Bitmain in Legal Brawl with former Staffers Who Founded Rival Mining Pool.

Bitmain is a renowned Cryptocurrency mining company as well as the owner of BTC.com, the world’s top Bitcoin mining pool by hash rate. The company is stuck in a legal brawl with three former employees who started a rival mining pool. This mining pool they started is allegedly violating a non-compete agreement they had in the past. To that effect, Bitmain is demanding $4.3 million in damages from one of them.

The three co-founders of Poolin (now the seventh-largest pool), in their defense, have maintained that Bitmain had invalidated their contracts for failing to pay compensation on time as agreed, hence, they were no longer bound by the non-compete agreements they signed when they decided to leave Bitmain.

Living up to its title as one of the blockchain industry’s largest and most powerful companies, Bitmain makes most of its money from selling mining equipment. This information was given out when the firm made an attempt to go public.  Asides selling equipment, it also operates mining pools, essentially software products miners use to split rewards. In the first half of 2018, this service accounted for $43.2 million of Bitmain’s revenues and during the same period, $2.7 billion was generated from hardware sales, making it their highest sales point.

At first, the three Poolin co-founders – CEO Zhibiao Pan; COO Fa Zhu; and CTO Tianzhao Li sued Bitmain separately in a bid to be released from the non-compete. Then Bitmain countersued each of them with claims that they caused significant losses to the company after leaving by operating a directly competing pool. Bitmain asked the Beijing Haidian District court to order the Poolin executives to resume honoring the non-compete agreement, making six pending lawsuits.

Although the matter had been under the noses of the public till video footage from an April 30 hearing where the two sides made their respective cases, recently became available. The exact details regarding two of the former employees were not yet clear as the video only showed a discussion of the case between Pan and Bitmain.

Around mid-2017 when the three collaborators left Bitmain, Bitmain was obligated to pay monthly compensation to Pan after his departure of about $2,780 for 24 months, and in return, prohibiting him from specifically operating a bitcoin mining pool according to the non-compete agreement. Again, the video didn’t address the compensation position for the other two. Pan, Zhu, and Li launched Poolin after their departure from Bitmain as a mining pool for multiple cryptocurrency assets in November 2017. They didn’t launch a pool service for bitcoin until July 2018, when they mined Poolin’s first block of the largest cryptocurrency by market cap. This action of the trio raised Bitmain’s allegations and demanded that Pan return all the paid compensation, as well as a fine of $667,000 for reneging.

Added to that Bitmain’s lawyers argued at the hearing that Poolin’s revenue from mining the 26,825 bitcoin should be paid back as a loss to Bitmain as it is considered a profit made by violating the agreement. Without a definite method to calculate the actual damages, the lawyer argued that the fine be paid from Poolin’s profits and estimate that it would amount to more than 30 million yuan or about $4.3 million as Bitmain has filed for.

According to the hearing, Pan’s lawyers say Bitmain failed to pay Pan’s agreed compensation on time, citing lines from the agreement that if Party A (Bitmain) did not pay the compensation within a month since Party B (Pan)’s departure, it would mean Party A voided its obligation. Pan’s lawyers also argued Poolin transaction fees do not necessarily translate to profits of the company because, until the date of the hearing, the firm had not turned a profit. The lawyer added that Poolin’s successful mining of 26,825 bitcoin also does not necessarily mean it would be a loss for BTC.com.

Bitmain has had a taste of legal disputes with former senior executives in 2017, when it sued Zuoxing Yang, a former Bitmain chip design director who left to launch Bitewei, a rival mining equipment manufacturer, over patent rights infringement.  They had demanded 26 billion yuan($3.8 billion) in damages but later reduced the claim to $380,000. The court that oversaw the case dismissed Bitmain’s complaint in 2018 in favor of Yang who was able to revoke Bitmain’s patent over the technology in dispute.

Lawyers from Bitmain declined to discuss that at the court and suggested waiting until after the hearing adjourned. It is therefore not clear what final judgment was made by the court or when it will be made. Notably from the video footage, the judge asked at the end of the hearing if there was a way for the two parties to settle the case.

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Credits- Wolfie Zhao

 

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