 other related entities and two individuals at the top of the organization, carried out an elaborate scheme over several years to pilfer the technology and know-how of GeoSolutions, particularly its effective integration of LBS into social networking. This was done through a series of misrepresentations using subsidiaries and Variable Interest Entities (VIEs) to conceal Sina’s agenda and play a corporate shell game to hide the generated revenue.
“As numerous market observers and scholars have maintained, Sina’s complex corporate structure is neither honest nor transparent,” said Adam Fox, lead counsel for GeoSolutions. “Its peculiar corporate structure circumvents the law and hides the truth by design.”
Central to the claims in the case is the fact that GeoSolutions entered into a series of agreements with various members of the larger Sina group of companies to allow access to GeoSolutions’ LBS technology and the know-how of its effective use in social networking. Sina then deployed this software on its Weibo platform without paying any remuneration. GeoSolutions has never been paid any compensation from Weibo and alleges that various other Sina companies are also using the LBS technology and claiming it as their own.
LBS technology has become essential to most mobile device users. It powers user queries for restaurants or other businesses “near me,” enables “check ins” at a location, tracks packages ordered online, locates your ride-share driver, and much more. This makes it valuable to many companies who want to advertise or offer additional services to consumers.
In a prospectus for investors ahead of the Weibo initial public offering (IPO) in April 2014, Sina credited the LBS platform as a substantial means to generate revenue from its Weibo app. Sina now claims it created the platform when in fact it is really GeoSolutions’ technology. Weibo’s market value has grown dramatically since its joint venture with GeoSolutions. At the time of its IPO, Weibo was valued at $3.6 billion. Today its market cap is nearly $12 billion. However, GeoSolutions has never received any compensation from Weibo.
“Our experience and engineering know-how allowed us to identify the early market opportunity in mobile location and to invest in developing the GeoSolutions LBS platform. We had a growing client base, operational experience, and the ability to utilize our GyPSii subsidiary. We were extremely well positioned. It made sense that Sina and Weibo saw us as a target," said Jay Cahill, co-founder and general partner at Bluefin Technology Partners and former Vice President of Operations for GeoSolutions. “In the end, deception by Sina and Weibo and the harm it did to GyPSii, GeoSolutions, and our team was devastating. We lost jobs and severances. To see something into which so many of us put years of effort, know-how, and our hearts be so diminished is deeply saddening.”
The “sham” corporate structure GeoSolutions alleges in the complaint reflects a series of Chinese VIEs. This case is the first time a United States court has been asked to rule on the legality of this structure, which numerous legal and financial commentators say is used to evade Chinese law that prevents foreign ownership of domestic businesses in certain industries. Some of these commentators also say the VIE structure overstates company assets and exposes investors to underappreciated risks. GeoSolutions claims that Sina used its network of VIEs to steal its technology and hide revenue from GeoSolutions.
“Sina used a series of shell companies to hide GeoSolutions’ technology and keep the company from knowing how widely its software was being shared – and monetized – across the labyrinth of Sina entities,” added Fox. “GeoSolutions entered the agreements in good faith. Now the company has lost its intellectual property and its expected stream of income. Most of its employees had to be laid off due to Sina’s greed.”
Sina Corporation reports ownership of more than 20 “significant subsidiaries and VIEs,” including Palo Alto-based SINA.COM Online, one of the other defendants. In its own 2019 annual report, Sina admits that its use of VIEs is intended to circumvent Chinese law while exercising (in theory) operational control over the business. In the same report, Sina states that it “cannot be sure that the PRC government would view our contractual arrangements to be in compliance with PRC licensing, registration, or other regulatory requirements.” It is this questionable, and some commentators argue illegal, corporate structure that allowed Sina and Weibo to misrepresent their intentions to GeoSolutions.
Impartial third-party experts agree that GeoSolutions’ LBS technology was stolen. In December 2019, a distinguished international arbitration tribunal unanimously ruled in favor of GeoSolutions. Among other things, the award held that Sina Hong Kong Limited, one of many subsidiaries of Sina and also a defendant in this new lawsuit, facilitated the unlawful use of GeoSolutions’ technology. Sina Hong Kong was ordered to pay GeoSolutions damages of more than $115 million, plus interest. The award was limited to damages incurred by GeoSolutions from August 11, 2014 through August 10, 2017, the time period defined in the terms of a 2014 software license agreement. More than a year later, Sina Hong Kong has still not paid the award. This is despite the fact that Sina publicly announced shortly after the ruling that it had set the money aside.
The tribunal’s ruling also concluded that “evidence shows that other Sina entities made use of the Licensed Software, had possession of servers on which the software was based, and controlled usage data.” These facts had been hidden from GeoSolutions until December 2018 when they were revealed in testimony compelled from Sina witnesses during the arbitration.
The complaint filed by GeoSolutions on March 15 lists six causes of action against Weibo and Sina: 1) Declaratory Relief, 2) Violation of Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. §§ 1961, et seq.); 3) Violation of the Defend Trade Secrets Act (18 U.S.C. § 1836 et seq.); 4) Intentional Misrepresentation; 5) Negligent Misrepresentation; and 6) Unfair Competition (Cal. Bus. & Prof. Code §§ 17200, et seq.).
The other entities named as defendants in the suit are part of the web of VIE entities and include SINA.COM Online, Weibo R&D Limited, New Wave MMXV Ltd., Sina Hong Kong Limited, GyPSii (Shanghai) Co., Ltd., Beijing Sina Internet Information Service Company Ltd., Beijing New Media Technology Information Company, Beijing Weimeng Technology Co., Ltd., Sina (Beijing) Information Technology Co. Ltd., SINA.COM Technology (China) Co., Ltd., and individuals Cao Guowei (aka Chao Guowei aka Charles Chao) and Wang Gaofei, respectively the CEOs of Sina Corporation and Weibo Corporation.
Among the relief GeoSolutions is seeking are damages for all injuries suffered as a result of the defendants’ conduct, treble damages pursuant to RICO claims, disgorgement of wrongfully obtained profits, and injunctive relief prohibiting the defendants from engaging in the conduct described herein."
To view the full complaint, visit www.GeoSolutionsTech.com.