A Look Inside a $12.4 Million Slap at Wal-Mart

by Mark Friedman  on Monday, May. 15, 2017 12:00 am   5 min read

Mark M. Henry said Wal-Mart executive Tal Herman initially tried to hire Cuker for the Walmart2Go project and then changed his mind. (Beth Hall)

In early 2014, Wal-Mart Stores Inc. turned to a Southern California digital design firm for help with a problem that has dogged the Bentonville retailer for years: e-commerce.

Specifically, Wal-Mart hired Cuker Interactive LLC of San Diego to improve the website for its United Kingdom grocery subsidiary, ASDA Stores Ltd. — a five-month job that would bring almost $600,000 to a company with about 20 employees.

A slap-dash contract quickly led Wal-Mart to file a routine breach-of-contract lawsuit against Cuker — pronounced “Sooker” — in Benton County. That morphed into a federal case and a counterclaim in which Cuker accused Wal-Mart of taking the computer code written for the ASDA site and secretly shipping it off to teams in India and the United States to use in a website for Walmart2Go.

Last month a federal jury in Fayetteville ordered Wal-Mart to pay $12.4 million for damages that included willful and malicious misappropriation of Cuker’s confidential information and trade secrets.

The verdict didn’t end the dispute. Last week, one of Cuker’s attorneys, Mark M. Henry of Fayetteville, asked the judge to prevent Wal-Mart from using Cuker’s code in any of its websites. Henry also is seeking sanctions against Wal-Mart’s attorneys for what he alleges was abuse of the discovery process. Cuker also was represented by Henry’s law partner, Adam Hopkins, and Callie Bjurstrom of San Diego.

Randy Hargrove, a Wal-Mart spokesman, said the company “does not believe an injunction is appropriate and has filed an opposition to Cuker Interactive’s request for injunctive relief.” He said in an email to Arkansas Business that Wal-Mart worked “diligently to meet the plaintiff’s requests” for discovery.

Wal-Mart, Hargrove said, also disagrees with the jury’s conclusions. “In our view, the finding and damages awarded are not supported by the facts,” he said. “We believe the verdict wrongfully holds Walmart responsible for taking the very materials which Cuker transferred or licensed to us under contract. We are considering all options, including an appeal.”

Most of the documents Wal-Mart filed in the case were filed under seal or heavily redacted, but the material made public describes a relationship between the world’s largest retailer and a small design shop that blossomed and then collapsed within months.

E-commerce Arms Race
Wal-Mart has spent millions trying to pump up its e-commerce revenue, with limited success. Internet Retailer, an online trade journal, estimated Wal-Mart’s online revenue at $7.7 billion in 2012 and $15.25 billion in 2016, a period in which e-commerce leader Amazon.com grew its sales from $61.1 billion to $136 billion.

In December 2013, Cuker Interactive announced that CEO Aaron Cuker would lead a panel on the future of responsive web design at the National Retail Federation’s annual convention in New York the following month.

Responsive design was revolutionary at the time. Online retailers had been maintaining separate websites for desktop computers while launching mobile versions for customers who wanted to shop from their iPhones and Android cellphones. The arrival of iPads in 2010 meant some retailers had even added tablet-specific sites. But responsive design allowed a retailer to maintain a single website that looked good and functioned smoothly regardless of the device used to access it.

Cuker led the one-hour panel discussion titled “Is Responsive Design Part of Your Mobile Strategy?” In the audience was Alex Alexander, the multichannel technology director for ASDA, which was looking for ways to improve its website.

In 2014, Wal-Mart said in its court filings, buying groceries online for delivery was already common in the United Kingdom. Wal-Mart wanted a responsive website for ASDA to make “online grocery shopping easier and more convenient for its customers.”

And ASDA was in a hurry.

After the panel discussion, Alexander and Cuker met and agreed to talk more the next day about the possibility of working together. By the end of that month, January 2014, the companies had entered the kind of contract that usually took months of negotiations. It called for Cuker to have the website ready to launch in June.

Speed can be dangerous. William “Chuck” Easttom II, an expert witness who has reviewed scores of software development contracts, described the contract as “the most vague, internally inconsistent, and poorly written software contract I have ever analyzed.”

But the honeymoon was on when Cuker emailed Alexander on Feb. 1, 2014. “I am energized for the start of this project,” he wrote. “I feel this is just the beginning of a successful long term partnership.”

Cuker’s email acknowledged that the “timeline is tight, and this will take a huge effort and lots of hard work from our team. We know what we have in front of us and we are ready for the challenge.”

Cuker Interactive was to be paid $578,000 to help Wal-Mart with the first phase of its project to make the ASDA website responsive.

Contract Problems
Almost from the start of the relationship, the parties couldn’t agree on what the contract required. Cuker Interactive said it was obligated to deliver 13 templates for the ASDA website, but it grudgingly provided a total of 47, more than meeting its contractual requirement.

Aaron Cuker testified at trial last month that Alexander wanted all 47 templates, “but he didn’t want to pay for it.”

When Cuker initially refused and threatened to sue, he said Alexander “went ballistic. He said he wants them, and he said his legal team would destroy us.”

So Cuker Interactive relented. “The last thing that we wanted as a small business was to have a conflict with Wal-Mart,” Cuker said at the trial. His company turned over the final code to Wal-Mart in July 2014.

Instead of being paid extra, Cuker Interactive would ultimately claim that it wasn’t even paid the full amount of the contract, collecting only $520,000.

And Wal-Mart sued anyway, saying in its filings that Cuker Interactive’s work was “incomplete and had quality issues. … By then, any code that Cuker may have delivered was useless to Walmart, and the code was never downloaded, saved or used.” Cuker eventually made a startling discovery about that supposedly worthless code.

‘Hot Mess’
Tal Herman, Wal-Mart’s worldwide director of user experience, was responsible for the ASDA and Walmart2Go websites. A filing by Cuker’s attorney, Mark Henry, quoted from a deposition in which Herman said that in early 2014 the “Walmart2Go website project was a ‘hot mess’ and he was ‘desperate’ to ‘leverage’ Cuker’s work product to fix it.”

Henry told Arkansas Business last week that Herman initially tried to hire Cuker for the Walmart2Go project. “And before [Cuker] could say yes, he said, ‘No, never mind. I got something else.’”

That something else was Cuker’s own work. “Walmart secretly forwarded Cuker-authored files for the ASDA website to a competing agency … for contemporaneous design and development of the Walmart2Go website,” Henry said in a court filing.

Walmart2Go is now Wal-Mart’s flagship grocery website, Henry said in his filing, and it looks similar to the ASDA website that Cuker Interactive designed.

Wal-Mart’s attorneys denied the existence of any Cuker-authored material on the Walmart2Go website “despite the fact that any reasonable comparison between the ASDA website and the Walmart2Go website reveals a virtual identical match in both design and computer coded functionality,” Henry wrote. “Walmart then used its blanket denial as the basis for refusing to produce the Walmart2Go code.”

To help settle the question, U.S. District Judge Tim Brooks ordered Wal-Mart to turn over the Walmart2Go code in May 2016. After months of resistance, Wal-Mart finally handed over the code earlier this year — and expert witness Easttom testified that “those same codebases did, in fact, contain Cuker-authored code and trade secrets.”

The jury agreed. It awarded Cuker $12.4 million for several of the trade secret claims, a claim of unjust enrichment and one for breach of contract.

The jury ruled against Wal-Mart, which had sought $1.04 million plus attorneys’ fees, court cost and expenses, for its breach of contract claim against Cuker.

 

 

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