VPN Firm Says It Didn't Know Customers Had Lifetime Subscriptions, Cancels Them (arstechnica.com) 127
The new owners of VPN provider VPNSecure have drawn ire after canceling lifetime subscriptions. From a report: The owners told customers that they didn't know about the lifetime subscriptions when they bought VPNSecure, and they cannot honor the purchases.
That is called fraud (Score:5, Informative)
Seriously. You buy a business, you buy all contracts it has and have to honor them.
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Seriously. You buy a business, you buy all contracts it has and have to honor them.
Yep. Class-action lawsuit from current license-holders in 3 ... 2 ... 1 ...
Oh wait, the purchaser "didn't know" about the perpetual licenses? Because the sellers didn't tell them? Or because they didn't pay attention to the disclosures from the seller? Depending on the answer, maybe another lawsuit is coming.
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Oh wait, the purchaser "didn't know" about the perpetual licenses? Because the sellers didn't tell them?
Asset-only sale according to the Ars article [arstechnica.com].
Since all the contracts and liabilities remain with the OLD company whose assets were acquired.. You or the class action would likely be only able to sue a company that has finished selling off all its assets a long time ago by now, and probably already distributed all the cash out to investors. The point of suing a company that doesn't have any money
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It's called "lack of due diligence".
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Re:That is called fraud (Score:5, Informative)
Tell that to Broadcom, who have been cancelling VMware "perpetual licenses" and even sending cease and desist letters.
No, they are not. It seems strange to defend Broadcom, but accuracy is important.
Broadcom is saying that they can continue using the software they have, with no updates, irrespective of how they acquired those updates. And there was an implication that Broadcom would audit the software they are running, to ensure no unlicensed updates have been installed.
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Broadcom came to my employer with the SAME letter, which was definitely a shakedown and 100% illegal in Japan. We have actually been moving away from them, so it was kind of funny.
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We have a few at my workplace.
Unfortunately it's for the older versions of VMware, but at least they are for local use and not exposed to the internet.
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What is a true perpetual license agreement then?
We are a podunk little school and we have a perpetual license - I can log onto Vcenter and see the words "Expiration: Never" - to me that means the license expires - never - if Broadcom send us one of their joke letters it's going where it belongs, in the trash. And if we have a full license I can imagine a huge amount of other people do as well. We'll use another solution when we upgrade servers
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What is a true perpetual license agreement then?
There is no such thing.
License agreements can be separate from a product. You can buy a product in perpetuity but not a service or license. With VMWare, you can still use the software you bought but can't update it (legal, but still a dick move) or have any entitlement to services or support from Broadcom unless under a separate agreement.
The lesson to learn from all of this (VPNsecure and Broadcomm... there will be others as well) is that there is no such thing as a perpetual service. Ambiguous terms
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Inaccurate.
Broadcoms cease-and-desist to perpetual license holders was in regards to applying updates after the support part of the contract expired. The perpetual licenses are still in effect, frozen at the last update that was included under the support part of the contract - perpetual license holders can extend the support contract separately.
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Actually, they did not. They cut them off from updates and demanded that those that had downloaded udates outside of their contract delete these updates. Scummy? Yes? Legal? Apparently so.
Re:That is called fraud (Score:4, Insightful)
Not necessarily.
One can acquire, for example, just the patents of a business, or their patents and a trademark, or just one of their manufacturing buildings.
In this case, the acquiring company claims they acquired “the technology, domain, and customer database—but not the liabilities” from VPNSecure. If true, the "lifetime subscribers" beef and remedy is with the owners of VPNSecure (which is probably devoid of assets).
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If they had done that, then there would be no need to cancel anything...
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They also acquired the customer lists.
The details are not clear, but it's certainly possible to acquire a customer base and a subset of customer subscription contracts without acquiring all of them.
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I'd be interested in seeing if the buyers are actually telling the truth about their purchase having a carve out that avoided liability for some customer contracts and frankly if they claim they didn't know they existed then I doubt it. If they did have a carve out then theoretically the breach of c
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If they had done that, then there would be no need to cancel anything...
