Lawsuit Reveals Silent Circle's Struggles: Nobody Is Buying Its Privacy-Focused Blackphone

Silent Circle has received a lawsuit from Geeksphone, the company's former joint venture partner, as Silent Circle has allegedly not paid part of the agreed amount to buy out Geeksphone's stake in the partnership.

In the case-related court documents acquired by Forbes, Geeksphone is disputing an amount of $5 million that Silent Circle supposedly owes. Geeksphone, a Spanish firm that helped in the creation of the original Blackphone, said that the amount is part of the $30 million deal from February 2015 that allowed Silent Circle to buy out Geeksphone from their joint venture on the privacy-focused smartphone.

At the heart of the dispute, according to the court documents, is the fact that Silent Circle has struggled to sell the Blackphone, with its failure associated with wrong assumptions of demand for the privacy-focused smartphone and partnerships that did not push through.

A letter sent by Silent Circle's general counsel Matt Neiderman to Geeksphone's Co-founder Rodrigo Silva-Ramos Pidal revealed that when the company signed the deal to buy out its partner, it believed that it already has a significant distribution agreement in place with three partners, specifically with Dubai's BigOn Telecommunications, South Korea's Kumion and South America's America Movil.

Silent Circle thought that the three contracts would lead to sales of 250,000 Blackphones. However, all three partnerships did not pan out. Only America Movil purchased the Blackphones, but only 6,000 units.

Neiderman then admitted that Silent Circle, in anticipation of fulfilling the large purchase orders, had to take out loans to purchase the inventory and materials ahead of time. However, with the orders cancelled, Silent Circle found itself in a financial crunch, pushing it to absorb massive losses from its hardware operations and to instead focus on its software business.

The report also revealed a previously unannounced $20 million funding round in February, but it came with conditions from the company's lead investor that it needed to become cash flow positive over the next four quarters and to achieve a secured debt-free balance sheet.

With all these issues surrounding Silent Circle, it seems that consumers are just not interested in purchasing smartphones that are focused on providing highly secure platforms, despite the many reports on devices being compromised by hackers.

While Neiderman has said that the company believes the lawsuit will be settled in their favor, the lawsuit and the revealed struggles of Silent Circle could possibly mean the end of the Blackphone series. Silent Circle could then focus on Silent Phone, the company's software solution for private communications and file transfers.

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