Kytch, a startup that makes ice cream machine monitoring devices, sued McDonald’s on March 1, alleging false advertising and tortious interference with its business. It also says McDonald’s, along with its ice cream maker company Taylor, engaged in corporate espionage by reverse-engineering one of Kytch’s devices to copy it and create their own product.
The complaint alleges that McDonald’s knowingly lied when it sent out a letter to all franchisees warning them that using a Kytch device could injure employees. That letter put a stop to Kytch’s rapid business growth, causing the company to lose untold millions now and in the future, the suit alleges. According to Wired, Kytch’s co-founders Melissa Nelson and Jeremy O’Sullivan are asking for $900 million in damages, as well as a jury trial. Even if they win, their story is a lesson in all the bad things that can happen if you try to build a business by taking on a mega-corporation.
At the center of the conflict is a serious problem that McDonald’s has failed to fix over the last several years–its ice cream machines break down much too often. The chain itself acknowledged as much with a rueful tweet that’s cited in the lawsuit.
In fact, these machines, which are made by the Taylor Company, break down so frequently that the McBroken website was created to track which are down and which are working. According to McBroken, at this writing, 10.36 percent of McDonald’s ice cream machines nationwide are nonfunctional, with 26.5 percent not working in New York City, and 19 percent not working in Dallas. (Kytch claims this is intentional because Taylor makes a large chunk of its revenue from machine repairs.)
To Nelson and O’Sullivan, these problem machines seemed like a great opportunity. In 2019, they began selling a small device that can be installed in McDonald’s ice cream machines and connected wirelessly to a franchise owner’s smartphone. The device monitors the machine’s internal communications and reports on them, alerting users when a machine is overfilled or needs preventive maintenance. That helps franchisees keep their machines operational more of the time, saving on repair costs and avoiding lost revenue from missed ice cream sales.
Sales doubling every quarter.
The device was a success with franchisees. By November 2020, Kytch had 500 customers and its sales were doubling every quarter. All that came to a screeching halt when McDonald’s sent a letter to all franchisees telling them not to install the devices and warning that doing so would invalidate their warranties. Most damning, McDonald’s then added: “Even more concerning, McDonald’s has recently determined that the Kytch device creates a potential very serious safety risk for the crew or technician attempting to clean and repair the machine, given that the Kytch controller may cause the device to change its operation or continue running during cleaning and maintenance, in a manner that can cause serious human injury.”
The Kytch founders say this is baloney, and McDonald’s knew that when it sent out the letter. Not only were the Kytch devices certified as safe by product testing firm Intertek, the injury McDonald’s warns of can’t happen because when an employee removes the ice cream machine’s door to clean it or do maintenance, the machine’s motor is automatically disabled. “McDonald’s had every reason to know that Kytch was safe and didn’t have any issues,” Nelson told Wired.
A McDonald’s representative provided this statement to Inc.com: McDonald’s owes it to our customers, crew and franchisees to maintain our rigorous safety standards and work with fully vetted suppliers in that pursuit. Kytch’s claims are meritless, and we’ll respond to the complaint accordingly.
Before suing McDonald’s, Kytch sued Taylor last May for stealing its trade secrets by reverse engineering a device to create its own product. That lawsuit is ongoing, although Kytch did win a temporary restraining order and the court ordered Taylor to return its Kytch device.
Where will this all end up? It seems like a classic David-vs.-Goliath story, and in the real world, most such stories don’t work out well for the little guy. McDonald’s certainly has the resources and legal talent to fight a lengthy and sophisticated battle, while Kytch is already requesting donations from visitors to its website.
In the end it may be a cautionary tale for would-be entrepreneurs. Taking on a giant corporation is not the safest way to launch a startup. And before you head out for a McFlurry, you might want to check and make sure the machine is working.
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