False. They acquired customer lists. This only came about because they purged the accounts of customers who had made no transaction in the past 6 months. At no point did they acquire the existing liabilities and the only reason they retained customers at all is because as part of the purchase they didn't close any customer accounts for the first year of ownership - meaning that customers re-signed up with the new owners after their (at most) yearly subscription ended.
To be clear they didn't "cancel" anythin
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Either the own the contracts. Then they have to honor them. Or they do not own the contracts. Then they cannot cancel them.
Oh, and "closing financially inactive contracts" is called canceling them if it is lifetime subscriptions...
Seriously.
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You intentionally misquoted me to make your point. I didn't say closing financially inactive contracts. I said closing financially inactive accounts. THERE ARE NO CONTRACTS. They simply closed access accounts that people had been using *without* a contract.
There is a legal definition here you are ignoring that is very very important.
Seriously important.
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You wrote "To be clear they didn't "cancel" anything. They closed financially inactive customer accounts."
What do you think I "misquote" here? Please be precise...
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If they don't own the contracts (and that's what they're claiming), they are also under no obligation to offer service, and thus don't need to cancel them. They can simply deny service since the customers have no contract with them.
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Not quite that simple. If they did continue to provide service for a while, they may have implicitely acquired these contracts.
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A contract is a contract is a contract but only between Ferengi.
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The key thing is that they didn't only acquire the customer database; they acquired the customers and continued accepting payment and providing the service under the same public trade name. They did not contact the customers and have them sign up with a new company when they bought it.
So it's a silly song and dance that is pure BS. Their actual defense if anybody sues them is instead going to be some sort of, "we're a foreign company you can't get to our money." Guaranteed.
If you buy the company and continu
Re: exactly (Score:2)
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Yeah liabilities *always* transfer with the business, especially if it leaves the seller unable to satisfy those liabilities. You cant phoenix assets. period.
This company really has only two options here. Either honour the contract, or refund it.
The vpn company may well be on the hook for not telling the buyer about those lifetime contracts but thats the customer is a third party to that dispute. They have an absolute right to not have the holder of their contract not default on it, without redress.
Re: That is called fraud (Score:3)
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Yeah liabilities *always* transfer with the business, especially if it leaves the seller unable to satisfy those liabilities. You cant phoenix assets. period.
That is completely false. You seem to be under the impression that one business bought the other in its entirety. That was not the case here. It was an asset purchase, something that happens all the time.
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You buy a business, you buy all contracts it has and have to honor them.
Not necessarily. Many times they do what's called an "asset purchase agreement." They buy all the business' assets, even its name, but they don't actually buy the business or any of its obligations. The obligations stay with the original owner and, hey, you're welcome to find and sue him.
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The business wasn't bought. Just the assets and the right to use the name. That's the distinction here. Legally they acquired no contracts.
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The truth hurts, fuckups with mod-points. But on the plus-side, if you do not wake up soon, you may personally get to experience what life in fascism is like. Here is a hint: Only the total fanatics find it pleasant, the rest suffers, gets tortured or dies.
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Re:That is called fraud (Score:4, Interesting)
Seriously. You buy a business, you buy all contracts it has and have to honor them.
Except they didn't buy the contracts. Blame Slashdot. TFS is so devoid of information to be outright trolling. a) The VPN firms sale was an asset transaction only. The original customer contracts weren't included in the purchase, and neither were any business contracts, liabilities, etc. b) The firm never publicly offered lifetime subscriptions. They were only available through a couple of resellers and were not available or advertised at the time of purchase.
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Well, that may be legal in the US. In Europe it is not, or only if the remaining liabilities can still be served. That seems to not be the case here.
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Of course it's legal in Europe. Don't be daft, asset transactions are common in the basis of law in literally every country. The business wasn't acquired, just sold of some of its assets. It happens constantly. The original business remained and had the liabilities associated with it. The problem here is that the original business likely wound up post sale at which point its liabilities will have been paid out in the usual order (customers are always last in this case) leaving customers confused as to who e
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Nope. You cannot just get the assets and not the liabilities, unless the liabilities are still served. If the liabilities become uncovered by this, you may even go to prison.
