NexGen City sues MeshNetworks

One of last year’s promising partnerships for mission-critical wireless networks has collapsed entirely, as Dallas-based NexGen City now has filed a $100 million lawsuit against former ally MeshNetworks and Motorola, which purchased MeshNetworks in a deal that closed in January.

Filed in a Texas state court, NexGen City’s lawsuit alleges that MeshNetworks improperly terminated its April 2003 license agreement with NexGen City. The license agreement and MeshNetworks agreement not to compete with NexGen City were a stumbling block in MeshNetworks’ ability to merge with Motorola in a $350 million deal, according to the lawsuit.

“The license agreement was an obvious obstacle to any transaction between Mesh and Motorola because Motorola is an OEM of public-safety devices and networking solutions,” the lawsuit states. “Clearly, Mesh was precluded by virtue of obligations to [NexGen City] from doing business with any other OEM, including Motorola.”

When the Motorola-MeshNetworks merger was announced in November 2004, officials said that MeshNetworks’ existing customer base would continue to be supported.

However, less than two months prior to the merger announcement, MeshNetworks on Sept. 29, 2004, sent a letter terminating its obligations to NexGen City. NexGen City attorney Bill Brewer, a partner in the Dallas law firm of Bickel & Brewer, said either MeshNetworks or NexGen City could terminate the license agreement if either company became insolvent.

MeshNetworks’ letter stated it was terminating its relationship with NexGen City in accordance with the insolvency clause, Brewer said. However, the evidence used to determine that NexGen City was insolvent was a letter from a former NexGen City employee — not any information from NexGen City itself, Brewer said.

“The guy wasn’t even with NexGen City when he wrote the letter,” Brewer said. “It was pure contrivance … and I think a jury will see it that way, too.”

While NexGen City claims it was not insolvent at the time that MeshNetworks nixed the relationship, the fledgling company has struggled to secure other contracts — and access capital markets — after completing work with MeshNetworks on a high-speed network for the city of Garland, Texas, according to the lawsuit.

“In short, [NexGen City’s] very existence has been put into question,” the lawsuit states.

In addition to the $100 million in reparations, the NexGen City lawsuit asks the court to order Motorola to divest MeshNetworks. In buying MeshNetworks, Motorola conspired to create a monopoly in the peer-to-peer wireless market for public-safety and homeland security applications, according to the lawsuit.

Motorola denied the antitrust- and conspiracy-focused allegations.

“Motorola has reviewed the complaint, and we deny its allegations,” Motorola spokesman Jeff Madsen said, noting the U.S. Department of Justice reviewed the MeshNetworks deal before it closed in December.

Motorola declined further comment on the litigation, Madsen said.

Brewer said it typically takes a year to 18 months for such cases to reach trial. However long it takes, a court date seems like an unusual end to a relationship that began with a non-disclosure agreement (NDA) signed in August 2002 between NexGen City and MeshNetworks.

Brewer and the lawsuit depict MeshNetworks in 2002 as a company having difficulty finding a market for its mesh-networking technology that was developed by the military. Under the NDA, MeshNetworks agreed not to release any of NexGen City’s ideas to competitors and not to compete with NexGen City.

NexGen City’s idea was to integrate MeshNetworks’ technology to tap the public-safety market, which NexGen City officials thought was ripe for a low-cost, resilient data solution.

“MeshNetworks never thought to do that before,” Brewer said.

NexGen City also sought to offer a push-to-talk, or P2T, product to be used over the high-speed networks and included a clause in the NDA that prohibited MeshNetworks from entering an agreement with another P2T vendor, according to the lawsuit. The NDA was effective through at least August 2006, the lawsuit states.

In 2003, NexGen City signed a license agreement with MeshNetworks for a $1 million license fee, a promise that NexGen City would buy at least $1 million in MeshNetworks gear by January 2004 and more than $11 million in other equipment purchases before 2006. Brewer said NexGen City had met all purchasing obligations at the time MeshNetworks terminated the relationship.

The money was critical to MeshNetworks’ survival at the time, according to the lawsuit.

“At the time [NexGen City] entered the license agreement with Mesh, Mesh was experiencing financial difficulties,” the lawsuit states. “In fact, Mesh was in desperate need for an influx of cash to continue operating. Mesh had only a handful of licensees and had not entered into a license agreement with a single OEM prior to [NexGen City].”

NexGen City’s success in landing the Garland public-safety contract proved the viability of the relationship with MeshNetworks, Brewer said.

But the relationship soon deteriorated. Shortly after completing the Garland project, MeshNetworks introduced its MeshConnex product that is designed to work with self-healing public-safety communications systems such as the ones provided by NexGen City.

NexGen City sent a letter to MeshNetworks asserting that MeshConnex was a breach of contract, according to the lawsuit. MeshNetworks responded that MeshConnex targeted a market in which NexGen City and MeshNetworks did not compete, so the company had not breached its agreement.

“It’s a very straightforward breach of contract,” Brewer said. “Sometimes, I think people do things like this because they think they can get away with it.”

In August 2004, MeshNetworks signed a license agreement with Motorola, which had been a longtime investor in MeshNetworks. After terminating its relationship with NexGen City the following month, MeshNetworks announced its plans to merge with Motorola in November 2004. Brewer said Motorola never offered to buy NexGen City.

“[MeshNetworks’ officials in 2003] wanted a business; they wanted a contract to stay alive,” Brewer said. “Well, they got a business, and it was working. It was clearly desirable, and Motorola decided it was desirable enough that it bought Mesh to consolidate its leadership position in the industry. It’s a classic case of ‘Might is right,’ I guess.”

ANATOMY OF A LAWSUIT

August 2002:

NexGen City and MeshNetworks sign a nondisclosure agreement.

April 2003:

NexGen City signs a license agreement with MeshNetworks.

April 2004:

NexGen City and MeshNetworks complete a broadband data network for the city of Garland, Texas. Later in the month, NexGen City accuses MeshNetworks of breaching its agreement, which MeshNetworks denies.

August 2004:

MeshNetworks signs a license agreement with Motorola.

September 2004:

MeshNetworks terminates agreement with NexGen City.

November 2004:

Motorola announces purchase of MeshNetworks.

January 2005:

NexGen City sues Motorola and MeshNetworks.

Source: NexGen City lawsuit against Motorola