The People vs Lily Robotics

The plot thickens. Sorry folks, it seems that those refunds might not materialize after all. Lily Robotics apparently used your preorder funds as collateral for a bank loan and might need to pay the bank back first.

The company is also now facing charges of false advertising and misleading business practices from the San Francisco District Attorney (DA), George Gascón. A restraining order against the company has also been filed to prevent them from spending more customer preorder funds.

These alleged misleading business practices include, amongst others:

• Not refunding customers when the initial shipping date was delayed by almost a year
• Using customers’ funds as collateral for a bank loan after telling customers that their preorder funds would not be used to run the company
• Passing promotional video off to potential customers as “Lily Shots” while outright attempting to conceal that the video was shot with competitors’ hardware (GoPro and DJI products)

This is according to The Register, who report that the charges were laid on Thursday, 12 January 2017, the same day that Lily Robotics publicly announced that they were shutting down the company and would be issuing a refund to all who pre-ordered a Lily Drone.

A coincidence that the company shut down on the same day as the charges were laid? I leave it up to you to decide. A Lily Robotics spokesperson told The Register in a phone interview that it is:

“We had been in the process of shutting down prior to the lawsuit being filed and the timing is nothing more than coincidence,” a spokesperson for Lily said in a phone interview with The Register, in a tone that sounded very sincere.

“We had been in the process of shutting down prior to the lawsuit being filed and the timing is nothing more than coincidence,”

The spokesperson said the decision to pull the plug in the face of dwindling funds had been reached “several weeks ago” and was conveyed in an announcement to employees.

What strikes me most about this is that The Register goes on to say:

“According to a source familiar with the complaint filed against the company, Lily Robotics has known about the DA’s investigation for several months.”

Here is an extract from the DA’s complaint against Lily Robotics:

“In May 2015, Lily Robotics used a false and misleading promotional video for a camera drone to obtain over $34 million in “preorder” sales from customers all over the world.

A “preorder” is when a customer pays a seller for a product with the understanding that the product is not yet available to be shipped but that it will be shipped by some stated future date.

In addition, Lily Robotics did not refund those customers their money when it delayed for almost a year the shipping dates for its product, as the law required. Instead, it told its customers that the preorder money: “remain[ed] untouched,” was in “cold storage,” and was not being used “to run the company.” This, too, was false and misleading. According to a witness, Lily Robotics had actually used that preorder money as collateral to obtain a $4 million load so it could continue its operations.

It is now January 2017. Lily Robotics still has not shipped a single product to any of its customers, and, according to a witness, it is running out of non-preorder money.

The restraining order filed uses some strong language:

“To protect the misled customers’ funds and prevent Lily Robotics from further dissipating these ill-gotten gains, the People ask the Court to maintain the status quo by enjoining Lily Robotics from spending, using, or dissipating its customers’ preorder money except to provide refunds to preorder customers.”

It also looks like the San Francisco DA wants to make an example out of Lily Robotics to prevent other companies from pulling the same tricks in future, another extract from the complaint:

Through this civil enforcement action, the People seek to return to customers the $34 million they paid to Lily Robotics as a result of Lily Robotics’s fraudulent advertising. The People also will ask the Court to impose substantial civil penalties and permanent injunctive relief to deter this kind of conduct infuture.

Lily Robotics’s conduct amounts to:

(1) false advertising based on the false and misleading Promotional Video that it used in order to induce consumers to purchase its camera drone;

(2) violations of the Consumer Legal Remedies Act;

(3) theft by false pretenses by using the false and misleading Promotional Video and other false representations to obtain money from preorder customers; and

(4) violations of the Federal Trade Commission regulations governing shipping representations and delays.

The financial penalties involved if the lawsuit is successful could run into the tens of millions of dollars range.

Regarding Lily Robotics using DJI and GoPro hardware to shoot their promotional video the lawsuit goes on to say:

Lily Robotics Intended to Mislead Potential Customers with the Promotion Video

26. In fact, none of the video in the Promotional Video was shot by a Lily Camera. Most notably, the POV footage used in the Promotional Video was filmed using a professional camera drone called the DJI Inspire…

and

27. On information and belief, at the time of the filming of the Promotional Video, Lily Robotics did not have a single Lily Camera prototype that had all of the features advertised in the Promotional Video. Instead, its co-founders Balaresque and Bradlow, who were present during the filming, brought several prototypes to use during the filming. Some, which looked good on the outside but were not fully functional, were used only for “beauty shots.” Others had some functionality but did not look like the product being advertised. Some were able to film video but even those were merely Lily Camera prototypes with GoPro-branded cameras mounted on them.

28. At the time of the filming of the Promotional Video, Lily Robotics knew that it did not have a product that could do what was going to be advertised in the Promotional Video. Prior to the filming, Balaresque was exceedingly concerned about anyone being able to deconstruct the Promotional Video and determine it was a GoPro and not a Lily Camera that filmed POV sequences. In an email chain from February 2015 with CMI Director Brad Kremer, Balaresque wrote, “For VFL [View From Lily] shots, we will be using a Go[P]ro mounted on a Lily prototype. However, we do not feel comfortable telling people that we shot VFL scenes with a Go[P]ro (because the whole thesis of our product is that you do not need a Go[P]ro). Can you modify a Go[P]ro image in post-processing so that people cannot tell that it was taken from a Go[P]ro?…”

29. Even after Kremer assured Balaresque that no one would be able to tell that the edited VFL shots were taken from a GoPro, Balaresque was still not satisfied. He asked “Are you sure that the Go[P]ro lens does not create a unique deformation/pattern on the image? I am worried that a lens geek could study our images up close and detect the unique Go[P]ro lens footprint. But I am just speculating here: I don’t know much about lenses but I think we should be extremely careful if we decide to lie publicly.”

Unfortunately, we are not surprised with this development. We have been following the Lily saga for quite a while. It’s interesting to start seeing the full scale of this debacle in these documents. Check out all our coverage of Lily Drone.

sUAS News will be watching the situation unfold and report when there are new developments.

Here are the restraining order and complaint documents obtained by The Register, their article and the court documents make for an interesting, if not maddening, Saturday morning read:

https://regmedia.co.uk/2017/01/13/lily_complaint.pdf

https://regmedia.co.uk/2017/01/13/lily_restraining_order.pdf

GoPro are also facing some disgruntled investors with regards to their Karma drone being recalled due to the system falling out of the sky on a regular basis.