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Zoho vs. Freshworks: How the legal battle is shaping the SaaS sector
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A District Court recently denied the defendant's motion to dismiss a trade secret misappropriation case in the Northern District of California precipitated by the alleged theft of Software-as-a-Service (SaaS) technology from a Chennai, India-based company. Corp. of Zoho. Pvt. Pvt. Ltd. v. Freshworks, Zoho had filed claims under the Defend Trade Secrets Act (DTSA), alleging that the founder of Freshworks stole Zoho's Customer Relationship Management tool when he resigned to start Freshworks from his position as Zoho's product development manager.

Poster boys from the SaaS industry in India, Sridhar Vembu and Girish Mathrubootham, are currently fighting each other in a U.S. district court over allegations of misappropriation of trade secrets as data theft in a new lawsuit filed against Freshworks, a startup headed by Mathrubootham based in Chennai. By 7 December at the latest, the U.S. Court requested Freshworks to reply to the allegations made by Vembu’s Zoho of unauthorized access to the software Customer Relationship Management (CRM) in which a former figure of Freshworks is said to have been associated. Zoho also kept asking Freshworks in the new plea to discover “of the scope of unauthorized disclosure” that Freshworks may have had in the case of sensitive data and other staff who might be involved in this, in addition to a 5000 dollar compensation for the damages caused.

The controversy started during March 2020 when Zoho charged Freshworks with violating the Defense of Trade Secrets Act and various other U.S. trade laws, stating that Freshworks built its entire business model by stealing Zoho’s sensitive information, including trade secrets such as critical customer data, software products, and even pricing strategy. In October, the court rejected Freshworks’ plea before the Northern District of California Court for Zoho plea’s dismissal, which stated that Zoho’s lawsuit had followed the standard for a plea misappropriation of trade. Also, it emerged that, as Zoho stated in his current complaint, a former regional head at Freshworks, Mallikarjun Ravikumar, had admitted to stealing CRM data and using it for Freshworks. Ravikumar is no longer affiliated with Freshworks (1). 

Sources said that even though Mathrubootham, a product development manager at Zoho, left the company to start Freshworks in 2001, allegations of employee poaching and data-stealing have been going on. Freshworks has gained massive funds from abroad and domestic investment firms, including Sequoia, Tiger Global, Accel, and Capital G, unlike Vembu’s Zoho, a developed and tested startup aggressive growth strategy of most startups. Based in Chennai, (2) with services such as CRM, Information Technology Service Management (ITSM), and helpdesk software, the software companies mostly cater to small and medium-sized businesses in the U.S. market (3). 

Firstly, apart from all this news, let’s venture into what these companies are:

What is Zoho?

Zoho Corporation is a multinational Indian technology company specializing in software development, cloud computing, Internet, Zoho Office Suite, established by Sridhar Vembu, headquartered in Chennai. The organization focuses on web business tools and I.T., including an online office suite, an Internet platform for managing things, and a software suite for I.T. management. Founded in 1996 in Pleasanton, California, by Sridhar Vembu and Tony Thomas, the company has been located in seven locations, with its global headquarters in Chennai and its corporate headquarters in Pleasanton. Since its inception in 1996 as AdventNet, Zoho Corporation, co-founded by Sridhar Vembu, has changed avatars many times. The business began by building Software for other businesses. It then entered the space of Software as a Service (SaaS). It became the competitor-to-beat for giants like Microsoft and Salesforce in a single stroke by providing businesses with online applications (4). 

Only in 2009 did AdventNet become Zoho Corporation Pvt Ltd. The direction in which the company had sought to enter had crystallized around that time. Instead of purchasing licenses for expensive Software, businesses increasingly turned to the internet for leased Software to run their operations. Zoho.com, the youngest division of the company, has emerged as the most promising for the future, offering internet-based Software for work, from email to collaboration and office productivity tools to Software for managing customers, suppliers, and partners (5). 

And there was a geographical shift: while AdventNet Inc was a U.S. corporation with a development center in India, Zoho Corp is based in India, and Pleasanton, California, continues to remain the global head office of the company. Vembu, who operates from the sales-facing Pleasanton office, visits India, where all the development activities occur, usually once every quarter. In addition to Zoho.com, Zoho Corp has two other divisions: the WebNMS division of telecommunications network software, which the company started with, and the Manage Engine division, which started around 2003, develops Software for companies to control and analyze their I.T. networks (6). 

Today, the Zoho.com portfolio comprises 30 apps and is rapidly growing. “At that press conference, Vembu said, “It is the widest and deepest cloud suite. “No one else offers anything like the breadth and depth that Zoho now has, not Microsoft, not Google. We have customers on Zoho who run 80 percent of their business, and we work on the remaining 20 percent. And we have over 100,000 customers, a milestone recently reached by Zoho. Those customers in 122 countries translate to 18 million users. The broader vision is that the operating system for the job is Zoho. Whoever has a job to do, we want them to go to Zoho,’ he said. “We offer ourselves as proof (7). 

