coinlab vs mtgox

COMPLAINT- 1

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BRESKIN JOHNSON & TOWNSEND

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UNITED STATES DISTRICT COURT FOR THEWESTERN DISTRICT OF WASHINGTON
COINLAB, INC., a Delaware Corporation
 Plaintiff,v.MT. GOX KK, a Japanese corporation, and TIBANNE KK, a Japanese corporation.Defendants. NO.COMPLAINTJURY TRIAL DEMANDEDCOMES NOW, Plaintiff CoinLab, Inc. (“CoinLab”), by and through their undersigned attorneys, brings this action against the Defendants, Mt. Gox KK, a Japanese corporation (“Mt.Gox”), and Tibanne KK, a Japanese corporation (“Tibanne”). Plaintiff states and alleges asfollows:
I.

INTRODUCTION
1.

CoinLab brings this suit against Mt. Gox to remedy breach of the parties’exclusive license agreement for the United States and Canada. Both parties are among theworld’s largest providers of technology and services for the digital currency Bitcoin. In November 2012, the parties entered into a contract under which Mt. Gox granted CoinLab accessto Mt. Gox computer servers and the exclusive right to certain intellectual property necessary for

COMPLAINT- 2

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BRESKIN JOHNSON & TOWNSEND

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1111 THIRD AVENUE, SUITE 2230SEATTLE, WASHINGTON 98104-4088(206) 652-8660, (206) 652-8290 FAX
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CoinLab to provide digital currency exchange services to North American customers. CoinLaboffered its credibility, market insights, relationships with established banks and investors, and intellectual property and agreed to manage and market the exchange services in North America.2.

Mt. Gox has willfully failed to perform its obligations under this contract. Mt.Gox has continued to market to customers in North America and has accepted business fromcustomers there. Mt. Gox has also failed to provide CoinLab with account reconciliation data,server access, and other information promised in the agreement that is essential for CoinLab tomarket exchange services and service its customers as contemplated in the agreement. These breaches have caused CoinLab to lose customers and threaten to cause substantial damage toCoinLab’s business. As a result, CoinLab brings this action for breach of contract and related claims.
II.

JURISDICTION AND VENUE
3.

Jurisdiction is proper in this Court under 28 U.S.C. § 1332. Plaintiff CoinLab is aresident of Delaware and Washington State. Defendants Mt. Gox and Tibanne are residents of Japan. This is an action for damages in excess of $75,000,000.00 excluding interest, attorneys’fees and costs.4.

CoinLab is a Delaware corporation with its principal place of business in KingCounty Washington.5.

On information and belief, Mt. Gox and Tibanne (collectively “Defendants”) arecorporations organized under the laws of Japan with their principal places of business in Tokyo,Japan.6.

On or about November 22, 2012, Defendants and CoinLab entered into a fullyintegrated “Exclusive License Agreement for the USA & Canada agreement” (the “Agreement”).
A true and accurate copy of the Agreement is attached hereto as Exhibit A.7.

The Agreement provides that the Defendants “irrevocably consent to the personal jurisdiction of and venue in the state and federal courts located in King County, Washington withrespect to any action, claim or proceeding arising out of or relating to this Agreement.”8.

The Agreement provides that it shall be governed, construed and interpreted inaccordance with the laws of the State of Washington.
III.

FACTS
A.

The Bitcoin Market
9.

Bitcoin is the most successful digital currency in the world. Bitcoins were firstdescribed in a paper published on the Internet in 2008 and were introduced to the market in early2009. Bitcoins are a currency that is not issued or directly overseen by any government, but thatis instead managed through a peer-to-peer network operating over the Internet. Bitcoins usecomplex cryptography to protect the security of the Bitcoin system and prevent counterfeiting.10.

When first introduced, a single Bitcoin was valued at less than one penny. Thevalue of a Bitcoin has increased substantially since introduction. At times a single Bitcoin has been valued as high as $266. Bitcoins may be used to purchase goods and services through anumber of websites or from any merchant that accepts Bitcoins.11.

A company offering Bitcoin exchange services will trade “fiat” or “sovereign” based currency such as U.S. dollars for Bitcoins and also trade Bitcoins for U.S. dollars or other currencies. The annualized exchange volume for Bitcoin exchanges has grown to over $12 billion/year as of April 2013.12.