Re: That is called fraud (Score:2)
But the fraud was perpetrated by the sellers, not the buyers. And limited liability means they can just bankrupt the acquisition and transfer its assets to a new corporation, without transferring the liabilities.
Yes, that's how corporations work. Limited liability is the bane of democracy.
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Actually, if the buyers knew (and since some of them are the same people that is highly likely), the buyers can become complicit as well. The buyer also has a due dilligence requirement, they cannot simply believe anything they were told.
How about naming names? (Score:5, Interesting)
Re:How about naming names? (Score:5, Informative)
From TFA:
This week, users reported receiving a follow-up email from VPNSecure providing more details about why it made its bold and sudden move. Screenshots of the email shared on Reddit say that the acquisition by InfiniteQuant Ltd (which is a different company than InfiniteQuant Capital Ltd, an InfiniteQuant Capital rep told Ars via email) was “an asset only deal.”
Re:How about naming names? (Score:5, Insightful)
Which presumably mean they also didn't purchase the yearly subscribers from the previous company. I think a judge would be quite critical of a purchase of all customers except the ones that would be a long-term liability.
Re:How about naming names? (Score:5, Interesting)
No they won't. They didn't purchase any customer liabilities at all, not short or long term. What happened was an asset only transaction picked up the business without any contracts or liabilities, then kept the service operational in an as is state. The sneaky trick here is that to retain customers you simply don't purge any for the first year. As the existing customer's access comes to an end they resubscribe with the new company completely oblivious to the fact that in the background things changed hands. It's not uncommon to buy businesses without their customer subscriptions in this way but it only works in low cost businesses.
The bigger issue here is that lifetime subscriptions weren't even disclosed. The original company didn't even directly offer them, they were only available through a few resellers so it likely didn't even show up in the sales material. Fast forward 2 years and the company cleans the books by purging all customers who haven't made a transaction and suddenly they realise that someone had a lifetime subscription that was never disclosed or part of the purchase agreement.
worked for broadcom (Score:2)
Why not for them?
Illegal in Germany (Score:4, Informative)
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Everything is illegal in Germany.
Re:Illegal in Germany (Score:5, Funny)
Re:Illegal in Germany (Score:5, Insightful)
No. But fraud is.
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And to the idiots with mod points, asset only purchases are a thing in Germany too.
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But so is the crime of bankruptcy fraud when you would such a tactic to remove assets from a company before it goes belly up instead of using them to cover liabilities.
But then again, selling all assets to cover as much liabilities as possible is part of the bankruptcy process..
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Not necessarily. For example when buying an insolvent company it is perfectly possible to buy the assets and the company brand, but not the actual company - so the new company with the same name doesn't have to honour any of the contracts (like warranty or outstanding orders that are already paid) of the previous company.
Due diligence (Score:5, Insightful)
Gosh, I wish I could abrogate my due diligence and fiduciary obligations just by saying "I didn't know." That would save so much time and money.
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Gosh, I wish I could abrogate my due diligence and fiduciary obligations just by saying "I didn't know." That would save so much time and money.
Prior Art [thehill.com]
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Gosh, I wish I could abrogate my due diligence and fiduciary obligations just by saying "I didn't know." That would save so much time and money.
It's far more complicated than that. This was an asset only purchase so it stands to reason they wouldn't know that some customers had a lifetime subscription.
"I don't know" (Score:2)
I wish I could abrogate my due diligence and fiduciary obligations just by saying "I didn't know."
Calls to mind the scene from Fast Times At Ridgemont High, where Spicoli uses the same tack.
Unless they just bought the assets (Score:4, Insightful)
When you buy a company, you buy its contracts and are bound by them.
Unless they just bought the assets of the company, in which case the original company is still on the hook.
Re:Unless they just bought the assets (Score:5, Interesting)
Unless they just bought the assets of the company, in which case the original company is still on the hook.
IANAL. According to the article, they're claiming just that. I don't know if that is how it was structured, just that they claim it. Regardless, it sounds like there is might be enough going on here to consider successor liability.
