(Update: There appears to be a settlement).

rockyou.bmpA U.S. district court judge has issued a preliminary ruling favoring Iconix in a suit alleging two of its former employees committed intellectual property theft in forming photo slideshow site, RockYou.

Iconix apparently nailed them by archiving their IM conversations.

PE Week’s Alexander Haislip has done the reporting (link is here, but it is subscription only), and digs up the details from the complaint. Here’s our earlier story on RockYou, about its business model, and why high-profile venture firm Sequoia Capital led a $1.5 million investment into the company, along with Lightspeed and other investors. The firms have been mired in the suit too, according to the report, which suggests they knew about the complaint before investing.

barbiedoll.bmpFrom our earlier story, you’ll see the company has seen controversy before, including allegations of hate-mongering, but the company responded to that. The site is filled with raunchy profiles such as the one at left.

Lance Tokuda and Jia Shen, the two co-founders made the mistake of corresponding via IM about their plans, and the complaint publishes archives Iconix claims is proof they planned RockYou while still at Iconix:

Tokuda’s IM name is “phdlance” and Shen’s is “mekateK” in the following alleged IM exchange:

phdlance: basically, a funny slideshow with email distribution support could make us viral

mekateK: huh… oh rms… thats [sic] scary. I can’t tell what ur [sic] talkin [sic] about… rms [rockmyspace] or ico[Iconix]… hehe

Apologies, but you’ll have to subscribe to PE Week if you want to read the rest of the juicy gossip, about the other archived conversations, including why they approached local entrepreneur Auren Hoffman, for example, who knew an exec at News Corp., which had a big acquisition budget — and who offered them a $5 million valuation straight up.

That, or we’ll get a copy of the complaint and post it here.

Update: Here are links to the complaint, to the IM conversation, and to the judge’s order, which comes courtesy of Venkat at Spamnotes. Let us know what you think. The evidence clearly suggests they plotted RockYou while on Iconix’s time — not good.

Other related links below in comments.

Also, check out attorney Todd Rumberger’s advice about what to consider when leaving a company to start a new one, and how to not get sued. Most people assume California is liberal in letting employees leave, but that’s not true in certain cases.