While Bitcoins are not a traditional fiat based currency, they are subject toregulation by United States Financial Crimes Enforcement Network (“FinCEN”).


COMPLAINT- 4

LAW OFFICES
BRESKIN JOHNSON & TOWNSEND

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1111 THIRD AVENUE, SUITE 2230SEATTLE, WASHINGTON 98104-4088(206) 652-8660, (206) 652-8290 FAX
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13.

In March 2013, FinCEN issued regulatory guidance for exchanges dealing indigital currency such as Bitcoins.
B. CoinLab and Mt. Gox Provide Bitcoin Services.
14.

The Defendants provide Bitcoin exchange services via the Internet. They operatean interactive website available at <https://mtgox.com/> (the “the Mt. Gox website”) whichaccepts orders for Bitcoin exchanges. Through the Mt. Gox website, users can exchangecurrency for Bitcoins. Mt. Gox has been widely reported to be the largest operating Bitcoinexchange in the world.15.

CoinLab is engaged in the operation and development of Bitcoin software and technology products, services and platforms. CoinLab is prepared to provide Bitcoin exchangeservices directly to customers in the United States and Canada. CoinLab has established relationships with banks in the United States that will allow CoinLab to operate an exchange in North America. Because of its relationships with these financial institutions and respected venture capitalists and because of its adherence to applicable regulatory frameworks, CoinLabhas established a very positive reputation in the Bitcoin business community.16.

CoinLab is registered with FinCEN to provide Bitcoin exchange services in theUnited States and has fully complied with FinCEN’s March 2013 guidance for digital currencyexchanges.
C. The Agreement Provides CoinLab With Exclusive Rights.
17.

On November 22, 2012 Mt. Gox and CoinLab entered into the Agreement toservice the Bitcoin exchange market in a mutually beneficial manner that provided for stabilityand liquidity in that market.18.

Mt. Gox has no established banking relationships in North America and is unable


COMPLAINT- 5

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BRESKIN JOHNSON & TOWNSEND

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1111 THIRD AVENUE, SUITE 2230SEATTLE, WASHINGTON 98104-4088(206) 652-8660, (206) 652-8290 FAX
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to process transactions through banks in the United States or Canada. Through the Agreement,Mt. Gox greatly increased its ability to service the North American market.19.

Through the Agreement, Mt. Gox was enriched through its relationship withCoinLab and CoinLab’s intellectual property, expertise, standing in the Bitcoin ecosystem, and relationships.20.

Pursuant to the Agreement, Defendants granted CoinLab an exclusive license inthe North American market to use the Defendants’ software and other intellectual property in providing digital currency exchange services (the “Licensed Materials”).21.

The Agreement further provides that Defendants shall not grant anyone else theright to use the Licensed Materials to provide Bitcoin exchange services anywhere in the United States or Canada.22.

In consideration for this exclusive license and promise of cooperation, CoinLab promised, among other things, to assume responsibility for managing and marketing theexchange services in the United States and Canada. CoinLab also offered Mt. Gox the ability toservice North American customers in a manner that it could not otherwise achieve.23.

Failure to comply with the exclusivity provisions of the Agreement is expresslyspecified to be a material breach of the Agreement.
D. The Defendants Have Breached The Exclusivity Provisions.
24.

Defendants have breached the exclusivity provisions of the Agreement by directlyservicing customers in the United States and Canada since the Agreement took effect.25.

The Agreement provides that beach of the exclusivity provisions of theAgreement alone provides for liquidated damages in the amount of $50,000,000.00 as a non-exclusive remedy. The liquidated damages clause was defined at the time of the Agreement  because of the uncertain nature of the Bitcoin exchange market and likely underestimates theactual damages incurred by Bitcoin as a result of Mt. Gox’s breach of the exclusivity provisionsof the Agreement.26.

Defendants have, in email and other written exchanges, and in public statementsto the press acknowledged that they have directly serviced customers in the United States and Canada since entering the Agreement. This conduct constitutes a breach of the Agreement,including the exclusivity provisions in the Agreement.
E. The Defendants Have Breached Other Provisions Of The Agreement.
27.

The Agreement further provides for a transition period whereby United States and Canadian customers are transitioned from Mt. Gox to CoinLab by March 22, 2013. Mt. Gox isrequired to cooperate with CoinLab to transfer North American customers, defined as “CoinLabCustomers” in the Agreement, from Mt. Gox to CoinLab.28.

