Ice Cream Machine Hackers Sue McDonald’s for $900 Million
Credit to Author: Andy Greenberg| Date: Wed, 02 Mar 2022 12:01:48 +0000
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For years, the tiny startup Kytch worked to invent and sell a device designed to fix McDonald's notoriously broken ice cream machines, only to watch the fast food Goliath crush their business like the hopes of so many would-be McFlurry customers. Now Kytch is instead seeking to serve out cold revenge—nearly a billion dollars worth of it.
Late Tuesday night, Kytch filed a long-expected legal complaint against McDonald's, accusing the company of false advertising and tortious interference in its contracts with customers. Kytch's cofounders, Melissa Nelson and Jeremy O'Sullivan, are asking for no less than $900 million in damages.
Since 2019, Kytch has sold a phone-sized gadget designed to be installed inside McDonald's ice cream machines. Those Kytch devices would intercept the ice cream machines' internal communications and send them out to a web or smartphone interface to help owners remotely monitor and troubleshoot the machines' many foibles, which are so widely acknowledged that they’ve become a full-blown meme among McDonald's customers. The two-person startup's new claims against McDonald's focus on emails the fast food giant sent to every franchisee in November 2020, instructing them to pull Kytch devices out of their ice cream machines immediately.
Those emails warned franchisees that the Kytch devices not only violated the ice cream machines’ warranties and intercepted their "confidential information" but also posed a safety threat and could lead to “serious human injury," a claim that Kytch describes as false and defamatory. Kytch also notes that McDonald's used those emails to promote a new ice cream machine, built by its longtime appliance manufacturing partner Taylor, that would offer similar features to Kytch. The Taylor devices, meanwhile, have yet to see public adoption beyond a few test installations.
Kytch cofounder Melissa Nelson says the emails didn't just result in McDonald's ice cream machines remaining broken around the world. (About one in seven of the machines in the US remained out of commission on Monday according to McBroken.com, which tracks the problem in real time.) They also kneecapped Kytch's fast-growing sales just as the startup was taking off. "They've tarnished our name. They scared off our customers and ruined our business. They were anti-competitive. They lied about a product that they said would be released," Nelson says. "McDonald's had every reason to know that Kytch was safe and didn't have any issues. It was not dangerous, like they claimed. And so we're suing them."
Before it found itself in conflict with soft-serve superpowers, Kytch had shown some early success in solving McDonald's ice cream headaches. Its internet-connected add-on gadget helped franchisees avoid problems like hours of downtime when Taylor's finicky daily pasteurization cycle failed. McDonald's restaurant owners interviewed by WIRED liked the device; one said it saved him "easily thousands of dollars a month" from lost revenue and repair fees. Kytch says that by the end of 2020 it had 500 customers and was doubling its sales every quarter—all of which evaporated when McDonald's ordered its franchisees to ditch Kytch's gadgets.
Kytch first fired back against the fast-food ice cream establishment last May, suing Taylor and its distributor TFG for theft of trade secrets. The Kytch founders argued in that lawsuit that Taylor worked with TFG and one franchise owner to stealthily obtain a Kytch device, reverse-engineer it, and attempt to copy its features.
But all along, Kytch's cofounders have hinted that they intended to use the discovery process in their lawsuit against Taylor to dig up evidence for a suit against McDonald's too. In fact, the 800 pages of internal Taylor emails and presentations that Kytch has so far obtained in discovery show that it was McDonald's, not Taylor, that at many points led the effort to study and develop a response to Kytch in 2020. In February of that year, Taylor president Jeremy Dobrowolski wrote in an email that "McDonald's is all hot and heavy about this," referring to Kytch's growing adoption. A McDonald's executive later asked for a conference call with Taylor in June of that year to discuss Kytch. When McDonald's shared with Taylor a draft of the Kytch-killing email it planned to send franchisees, a Taylor executive commented to a colleague that "I am a bit in shock they are willing to take such a strong position."
WIRED reached out to McDonald's for its response to Kytch's new lawsuit, but didn't immediately receive a response. When WIRED first approached McDonald's about its conflict with Kytch last spring, the company detailed its safety complaints in a statement: "Kytch’s software includes a remote operation function, and with this feature, we believe anyone cleaning, operating or repairing our shake machines (like restaurant crew members or maintenance technicians) could potentially be injured if the equipment is turned on remotely."
“They scared off our customers and ruined our business.”
Melissa Nelson, Kytch
When McDonald's emails to Taylor about Kytch came to light in November in the midst of Kytch's lawsuit against the supplier, a McDonald's spokesperson responded in another statement standing by those safety concerns as the basis for its emails to franchisees. “Nothing is more important to us than food quality and safety, which is why all equipment in McDonald’s restaurants is thoroughly vetted before it’s approved for use," the statement read. "After we learned that Kytch’s unapproved device was being tested by some of our franchisees, we held a call to better understand what it was and subsequently communicated a potential safety concern to franchisees. There’s no conspiracy here."
Kytch argues, however, that the safety warnings McDonald's has leveled against the startup have never held up. In its legal complaint, Kytch points out that its devices were certified to meet Underwriter's Laboratory safety standards by the product testing firm Intertek. The complaint counters any claim that a Kytch device's remote connection to an ice cream machine could cause the machine to turn on while a staffer's hand is inside—in fact, Taylor's own manual tells anyone servicing the machine to unplug it first, and removing the door of the freezer cabinet to access the rotating barrels of the machine automatically disables its motor.
Finally, the Kytch complaint points out that the company’s cofounder Jeremy O'Sullivan wrote those points in an email to a McDonald's franchisee who later shared them with McDonald's. "McDonald's knew that its statements were false and had actual knowledge that Kytch does not create any incremental risk in Taylor's soft-serve machines," the complaint reads.
McDonald's went so far as to warn other companies, including Coca-Cola and Burger King, not to buy Kytch products, the complaint alleges. In fact, Kytch had hoped its ice cream machine hacking device would be just the first in a series of products it developed for internet-connected kitchen appliances—plans that fell apart after its revenue stream was cut off. The $900 million that the lawsuit seeks from McDonald's, in fact, represents the value the Kytch cofounders argue their company would have eventually been worth if it hadn't been sabotaged.
If safety wasn't a sincere concern for McDonald's, it remains unclear why the giant was so eager to hamstring the startup working to solve its McFlurry fiasco. Kytch has argued that Taylor was incentivized to keep its machines broken; repair and maintenance contracts across its business lines accounted for a quarter of the company's revenue stream in 2018, according to a document Taylor published at the time. But Kytch cofounders Nelson and O'Sullivan admit that doesn't explain why McDonald's would similarly seek to prevent a fix for its embarrassing—and expensive—ice cream machine failure rates.
Whatever McDonald's reasoning may be, Kytch hopes to find out the answer in the documents their lawsuit surfaces.
"We're going to continue to get discovery. And it's going to keep on tunneling into this heart of darkness," O'Sullivan says. "We knew we would get to this point, and we know we'll get to the truth. And we're just going to keep tunneling."