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A startup called Kytch created a device to fix notoriously finicky ice cream machines at McDonald’s and saw sweet, albeit brief, success. Now the company is shaking up the fast food giant in a new $900 million lawsuit, accusing the restaurant chain of ruining its business.
The 133-page complaint, filed Tuesday in Delaware federal court, claims McDonald’s stole Kytch’s technology to reverse engineer it and create their own competing product as part of an alleged multimillion-dollar “repair racket.”
Further, it accuses McDonald’s of publishing a series of “deceptive ads” in November 2020, claiming Kytch Solution technology was a safety hazard.
Kytch co-founders Jeremy O’Sullivan and Melissa Nelson in 2019 launched the product trial of Kytch Solution, a computer device with an online interface that allows customers to remotely run the soft serve machines, the lawsuit said.
It “adjusts settings hidden deep in the machines, which can prevent outages before the machines can detect an error,” the lawsuit said.
The goal was to fix the soft serve machines and alert users of issues during a time when the appliances were so notoriously dysfunctional that the Federal Trade Commission launched a probe in September 2021, the Wall Street Journal reported the time.
The machine breakdowns also cost some franchise operators thousands of dollars a month in service fees to repair, the lawsuit stated.
The lawsuit states that Kytch Solutions was a hit, and in 2020 became “the largest independent software vendor for the shake machine in the McDonald’s system.”
But that success didn’t last long, according to the suit.
McDonald’s, along with soft serve machine manufacturer Taylor Company, worked to create their own competitive product, the lawsuit stated.
Taylor has exclusive rights to supply kitchen appliances to over 13,000 McDonald’s locations in the U.S. in what the lawsuit called a “lucrative scheme.”
The lawsuit states that in developing devices to unlock Taylor’s “cryptic” soft-serve dispensers, Kytch uncovered a multimillion-dollar “repair racket” where Taylor designed flawed code that caused the machines to malfunction.
Representatives for Taylor did not immediately respond to an NBC News request for comment regarding the allegations.
Under pressure from independent restaurant operators to integrate Kytch into the McDonald’s system, McDonald’s and Taylor worked to create a device called Open Kitchen, which has never launched, the lawsuit said.
McDonald’s and Taylor enlisted a group of Kytch trial participants to develop a competing product, accessed password-protected portions of Kytch’s online interface, and obtained a physical Kytch Solution device, the lawsuit stated. Once cracking into Kytch’s products, they added features to Open Kitchen using feedback from Kytch customers, the lawsuit stated.
However, it took time to develop the competing product.
In the meantime, McDonald’s and Taylor allegedly “fabricated bogus ‘safety’ claims” saying that the device, could cause serious human injury to users — a claim Kytch says is false.
The lawsuit included a photo of an email sent by McDonald’s to franchisees in November 2020 that stated, “McDonald’s has recently determined that the Kytch device creates a potential very serious safety risk for the crew or technician attempting to clean or repair the machine” because it could unintentionally keep running and could “cause serious human injury.”
Kytch said in the lawsuit it lost millions of dollars due to McDonald’s actions. “By contrast, Taylor has continued to rake in $75 million in annual revenue from its repair racket at McDonald’s,” the suit said.
In a statement to NBC News on Friday, McDonald’s said it “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.”
O’Sullivan and Nelson told NBC News in a statement that McDonald’s worked with Taylor to “spread false information about our company, to drive us out of the market place, and to line their own pockets.”
“We founded Kytch to improve the dismal performance and enhance the food safety of McDonald’s soft-serve machines. In response, they destroyed our business and our livelihood,” they said. “Nothing can undo that damage.”
Kytch lawyer Daniel Watkins said in a statement that McDonald’s and Taylor “unfairly” competed with Kytch and interfered in its relationships with customers “to push Kytch out of the market.”
“McDonald’s infiltrated Kytch’s confidential product trial to access Kytch’s technology, while at the same time lying to consumers about Kytch’s purported lack of safety,” Watkins said.
“But Kytch’s safety record is clear: Kytch has never received a single complaint about the safety of the Kytch Solution, its product undergoes rigorous testing by independent labs, and it has robust safety features that were specifically designed to enhance the safety of McDonald’s soft-serve machines.”
Marlene Lenthang is a breaking news reporter for NBC News Digital.
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