Rappi Sued In US Federal Court For Misappropriation of Trade Secrets

Colombian “Unicorn” Rappi has been sued in US Federal Court for misappropriation of trade secrets by Colombian businessmen, who claim that they hired Rappi’s founders to create a platform on their behalf, but the founders, Simón Borrero, Felipe Villamarín, and Sebastián Mejia “took their idea and ran away with it.”

Finance Colombia has reached out to Rappi’s founders for their side of the story. Should they respond we will provide an appropriate update.

Case number 4:2019cv07415 filed in the Northern District of California names Jorge Uribe, Jose David Mendoza, Mauricio Paba Serje and Jose David Mendoza Macanaz as plaintiffs against Rappi, Inc., RAPPI S.A.S. and Simon Borrero Posada. First reported in Colombian business daily Dinero, the plaintiffs allege that they hired Rappi founders to create an app called Kuiky (Spanish spelling that sounds like “quickie” in English). According to the plaintiffs, they contracted with Imaginamos, a software firm founded by Rappi’s Simón Borrero in 2015 to develop the application.

The effort faced several delays, then according to the lawsuit: “By this time, however, the Kuiky creators had grown increasingly concerned about the repeated delays by the Imaginamos team and the service they were receiving from Imaginamos. Because of these delays and concerns, the Kuiky creators decided to discontinue their relationship with Imaginamos and to try to develop the Kuiky app and business in a different way. The last email between the Imaginamos team and the Kuiky creators is from April 23, 2015, and Plaintiffs are informed and believe and on that basis allege that Rappi S.A.S. was incorporated only days later on April 27, 2015.”

Plaintiff’s lawyer Nathalie Lozano Blanco told Dinero “the defendants had access to all the information of the business; they took the idea and developed the Rappi business model.” According to Lozano, charges have also been filed with Colombia’s prosecutor general’s office for unauthorized use of privileged information, violation of trade secrets, and violation of “moral rights of the author” (similar to copyright violation), and unlawful enrichment.

More Troubles For The Unicorn

Last month, Colombia’s Superintendencia de Industria y Comercio (SIC), similar to the Federal Trade Commission in the US ruled that Rappi had breached an administrative order regarding the company’s terms and conditions offered consumers, and legal violations regarding pricing and disclosure, guarantees, and dispute resolution.

Evidently, there have been mounting consumer complaints against Rappi, with a backlog mounting in Colombia’s consumer protection bureau. According to the SIC:

The decision was taken after evaluating more than 750,000 requests and 117 complaints filed by RAPPI users before the Deputy Superintendence for Consumer Protection.

In addition to the above, the SIC took into consideration the total of 472 lawsuits that the Deputy Superintendence for Jurisdictional Matters met in the exercise of the consumer protection action, of which 108 are active.

The government threatened Rappi with a fine of up to 1,000 Colombian monthly minimum wages, or just under$250,000 USD.

According to the SIC, the charges against Rappi are:

1. Alleged breach of the order related to indicate to consumers the source of the right of withdrawal and reversion of payment.
2. Alleged non-compliance with the order to adjust the clauses of the terms and conditions.
3. Alleged breach of the order to report on its electronic commerce platforms, the total price of the products.
4. Alleged breach of the order to establish clearly, in the cooperation agreements concluded with their commercial allies, the responsibility of each of the subscribers of the agreement regarding the effectiveness of the guarantee.
5. The presumed partial breach of the order related to provide its customers with requests, complaints and claims (PQR) mechanisms in the e-commerce platforms.

Backed by Softbank, the same Japanese investment fund entangled in the WeWork financial drama, Rappi is laying off over 300 employees, or 6% of its workforce, according to Axios. Just last year, Rappi was hailed as a Latin American venture capital success story, with the largest ever technology financing raise by a Latin American startup.

It is too early to tell whether the lawsuit has merit, but clearly Rappi has growing pains, to say the least. A backlog of complaints may indicate growing consumer dissatisfaction, and these actions only include Colombia; not the 8 other countries where Rappi operates. Time will tell whether the company will endure in the long-term, or if these legal actions and layoffs are signs of structural weakness and indicate existential threats.

Photo credit Felipe Balduino from Pexels