Oct 27, 2015 | By Kira

As a ‘billion dollar behemoth,’ 3D Systems has been known to spend a lot of time and money buying out 3D printing startups, appropriating their 3D printing innovations rather than developing their own in-house. Since buying out eleven startups in 2011, 3DS has gone on to acquire the California-based collectibles company Gentle Giant, Israeli medical imaging company Simbionix, Belgian company LayerWise, 3D printer manufacturer botObjects, and most recently, the Easyway Group of 3D printing companies in China.

While this may seem like a smart strategy—diversifying their holdings, stretching their reach around the globe, and effectively making them one of the biggest and most well-known names in 3D printing—3D Systems may have spread themselves too thin. Their stocks have been steadily dropping since April of this year, and yesterday came the news that they lost a whopping $11 million in arbitration in relation to a startup they acquired during their ‘golden-era’ of buyouts in 2011.

The company in question is Print3D, owned at the time by Ronald Barranco. The startup had developed a plug-in for CAD software that would allow users to obtain instant quotes for 3D prints while the design was being generated. According to Barranco’s law firm, Gaw | Poe LLP, under the terms of the acquisition agreement, 3D Systems was to launch a new business unit to develop and promote the plug-in, hiring Barranco as the co-manager and sharing future revenues generated by the Print3D tool over a three year ‘earnout period’. According to Barranco, however, not only did 3D Systems pay him nothing under the earnout provision, they ended up firing him a mere 20 months after the deal was signed, offering no explanation for the termination.

Understandably frustrated, in 2013 Barranco decided to sue 3D systems for violating the terms of their purchase agreement. The case was sent to arbitration, and during hearings on June 22-26 and modified hearings on October 16th in Charlotte, North Carolina, the court ruled that 3D Systems was at fault, and ordered them to pay Barranco a total of $11, 281, 681.46 in damages. The payout of $11 million includes total damages of $7.3 million, legal fees and expense of $2.3 million, and $1.7 million in prejudgment interest.

According to Gaw | Poe, the Arbitrator found that 3D Systems had “breached its obligation to support and grow the Print3D business unit, instead focusing its development efforts on another similar company that it had contemporaneously acquired.” The Artibitrator further held that “[t]he record clearly, and by a preponderance of the evidence, demonstrates that Respondents’ actions and inactions…materially breached” its contractual obligations, and breached its duty to deal with Barranco in good faith.

“3D Systems is a billion dollar behemoth that had gobbled up dozens of small companies in the 3-D printing space. It apparently thought it could do whatever it wanted with those companies, that it could abuse Ron, and that he wouldn’t be able to fight back,” said Gaw | Poe LLP partner Mark Poe. “We’re glad that we were able to get justice for Mr. Barranco.”

The story, however, does not end there. Yesterday, 3D Systems announced that they will be challenging the arbitration decision in federal court. “3D Systems disagrees with the single arbitrator’s findings and conclusions and believes the arbitrator’s decisions exceeds his authority and disregards the applicable law,” said the Company. 3D Systems also pointed out that despite allegedly breaching the purchase agreement, the arbitrator found that they had not committed fraud or made any negligent misrepresentations to the former employee (Barranco).

“We are extremely disappointed with the decision of the arbitrator. We firmly believe the arbitrator’s ruling is not supported by the facts of this case or the agreement between the parties. We are reviewing our options with our legal counsel and fully intend to challenge the ruling in federal court,” said Andrew Johnson, Executive Vice President and Chief Legal Officer at 3D Systems. He went on to confirm that, notwithstanding their right to appeal, they expect to record an expense provision in the quarter ending September 30th, 2015. “The provision is subject to adjustment based on the ultimate outcome of our appeal. “

As it often is with these high profile courtroom dramas, the case will now go through an appeal process, whereby many more details are sure to be uncovered even if it doesn’t make it to a new hearing. Regardless of the outcome, 3D Systems has said that they are already ready to pay the full award if necessary, and have set aside cash on hand. Luckily for the ‘billion dollar behemoth,’ even if they lose, the $11 million won’t be too much of a setback. “We do not believe that the award will impact our ability to realize our existing business plans in the short or long term,” said Johnson.

With both varied accounts coming from both sides, it’s possible that the truth lies somewhere down the middle, but we’ll be keeping an eye on the upcoming appeal to see just how this saga plays out.

 

 

Posted in 3D Printer Company

 

 

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