“Two things have cracked Zoho. One is how, from India, and specifically from Chennai, you build scalable global goods. They have proven the world that they can create a global product sitting out of Chennai that competes with Salesforce.com or Google’s cloud,” Tarun Davda, a managing director at the early stage of V.C. company Matrix Partners, told Forbes India in a Mumbai phone interview.” The second, which is equally important, is how do you serve and sell with very minimal resources to U.S. customers sitting in India? Zoho understands how to do this on a scale,’

he says.

 

What is Freshworks?

Freshworks provides companies of all sizes with innovative customer engagement software, making it possible for teams to procure, close, and keep their business for life. Freshworks’ SaaS products include a 360-degree customer experience, are prepared to go, easy to use, and offer a quick financial return. Some of their products involve: Freshdesk is Freshworks’ ticketing software helpdesk. There is powerful automation such as ticket management, assignment of tickets, follow-ups, and prioritization. They offer powerful reporting features for support teams that show them how to optimize their strategies. For clients who may be more willing to tackle issues themself, they also offer self-service choices. This helps ensure that agents deal only with complicated problems that require their attention (8). 

Freshservice is Software from Freshworks’ I.T. service desk. Freshservice is primarily used for I.T. and H.R. teams interested in getting a better handle on the incident, SLA, task, inventory, and knowledge management by using automation, multi-channel support, and team collaboration features. They also provide a powerful dashboard for users who wish to concentrate on multiple projects at once. These dashboards also offer powerful visualization tools to make interpreting the data easier for users.

The marketing automation software solution for Freshworks is Freshmarketer. Freshmarketer (9) is a powerful all-in-one solution for optimization of conversion even when gathering lead generation. Companies can take advantage of heat maps, A/B testing, and other useful tools to see how leads communicate with your webpage to improve the purchasing process from beginning to end. Freshsales is Software from Freshworks for sales automation. Freshsales is a strong supplier and happens to be our best-rated sales automation software solution as well. With Freshsales, one’s team will benefit from AI-based lead scoring, built-in phone, email, automation, and data analytics (10). 

 

The competition between the two

“We are using Fresh sales CRM to send an email to clients and making the connection with marketers. The pros about this application are that it’s so easy to start using this.”

Says Matt Z

“The activity feed is amazing; never seen this before other than on pricey SalesForce add ons. They also do a wonderful job of auto-filling specifics like social networks centered on lead/contact email.”

Says Shaun D.S

“Error logs were practically impossible to find, and though the log is intended to be included on email showing the errors, it wasn’t. Support couldn’t figure it out either.”

Says Priyanka Mohan

These reviews were for Freshworks.

“I am using Zoho CRM as of 1 year. It was extremely simple to work with it. At the same time, the best thing I like to customize various email alias and then at some point it’s easy to divide email messages in a particular category of the alias.”

Says Rahul D

“Nice platform that allows keeping my email address and customer information safe. The sales acquired for payment is quite good for an e-commerce website.”

Says Humprey U.

“The only information I got that irked me about Zoho was the two-factor authentication, which was auto-enabled since we first started using the program.”

Says Enya M

“Among the most irritating thing is that even the email invitations produced from Zoho CRM mostly get stopped or listed as spam by mail filters.”

Says John N

While these reviews for Zoho. They might be neutral, but they say a lot about the choice of CRM software among companies.

 

Legal battles

Interestingly, although both sides work in Chennai and the alleged robbery took place in India, Zoho has chosen to prosecute its allegations in the United States. That’s also likely, even though, particularly in comparison to Indian law, the DTSA provides a much more reliable legal framework for protecting trade secrets. In India, there is no particular trade secret law. However, trade secrets can instead be safeguarded by breach of contract claims as well as an independent tort for breach of trust. Thus, it may be beneficial for Indian entities to seek safety from a U.S. court under the DTSA for their trade secrets, particularly where neither a contract nor a confidential relationship is involved. (11). 

For the financial year 2019, Zoho has recently demonstrated great performance. In the fiscal year 2019, the company recorded a 37.1 percent increase in operating revenue to Rs 3,308 crore, with profits rising 26.3 percent from 408.4 crore rupees in the fiscal year 2018 516 crore rupees in the fiscal year 2019. On the other hand, after raising 150 million dollars from its current investors, Freshworks’ market value soared 3.5 times to 3.5 billion dollars in 15 months.

In the lawsuit, Zoho said that Freshworks built its company through theft of confidential financial data from Zoho; initial secured financing through the use of non-public financial data from Zoho; and has since been involved in poaching employees of Zoho. It uses highly classified customer and strong competitive information from Zoho, schedules press releases to coincide with the undisclosed product launch dates of Zoho, and pressures the business partners of Zoho to disclose confidential customer information, the lawsuit says (12). 

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My passion is Reading and writing. Basically, an optimistic introvert. Always striving to be better. Writing as a passion leads me to become stronger and focused.

Disclaimer: The views, thoughts, and opinions expressed in the article have been curated for our audience and does not warrant a 100% accuracy. All the information mentioned in the article is subject to change according to the changing viewpoints. Feel free to reach us at [email protected] for any change or copyright issues.

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Abraham George
Abraham George
My passion is Reading and writing. Basically, an optimistic introvert. Always striving to be better. Writing as a passion leads me to become stronger and focused.

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