Broken Ice Cream Machines Lead to $900 Million Lawsuit Against McDonald's

If you have ever gone to McDonald's for an ice cream only to find out that the machine is broken, you are not alone. But one company is taking its beef with the global food powerhouse to another level.

McDonald's is best known for its world-famous burgers, fries, and broken ice cream machines
lawsuit filed by Kytch cofounders

Kytch, a startup that utilizes technology to monitor soft serve machines' performance, has sued the McDonald's Corporation for $900 million for what Kytch alleges is a dereliction of duty regarding maintaining its machines, along with forcing independent operators to pay for costly repairs and maintenance to keep machines running.

"McDonald's is best known for its world-famous burgers, fries, and broken ice cream machines," says the opening line of the lawsuit, filed by Kytch cofounders Jeremy O'Sullivan and Melissa Nelson in U.S. District Court in Delaware, where Kytch and McDonald's are both legally registered.

Kytch, as described on its website, provides remote control, real-time data and analytics, and AI-powered predictive maintenance through a cloud-connected apparatus aimed to improve performance and keep machines up and running.

The lawsuit alleges that "some franchise operators have reported shelling out thousands of dollars per month in service fees" to Taylor Company, which reportedly manufactures machines through franchised distributors.

"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," McDonald's Corporation told Newsweek. "Kytch's claims are meritless, and we'll respond to the complaint accordingly."

Taylor Company's website says that its products include soft-serve ice cream, frozen yogurt, milkshakes, smoothies and slushies, etc. O'Sullivan and Nelson allege that the partnership between McDonald's and Taylor remains viable because independent owner-operators, rather than Taylor itself, pay for service and repair fees, and Taylor develops new kitchen products exclusively for McDonald's.

"Despite these widespread issues, McDonald's has failed to meaningfully improve the machines, and the fast-food giant has even granted Taylor exclusive rights to supply kitchen appliances to more than 13,000 retail locations in the United States," the lawsuit states. "This arrangement generates millions of dollars of revenue for Taylor and its network of franchised distributors."

McDonald's
Pictured is a McDonald's restaurant located in El Cerrito, California. The company is being sued by a tech startup related to its ice cream machines. Justin Sullivan/Getty

O'Sullivan told Newsweek that Kytch, which is shorthand for "kitchen," and Taylor had a relationship that went back 10 years. Both companies worked on the Frobot, which O'Sullivan said took the world's most ubiquitous ice cream machines—which are used at McDonald's, Wendy's, In-N-Out Burger, etc.—that were supposedly "robust."

But the pair of former California accountants, who were enamored with technology and the power of machinery, collected data in the Bay Area and eventually found that the machines weren't all that robust at all.

"It was a very harmonious, good relationship where we just worked together and it was very amicable," O'Sullivan said regarding Taylor. "But as soon as we started using the software to make things reliable...that's when things immediately turned hostile. It became clear to us that there's way more money in broken money machines than machines that actually work."

He alleges that a 2018 Taylor acquisition statement allegedly showed that 25 percent of company revenue was made on repairs and maintenance. A $300 invoice provides the company with a "perverse incentive" to assure that machines don't work, he said.

O'Sullivan compared the "legacy distribution model" to those of auto dealerships, which make profits off service repairs.

Last May, as reported by Wired, Kytch sued Taylor and its distributor TFG for theft of trade secrets alleging that both entities, in addition to a franchise owner, obtained a Kytch device and reverse-engineered it for its own benefit.

A spokesperson for Middleby, the parent company of Taylor, told Newsweek that a March 4 denial of Kytch's motion for a preliminary injunction filed in Alameda County "concluded that there is no evidence substantiating the Kytch claims against Taylor."

"Kytch's latest lawsuit against McDonald's, like its existing lawsuit against Taylor in the Alameda County Superior Court, is a meritless attempt to put the blame on others for an unsuccessful business," the spokesperson added. "We have tried not to replicate Kytch's strategy of litigating claims through the media, because the truth will never be as interesting as Kytch's wild allegations and because we are confident that Taylor will ultimately be vindicated in court."

The spokesperson said that "Taylor did not conspire with McDonald's to ruin Kytch's business and has never attempted to obtain, or obtained, Kytch's trade secrets" -- as evidenced by the The Alameda County Superior Court order, which "thoroughly debunks these now discredited allegations."

The "repair fees racket" claimed by Kytch is completely false, the spokesperson added, saying that Taylor does not have a "monopoly" on providing soft serve machines to McDonald's.

"In fact, Taylor understands that it is not the only company that provides soft serve machines to McDonald's," the spokesperson said.

O'Sullivan told Newsweek that the Taylor suit is still in litigation. However, about 800 pages' worth of public discovery documents and court filings led him and Nelson to sue McDonald's Corporation. He said that evidence is included in email and text conversations among multiple parties.

He said evidence included email, text and Zoom conversations among multiple parties at Taylor and McDonald's. "These guys put a target on Kytch."

McDonald's Corporation, in a previous statement reported by Wired, said the issue was with Kytch's technology.

"Nothing is more important to us than food quality and safety, which is why all equipment in McDonald's restaurants is thoroughly vetted before it's approved for use," McDonald's said in the statement. "After we learned that Kytch's unapproved device was being tested by some of our franchisees, we held a call to better understand what it was and subsequently communicated a potential safety concern to franchisees. There's no conspiracy here."

O'Sullivan said he and Nelson didn't know where their litigation road would take them, but that evidence in the form of discovery documents and court filings compelled them to fight for what they thought a decade ago was a billion-dollar business model—the modern kitchen.

"If their mission was to destroy Kytch, they absolutely succeeded," O'Sullivan said. "What has blown up in their face is this massive trail of really damning evidence of all the laws they've broken. That's what we're litigating now. ... At the end of day, Kytch is a data company and has a far bigger data set than Taylor and McDonald's combined."

When asked why the lawsuit seeks $900 million in damages, he said the law is designed to prevent this type of behavior as it pertains to intellectual property and what Kytch has lost.

"It's no small task to bring a suit against two multi-billion-dollar companies," O'Sullivan said. "It took us months and months, if not a full year, to assemble all the data and convince very smart attorneys to take this data and litigate it against probably the most fearsome company to sue, which is McDonald's."