Companies tied to a former employer of Dax Dasilva are charging in a lawsuit that the Lightspeed founder stole key technology and used it to launch his $3.8-billion firm.
Lawyers acting on behalf of numbered companies linked to Frederick Rosenberg, then-president of Montreal-based Brenrose Solutions, say Dasilva used the source code developed at his company to build a point-of-sale software (POS) that would later become Lightspeed’s first product.
Dasilva has spent the past four years unsuccessfully trying to get the lawsuit dismissed and attempting to negotiate, according to over a hundred pages of documents filed in Quebec Superior Court reviewed by The Logic. He and Lightspeed have denied all wrongdoing and filed a countersuit.
Dax Dasilva, the CEO of one of Canada’s fastest-growing tech companies, is facing a $30-million lawsuit from companies tied to a former employer. He and Lightspeed have denied all wrongdoing, and have been unsuccessfully trying to get it dismissed for the last four years.
Lightspeed is one of Canada’s fastest-growing tech firms, with a market cap of about $3.8 billion. Its stock has more than doubled since going public on the Toronto Stock Exchange in March 2019. The firm has grown to over 900 employees across 14 offices worldwide. In 2019, Dasilva was named Innovator of the Year by both the Canadian Innovation Exchange and The Globe and Mail.
According to the suit, Dasilva worked at Brenrose and helped develop a POS software called Iron, which he then used to develop Lightspeed’s Onsite product. About six months after leaving Brenrose, Dasilva launched Lightspeed and sold the Onsite software to stores offering Mac computers and other Apple products, the same kind of firms to which Brenrose had sold, the suit reads.
Brenrose filed for bankruptcy in October 2004, at which point it owed creditors about $2.8 million. Two Quebec-based firms, 99257 Canada Ltd. and 3811981 Canada Inc., subsequently acquired Iron and all intellectual property rights to the software, according to a December 2019 ruling by the Quebec Superior Court. The two firms filed the lawsuit against Dasilva and Lightspeed and have agreed to share the payout with Brenrose’s former president Rosenberg if they win.
Dasilva and Lightspeed have jointly filed a countersuit accusing the defendants of “proceeding without conducting any reasonable inquiry into the facts alleged, most importantly in respect of whether or not Lightspeed Onsite actually reproduces any substantial part of IRON, which it clearly does not.”
Lightspeed declined to comment. Dasilva and attorneys for the numbered companies did not respond to requests for comment. Attempts to contact Rosenberg were unsuccessful.
The lawsuit was first filed four years ago in June 2016. The parties entered into negotiations, but after several extensions, those talks broke down. In court filings from April 2018, Lightspeed’s attorney asked a judge to dismiss the lawsuit, declare it “abusive” and order the payment of damages. The company made the same request in June 2019, and also asked the court to force several individuals and corporations to be added to the lawsuit.
In a December 2019 ruling, the Quebec Superior Court declined to add Rosenberg to the case in a personal capacity, but added Hyman Bloom and Émile Sylvestre, businessmen involved with the companies that purchased the assets of Brenrose Solutions after it went bankrupt.
The numbered companies are asking the court for $27 million, or half the profits they claim Lightspeed made “due to the illegal use and copying” of the Iron software between 2005 and 2016. In addition, they’re seeking $3 million in damages and an “ongoing royalty,” at a percentage to be determined, on future sales.
“In a nutshell: Mr Dasilva participated in the development of ‘IRON’ while he was employed by Brenrose, then left Brenrose with ‘IRON’ to create Lightspeed and sell a product that is very similar to and based on ‘IRON’ to the same customers Brenrose was targeting when developing ‘IRON,’” reads the suit.
In court filings, Dasilva and Lightspeed acknowledged that the two men developed the Iron software together and that Onsite uses the same programming language, but said they were “dramatically different products,” and that Dasilva developed Onsite after leaving Brenrose, without reproducing any part of Iron. He “was particularly careful not to do so as he knew that Mr. Rosenberg was a litigious person,” according to the suit.
The plaintiffs’ court filings put it differently: “Lightspeed got its start as a retail system built for a Mac dealership with four stores. The project ended up getting shelved, but other Apple dealerships were interested, so Dasilva took the best ideas and started Lightspeed in 2005.”
Both Dasilva and Rosenberg are listed as authors of the Iron software, according to a May 2016 filing with the Canadian Copyright Register.
The Logic first reported on the copyright suit in February 2019, ahead of Lightspeed’s initial public offering. In its prospectus, the firm disclosed potential damages of $30 million from the lawsuit. Asked about the court challenge a month later, Dasilva said, “I don’t want to comment too much on it, because these kinds of lawsuits happen when companies are successful. It’s without merit and the people behind it are not in technology. I’ll just leave it at that.”
When asked by The Logic about the newly discovered court documents acknowledging that he developed the Iron software with Rosenberg, Dasilva did not respond.
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According to the filings, Lightspeed’s attorney questioned the $30 million in damages, which was calculated based on the firm’s overall financial health. The company said the Onsite software “has never accounted for more than a third of Lightspeed’s overall revenues,” and made up only four per cent in both 2017 and 2018.
For the first three months of 2020, Lightspeed reported $210 million in unrestricted cash. The company will report financial results for the period covering March to June on Thursday.
With files from Martin Patriquin
Update: This piece has been updated with further information about the May 2016 filing with the Canadian Copyright Register.