Mt. Gox has failed to cooperate in facilitating the timely and seamless transfer of CoinLab Customers to Coinlab since the Agreement took effect.29.

Among other things, Defendants agreed to provide necessary technology,software, and know-how to CoinLab during the transition period and to establish promised connections from CoinLab’s computer network to Mt. Gox’s computer network.30.

Defendants have breached their promises to provide necessary technology,software, and know-how to CoinLab and have refused or failed to establish promised connections from CoinLab’s computer network to Mt. Gox’s computer network.31.

In the Agreement, Mt. Gox promised to deliver all passwords, Yubikeys,administrative logins and any other security information required for CoinLab to assumeoperation of the Bitcoin exchange services for customers in the United States and Canada if Mt Gox has a service interruption or is otherwise unable to maintain its exchange.32.

Despite repeated requests to do so, Mt. Gox has failed to deliver all passwords,Yubikeys, administrative logins and any other security information required so that CoinLabmay assume operation of the Bitcoin exchange services for customers in the United States and Canada in case of a service interruption.33.

The Agreement requires that Mt. Gox shall make available to CoinLab on-demand and read-only access to Mt. Gox's databases and other related records and data pertaining to any and all accounts for customers in the United States and Canada.34.

Despite repeated requests to do so, Mt. Gox has failed to make available toCoinLab on-demand and read-only access to Mt. Gox's databases and other related records and data pertaining to any and all accounts for customers in the United States and Canada.35.

The Agreement provides for a revenue share for customers in the United Statesand Canada (defined as “CoinLab Customers”) at different levels, depending upon the date thatthe customer began using Defendants’ services to exchange Bitcoins.36.

Defendants have failed to comply with the revenue share requirements set forth inthe Agreement and timely remit funds due to Coinlab.37.

Pursuant to the Agreement, Mt. Gox agreed to deposit Bitcoin and other funds(however denominated) of CoinLab Customers in an account or accounts controlled by CoinLab(the "Liquidity Funds") in accordance with CoinLab's instructions on transaction types, timing of transactions and wire transfer or other deposit instructions.38.

Mt. Gox has failed to timely deposit Liquidity Funds in the manner instructed byCoinLab.39.

Pursuant to the Agreement, the Parties were required to reconcile revenue and

COMPLAINT- 8

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BRESKIN JOHNSON & TOWNSEND

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1111 THIRD AVENUE, SUITE 2230SEATTLE, WASHINGTON 98104-4088(206) 652-8660, (206) 652-8290 FAX
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customer trade imbalances on a weekly or more frequent basis.40.

Defendants have failed to timely reconcile revenue and customer tradeimbalances.41.

The Agreement provides that CoinLab shall, for a period of five (5) yearsfollowing termination, receive trailing revenues for users in the United States or Canada that usethe Mt. Gox website or otherwise are serviced by Defendants for purposes of operating a Bitcoinexchanges or other purposes.42.

CoinLab stood ready to perform its obligations under the Agreement at all timesand informed the Defendants of this fact.43.

At all times during the Agreement, CoinLab has complied with its representationsand warranties under the Agreement.44.

CoinLab has, at all times during the term of the Agreement, operated incompliance with all applicable laws.45.

CoinLab has provided assurances of compliance with its representations and warranties and reasonable course of action for compliance with potential future changes inregulatory requirements applicable to operation of a Bitcoin exchange.
IV.

COUNT I- BREACH OF CONTRACT
46.

Plaintiff realleges paragraphs 1-46 as if fully set forth herein.47.

Since November 22, 2012, the Agreement has been a valid contract betweenCoinLab and Defendants.48.

For the reasons specified above, Defendants breached the Agreement, including byB.

directly servicing customers in the United States and Canada in violation of the Agreement’s exclusivity provisions;C.

failing to cooperate in facilitating the timely and seamless transfer of CoinLabcustomers to CoinLab;D.

failing to provide the necessary technology, software, and know-how to CoinLaband refusing to establish promised network connections;E.

failing to deliver all passwords, Yubikeys, administrative logins and other required security information;F.

failing to make available to CoinLab on-demand and read-only access to Mt.Gox’s databases and other related records and data pertaining to accounts for customers in the United States and Canada;G.

failing to timely comply with the Agreement’s revenue share requirements;H.

failing to timely deposit Liquidity Funds in the manner instructed by CoinLab;and I.

failing to timely reconcile revenue and customer trade imbalances.49.