Re:Unless they just bought the assets (Score:5, Insightful)
The company clearly hasn't abandoned the other ongoing monthly contracts, so it does sound like they're trying to have their cake and eat it too.
Choosing which contracts to honour and which do ditch, doesn't sound like a purely asset purchase. They even comment that they analysed the previous 6-12 months of financials, something they wouldn't need to do if they were "just buying the tech".
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On the other hand, it could be argued that contracts with on-going paid subscriptions are an asset, and lifetime subscriptions are not...
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The company clearly hasn't abandoned the other ongoing monthly contracts, so it does sound like they're trying to have their cake and eat it too.
No they did abandon ALL the contracts. That's the legal trick in such asset purchases. You buy the company's assets including customer lists, but no contracts or liabilities. Then you just ... do nothing for a while. After a month (or year, or however long the original customers contracts were) the customer renews their subscription and magically ends up on your books none the wiser that the parent changed hands.
This entire story came about because they purged customer accounts that didn't make a transactio
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I'm not sure that "do nothing for a while" is quite the right phrasing. A more precise description seems to be "continue providing the service and don't tell the customer that anything changed". The customers with lifetime subscriptions who've been happily using the service for over a year since the purchase can probably make a case under the principle of estoppel that the new owner implicitly represented that they had taken on the contract. (And the customers with annual contracts who renewed might also be
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Yeah by "doing nothing" I meant don't block anyone or remove access.
That said I doubt anyone could say there isn't a binding contract. It depends only on whether the terms changed at the time of renewal. But this kind of thing would be a legal minefield.
contracts (Score:5, Interesting)
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Even more likely they bought the company for the tech and possibly even IPv4 ranges but didn't care to look for the customers.
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But then the 'old company' with those liabilities just gets wound up.
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Due diligence (Score:2)
Either the new owners didn't do due diligence, and are on the hook. Or the old ones didn't tell the truth, and are on the hook.
Congrats on your new class action (Score:2)
Which means they're almost certainly full of shit, and hoping the lifetime serviceholders are naive and not interested in fighting.
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VMware perpetual license holders receive cease-and (Score:2)
VMware perpetual license holders receive cease-and-desist letters from Broadcom
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but updates where free for your version support was something to pay for. Now to change updates to paid and not block them. To then sue someone??
And try to cover it with an EULA?? also in an big corp with an signed contract does some tech clicking an eula as part of an update void that contract?
Oh you thought we meant *your* lifetime? (Score:5, Funny)
Romain Brabant founded VPNSecure AND InfiniteQuant (Score:5, Insightful)
So the protestations of InfiniteQuant that "they didn't know about the Lifetime Subscriptions" does not hold up to scrutiny since both companies are run by the same person. It is looking like the reason for the "asset only deal" two years ago was precisely to jettison these lifetime deals.
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Unsurprisingly InfiniteQuant seems to be founded by none other than the founder of VPNSecure Romain Brabant. https://web.archive.org/web/20... [archive.org].
So the protestations of InfiniteQuant that "they didn't know about the Lifetime Subscriptions" does not hold up to scrutiny since both companies are run by the same person. It is looking like the reason for the "asset only deal" two years ago was precisely to jettison these lifetime deals.
Wow. If true, that looks an awful lot like outright fraud.
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As I understand it, it is not illegal. Companies are generally treated as entities unto themselves regardless of who owns them.
Up to a point. But there are situations where you can pierce the corporate veil and hold the shareholders and board responsible for certain actions. Because a transfer of assets between two companies headed by the same person is not an arms-length deal, I would rank that as one of the riskier things you can do. This is doubly true when it results in bankruptcy of one of the entities.
In California in particular, such an action would have a decent chance of failing the alter ego test [rslateslaw.com], because the corporati
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It is less tricky than Verizon selling "the poles and maintenance" to Frontier, Frontier then cancelling all of the retirment plans of the line workers, and then selling it all back to Verizon, now, without any of that retirement baggage.
Verizon got away with it, so these guys think they can get away with it too... but they are not as smart or wealthy.
