Bitmain Seeks Millions of Compensation from Former Emplayees Who Founded Rival Mining Pool
Bitmain, the owner of BTC.com, the world’s top bitcoin mining pool by hash rate, is suing the co-founders of Poolin, the seventh-largest pool, for allegedly violating a non-compete agreement – and it’s demanding $4.3 million in damages from one of them.
In response, the co-founders said that they were no longer bound by the non-compete agreements because Bitmain failed to pay the non-competition compensation stipulated in the contract on time, violating the contract.
This case gives us a rare glimpse of Bitmain, the largest and most powerful company in the blockchain industry, its internal operations and employment rules.
The three Poolin co-founders say they were no longer bound by the non-compete, since it was Bitmain that invalidated their contracts for failing to pay compensation on time as agreed. Bitmain, in turn, countersued each of them, claiming they caused significant losses to the company after leaving by operating a directly competing pool. Aside from seeking damages, Bitmain asked the court to order the Poolin executives to resume honoring the non-compete agreement.
At present, the three co-founders, CEO Pan Zhibiao, COO Zhu Fa, and CTO Li Tianzhao, have sued against Bitmain in order to lift the provisions of the non-compete agreement.
Zhu, one of the co-founders wrote that back in 2015, the three – while still focusing on Bitmain’s original mining pool, Antpool – proposed to launch BTC.com as a parallel service within Bitmain. The idea was not initially supported by Bitmain, Zhu wrote, and the three had to develop and roll it out on their own using Pan’s own capital at the beginning. In 2016, Pan open-sourced the code of BTC.com, which helped lower the threshold for anyone that’s interested in launching a mining pool business.
Around mid-2017, the three collaborators left Bitmain. Under the non-compete agreement, Bitmain would pay monthly compensation to Pan after his departure of about $2,780 for 24 months, and in return, prohibit him from specifically operating a bitcoin mining pool. The compensation for the other two under such agreements was not clear from the court video. After their departure from Bitmain, Pan, Zhu and Li launched Poolin 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.
Subsequently, Bitmain claimed that such acts were in direct violation of the non-compete agreement and asked Pan Zhibiao to return all paid compensation and about $4.6 million of liquidated damages.
In addition, Bitmain also argued at the hearing that the Poolin violated the contract and that the profits of 26825 Bitcoins from mining should also be repaid as the loss of Bitmain.
Lawyers of Bitmain argue that “by February 14, the total profit of Poolin was 4% of 26,825 bitcoins, which is the fee charged by the company, multiplied by the price of the bitcoin at that time, amounting to 24,518 yuan (about $3,500).”
Therefore, with the so-called liquidated damages, the total amount of the claim will exceed 30 million yuan, about 4.3 million dollars.
But lawyers of Poolin denied the allegation and told the court that Pan Zhibiao had not fulfilled his obligations under the agreement and should not be ordered to pay damages.
Pan’s lawyers said in the hearing that Bitmain failed to pay Pan the agreed-upon 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 argued the transaction fee Poolin received doesn’t necessarily translate to profits of the company because until the date of the hearing, the firm had not turned a profit. In addition, the fact that Poolin successfully mined 26,825 bitcoin also does not necessarily mean it would be a loss for BTC.com, the lawyer said.
“There are a lot more bitcoin mining pools in this network. It’s not just Poolin v.s. BTC.com. Even if Poolin didn’t operate its bitcoin mining pool, it does not necessarily mean Bitmain will be able to mine those coins.” the lawyer argued.
Up to now, it is not clear from the open records whether or when the court will make a judgment. At the end of the hearing, the judge asked whether the two parties were willing to reconcile. Bitmain ‘s lawyers refused to discuss this in court and suggested that the hearing be adjourned. Bitmain declined to comment on the latest status of the case or to provide any further clarification. And the executives of Poolin did not response.