As a result of Defendants’ breaches, Plaintiff has suffered actual damages in anamount equal to or exceeding $75,000,000.
V.

COUNT VI- BEACH OF IMPLIED DUTY OFGOOD FAITH AND FAIR DEALING
50.

Plaintiff realleges paragraphs 1-50 as if fully set forth herein.51.

Defendants owed Plaintiff a duty to cooperate with Plaintiff so that each partycould obtain the full benefit of performance.52.

Defendants failed to so cooperate, including by
Case 2:13-cv-00777 Document 1 Filed 05/02/13 Page 9 of 12







COMPLAINT- 10

LAW OFFICES
BRESKIN JOHNSON & TOWNSEND

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1111 THIRD AVENUE, SUITE 2230SEATTLE, WASHINGTON 98104-4088(206) 652-8660, (206) 652-8290 FAX
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A.

directly servicing customers in the United States and Canada in violation of theAgreement’s exclusivity provisions;B.

failing to cooperate in facilitating the timely and seamless transfer of CoinLabcustomers to CoinLab;C.

failing to provide the necessary technology, software, and know-how to CoinLaband refusing to establish promised network connections;D.

failing to deliver all passwords, Yubikeys, administrative logins and other required security information;E.

failing to make available to CoinLab on-demand and read-only access to Mt.Gox’s databases and other related records and data pertaining to accounts for customers in the United States and Canada;F.

failing to timely comply with the Agreement’s revenue share requirements;G.

failing to timely deposit Liquidity Funds in the manner instructed by CoinLab;and H.

failing to timely reconcile revenue and customer trade imbalances.53.

As a direct result of Defendants’ failure to cooperate, Plaintiff has suffered damages in an amount equal to or exceeding $75,000,000.
VI.

COUNT VII - ACCOUNTING
54.

Plaintiff realleges paragraphs 1-54 as if fully set forth herein.55.

The Agreement establishes a fiduciary relationship between Plaintiff and Defendants.56.

Plaintiff demanded an accounting from Defendants pursuant to the Agreement byasking Defendants to make available to CoinLab on-demand and read-only access to Mt. Gox’s
Case 2:13-cv-00777 Document 1 Filed 05/02/13 Page 10 of 12

databases and other related records and data pertaining to accounts for customers in the United States and Canada by demanding that Defendants timely comply with the Agreement’s revenueshare requirements.57.

Defendants have refused to provide such an accounting. Defendants have alsofailed to timely deposit Liquidity Funds in the manner instructed by CoinLab or to timelyreconcile revenue and customer trade imbalances.
VII.

RELIEF REQUESTED
WHEREFORE
, Plaintiff prays that this court enter judgment in their favor:A.

Ordering Defendants to comply immediately with their obligations under the Agreement;B.

Awarding Plaintiff damages in the amount to be established at trial;C.

Ordering an accounting of all monies due Plaintiff from Defendants pursuant to theAgreement;D.

Awarding Plaintiff all costs and expenses incurred by Plaintiff as a result of Defendants’unlawful conduct, including reasonable attorneys’ fees, litigation expenses, and courtcosts; and E.

Granting such other relief as this Court deems just, necessary, and proper.Dated this 2
nd
day of May, 2013.BRESKIN JOHNSON & TOWNSEND PLLCBy: /s/ Roger M. Townsend Roger M. Townsend, WSBA No. 25525Breskin Johnson & Townsend PLLC1111 Third Avenue, Suite 2230Seattle, WA [email protected]: (206) 652-8660Fax: (206) 652-8290


COMPLAINT- 12

LAW OFFICES
BRESKIN JOHNSON & TOWNSEND

PLLC

1111 THIRD AVENUE, SUITE 2230SEATTLE, WASHINGTON 98104-4088(206) 652-8660, (206) 652-8290 FAX
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 SUSMAN GODFREY LLPBy: /s/ Edgar SargentEdgar Sargent, WSBA No. 28283Floyd Short, WSBA No. 21632Lindsey Godfrey Eccles, WSBA No. 33566Susman Godfrey LLP1201 3rd Ave Ste 3800Seattle, WA [email protected]@[email protected]: (206) 516-3895Fax: (206) 516-3883Attorneys for Plaintiff CoinLab