Bitmain sues founder of Biyin for 30 million yuan

According to Coindesk, Bitmain is suing three former employees for allegedly violating non-compete agreements. The three employees are Pan Zhibiao, Zhu Yu, and Li Tianzhao, and are demanding compensation of up to 30 million yuan.

In mid-2017, these three former Bitmain employees left the company and founded the fifth largest mining pool Poolin (Bitcoin mining pool rankings in the last month), with Pan Zhibiao as CEO, Zhu Yu as COO, and Li Tianzhao as CTO. Now, Bitmain is asking Pan Zhibiao to pay $4.3 million (nearly 30 million yuan) in compensation. But Pan Zhibiao said that Bitmain did not pay his salary on time as agreed, so he is no longer bound by the non-compete agreement (there is no such thing as "compensation").

Bitcoin mining pool rankings in the past month, data from: BTC.com, 2019.6.17

According to the latest news from AI Finance, Bitmain has paid the non-compete compensation as agreed in the contract, and the arbitration committee has ruled that the three former employees should pay liquidated damages to the company. However, the case is currently being heard by the court, and the final decision will be made by the court. Odaily has sought confirmation from both parties on this matter.

As of press time, Bitmain responded that "it is not convenient for us to comment on the incident before the court's verdict comes out." Zhu Yu said, "The lawsuit has been going on for a long time, and this matter has no impact on the normal operation of the CoinIn mining pool."

Bitmain countersued

First, some background information is needed.

According to Zhu Yu, he "participated in the product work of AntPool, a mining pool under Bitmain" in 2015, and in 2016 he and Pan Zhibiao started an internal business and founded the BTC.com mining pool. In mid-2017, Pan Zhibiao, Zhu Yu, and Li Tianzhao left BTC.com and started to create a new mining pool. In November of the same year, the CoinIn mining pool was officially launched.

Now, a year and a half has passed since Pan Zhibiao and other former employees founded a new mining pool. Why did Bitmain suddenly settle scores?

According to Coindesk, the incident was caused by Li Tianzhao's preemptive lawsuit against Bitmain (the date of the lawsuit is uncertain), demanding the termination of the non-competition agreement previously signed by both parties.

According to the context of this case, a non-compete agreement prohibits employees from establishing a business with the same business scope as their original employer within a period of time after leaving the original employer.

Unexpectedly, Bitmain countersued the three former employees, arguing that according to the non-compete agreement, after Pan Zhibiao left the BTC.com mining pool, Bitmain would pay Pan about $2,780 per month for 24 months. In return, Pan Zhibiao could not operate a Bitcoin mining pool. (Zhu Yu, Li Tianzhao and Bitmain signed similar contracts, but the amount of compensation is unclear.)

But we all know what happened later. Pan Zhibiao founded Biyin within half a year, but it was limited to mining other currencies besides Bitcoin. It was not until July 2018 that Biyin launched the Bitcoin mining service.

“After they left, they operated a mining pool that was in direct competition with the company, causing significant losses to the company.”

On April 30, Bitmain’s attorney stated at a hearing held by the Haidian District People’s Court in Beijing. Coindesk claimed to have obtained the court video. In the video, Pan Zhibiao and Bitmain representatives attended the hearing.

In addition to seeking compensation, Bitmain also asked the court to order the three to resume the non-compete agreement (that is, prohibiting Biyin from providing Bitcoin mining services). However, judging from Zhu Yu’s reply, at least for now, Biyin is still providing Bitcoin mining services normally.

How is the huge compensation calculated?

According to the materials submitted to the court by both parties, as of February 14 this year, in terms of computing power, Biyin has become the mining pool second only to BTC.com and AntPool, and has mined a total of 26,825 bitcoins. Based on the current price of Bitcoin, Biyin can get 4% of it as handling fee income, which is worth $3.88 million based on the price of the currency at $3,624 at the time.

Bitmain's lawyers believe that these revenues are profits generated by the three people's violation of the agreement and should be reimbursed to the company as Bitmain's losses. "According to the agreement, if it is difficult to calculate (all direct and indirect losses of Bitmain caused by the three people's breach of contract), then the losses should be calculated based on the profits of the violating party," said one of the lawyers.

Adding all the compensation Bitmain has paid to Pan Zhibiao and a fine of $666,000, Bitmain's attorney said that Pan Zhibiao should pay them more than 30 million yuan in compensation.

Former employees fight back

Pan Zhibiao did not agree to pay the money. His attorney argued to the court that Pan Zhibiao had no obligation to fulfill the agreement and therefore should not be ordered to pay compensation.

There are three reasons why there is no obligation:

First, Bitmain did not pay the agreed compensation to Pan Zhibiao on time. "The agreement stipulates that if Party A (Bitmain) fails to pay the compensation within one month after Party B (Pan Zhibiao) leaves, it means that Party A has waived its obligations," said Pan Zhibiao's attorney.

Secondly, the income from Bitcoin mining by CoinIn does not necessarily translate into profits for Bitmain. As of now, CoinIn has not made any positive profits from Bitcoin mining.

Finally, the bitcoins successfully mined by Biyin do not necessarily mean the losses of the BTC.com mining pool. “There are many bitcoin mining pools, not just Biyin and BTC.com. Even if Biyin did not mine these bitcoins, it does not necessarily mean that BTC.com will be able to mine them,” the lawyer argued.

So far, it is unclear from public records whether or when the court will make a ruling. At the end of the hearing, the judge asked both parties whether they had any ideas for mediation on the matter. Bitmain's lawyers refused to discuss the matter in court and suggested waiting until the hearing was adjourned to discuss it.

According to AI Finance on June 17, Bitmain’s non-compete compensation has been paid as agreed in the contract, and the arbitration committee has ruled that the three former employees should pay liquidated damages to the company. However, the case is currently being heard by the court and will ultimately require the court to make a ruling.

This is not the first time Bitmain has had a legal dispute with a former executive. In 2017, Bitmain also sued former chip design director Yang Zuoxing, claiming that he had infringed on patents by founding a new mining machine company, MicroBit, after leaving the company.

Subsequently, Bitmain demanded that Yang Zuoxing pay 26 billion yuan, or $3.8 billion, in damages, but later reduced the claim to $380,000. In April 2018, the Patent Reexamination Committee of the State Intellectual Property Office declared Bitmain's patent invalid and Bitmain lost the case. Subsequently, the Xinjiang Court that accepted the case dismissed Bitmain's lawsuit.