No big loss (Score:5, Informative)
Apparently their warrant canary tripped years ago. They've been co-operating with governments since 2018
https://www.reddit.com/r/VPNTo... [reddit.com]
Also, to not know that for 2 years a significant number of your users have not been paying anything? They knew. They're in financial trouble.
Asset acquisition? (Score:2)
Most business purchases these days are structured as asset acquisitions.
Can you take them to court for thsi? Sure you can, but it would be like taking your local coffee shop to court for writing "World's Best Coffee." As everybody knows, unlimited anything does not exist, it is just a marketing term.
Nice (Score:2)
But what really happens if a freezone company screws you over? They are sort-of-offshore sort-of-onshore.
Assume they're lying (Score:2)
Sigh. (Score:2)
Your lack of due diligence in your purchasing doesn't affect the contract between myself and whatever legal entity is now the other party in the contract.
Simple solution - put thme out of business (Score:3)
ALL subscribers should immediately cancel their subscriptions.
No subscribers == No income == your out of business.
"You didn't do your homework" (Score:3)
Two people are at fault here:
The selling company for not disclosing this clearly
The purchasing company for not going over all the company documents.
Someone sold something on a lie and bought it on a lie. Now it's the consumers who pay.
But it's not illegal to screw your customers. A company has a sole responsibility: make money for shareholders. The current UnithedHealthCare lawsuit should make that clear; they basically said they missed profits due to the CEO murder and that UHC didn't act in a way that allowed them to "continue anti-consumer practices" to make goals.
Literally suing because they weren't allowed to fuck customers over to make profit. Sued. Over not being able to screw customers out of money.
Pretty soon bait and switch laws will be null. You won't know what you're buying. The ad will say this, they will give you that, and you will get screwed and like it.
"lifetime" (Score:2)
BP Microsystems (Score:2)
I bought a BP Microsystems (now BPM) universal device programmer which included "lifetime software updates" but after a few years BP announced that the "lifetime" of the programmer had ended and therefore, the lifetime updates also ended. This was in the days when Windows was the norm but DOS was still around. The programmer originally came with DOS software only but you could pay for Windows software. After the "death" of the software, the Windows version continued to support my programmer which struck
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Not in today's world, where black can be white, black, grey, purple or any of a rainbow of colors, depending on the situation and other supporting facts.
Just structure it that way and voila.
In an asset only deal, you don't take any liabilities. That's the point.
Even if it doesn't meet your definition of "asset".
Re: Odd... (Score:2)
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It appears that the assets included the existing service contracts with customers, which included these "lifetime" agreements.
The buyer is telling the customers they failed to do due diligence and didn't know what they were buying. At the same time, they're telling investors they *did* do due diligence, and analyzed the business's last few years of financials. These can't both be true.
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It appears that the assets included the existing service contracts with customers, which included these "lifetime" agreements.
It could be argued that the contracts that require service but don't generate any income are not actually an "asset"...
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You could go to a car dealer and buy a car and not the dealer's loan, yes.
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So I cold set up a straw man company that takes out a credit to buy a car, then sell the car (its asset) to me for a dime on the dollar and then go bankrupt and not having to pay back its liabilities?
Sounds like a) fraud and b) similar to what is happening here.
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Assets include liabilities
No, they don't. They are very much distinct. And when a company is dissolved, they can and often will sell the assets while the liabilities die with the entity.
So it depends how this company "acquired" VPNSecure. And it sounds likely they didn't acquire the legal entity. They bought the tech, the customer database, the delivery systems, and the brand... but that's it. They bought the furniture but not the house.
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Assets include liabilities
No, they don't. They are very much distinct. And when a company is dissolved, they can and often will sell the assets while the liabilities die with the entity.
So it depends how this company "acquired" VPNSecure. And it sounds likely they didn't acquire the legal entity. They bought the tech, the customer database, the delivery systems, and the brand... but that's it. They bought the furniture but not the house.
Right. What this also means is that the existing customers should have to enter into a new contract with the new company. If they treated a subset of customers as ongoing contracts and continued to provide service, rather than forcing everyone to sign up for service fresh, they have a real problem, because that makes them look an awful lot like a successor company.
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