Judge Rules Against Company that Allegedly Sold "Hacked" Code to CIA

CIA Acquired the Pirated Software for Use in Drone Program, Lawsuit Claims

 

A small Massachusetts tech company scored a significant victory in court this week in a lawsuit in which the CIA has been accused of purchasing pirated software code for its Predator Drone program.

A judge in Suffolk County Superior Court in Boston ruled that a breach-of-contract claim filed against the company, Intelligent Integration Systems Inc., or IISI, by Marlborough, Mass-.based computer maker Netezza Corp. should be dismissed. In fact, the judge’s ruling states, it was Netezza that improperly terminated its contract with IISI.

In addition, the judge ruled that IISI was not required to develop software for a new data-warehouse computer that Netezza had allegedly sold to the CIA for use in the agency’s drone program.

The lawsuit, filed in November 2009, revolves around a series of claims and counterclaims related to a sophisticated, analytical software program, known as Geospatial, that was developed by Boston-based IISI and is capable of integrating at high speeds spatial data, such as maps and visual images, with non-visual data, such as names and phone numbers.

The essential argument in the lawsuit between Netezza and IISI boils down to whether IISI was required to create another version of its Geospatial software for a new high-speed data-warehouse computer product that was launched by Netezza last year and ultimately sold to a major government client, which IISI pleadings allege is the CIA. Both parties in the case agree that IISI did sell a version of Geospatial to Netezza that was designed to operate on that company’s prior data warehouse platform, called the Netezza Performance Server.

However, IISI argues that, per a contract agreement between the two companies, it was not required to develop a new version of its software to operate on Netezza’s latest hardware product, dubbed the TwinFin — unveiled publicly in 2009.

Netezza claimed otherwise and allegedly, according to IISI’s pleadings for summary judgment in the case, unilaterally cancelled its contract with ISSI and also “hacked” ISSI’s Geospatial source code “and created a version of Geospatial that ran on the TwinFin, though very imperfectly, which it delivered to the CIA in October 2009, and which the CIA accepted.”

[See this link for a previous Narco News story detailing the entire case.]

Following are excerpts from the judge’s ruling, issued yesterday, Aug. 20:

The Court concludes that IISI was not contractually obligated to make its Geospatial software product work on Netezza’s TwinFin appliance [computer]. Because Netezza thus has no reasonable expectation of proving its claim that IISI breached an obligation under the Agreement by refusing to make its Geospatial software operate without error on the TwinFin appliance, summary judgment shall enter for ISSI on Netezza’s breach of contract count.

… A judgment shall also enter … declaring that Netezza Corp. did not have good cause to terminate its 2008 Purchase and Distribution agreement with Intelligent Integration System Inc.

Several additional claims made against Netezza by ISSI are still pending before the court, including a request for an injunction “prohibiting Netezza from continuing to manufacture, distribute or market” any products that are “derived from, in whole or in part, any one or more of (or any portion of)” ISSI’s products.

The judge is expected as early as next week to address those claims as well as the question of whether there will be additional discovery in the case, sources tell Narco News.

The stakes for the publicly traded Netezza (NYSE-NZ) with respect to those unresolved legal claims appear to be significant, based on information revealed in its fiscal year 2010 report to security holders, which is filed with the U.S. Securities and Exchange Commission:

We have history of losses and we may not maintain profitability in the future. We have been profitable for the last three fiscal years generating net income of $4.2 million in fiscal 2010, $31.5 million in fiscal 2009 and $2.0 million in fiscal 2008, but we had not been profitable in any prior fiscal period As of January 31, 2010, our accumulated deficit was $43.4 million.

…. Nearly all of our revenue is derived from sales and service of our data warehouse appliance product family [such as the TwinFin] and we expect that this product family will account for substantially all of our revenue for the foreseeable future. If the data warehouse market declines or our data warehouse appliance products fail to maintain or achieve greater market acceptance, we will not be able to grow our revenues sufficiently to maintain profitability.

…. In November 2009 we filed a lawsuit against Intelligent Integration Systems Inc., former solutions provider to Netezza that we refer to as IlSi, alleging that IlSi breached an agreement with us…. In January 2010, IlSi filed an answer and counterclaim in response to our complaint in which IlSi alleges that we breached our contract with IlSi…. In its counterclaim lISi seeks unspecified monetary damages, an injunction requiring us to return its trade secrets and proprietary information, costs and attorneys fees. We intend to vigorously defend ourselves against IlSis counterclaims However the prosecution of our lawsuit against IlSi and the defense against IlSi’s counterclaims may require significant investment of time and financial resources.

So it seems clear the outcome of the litigation with ISSI has important implications for Netezza’s future business prospects.

What isn’t so clear at this point is how ISSI will address any possible misappropriation of its intellectual property (specifically, the alleged acceptance of the “hacked,” and faulty Geospatial software) by the U.S. government via the CIA for supposed use in the Predator Drone program, which involves the use of unmanned aircraft to target and kill people in Pakistan and Afghanistan.

A judge in the state of Massachusetts court system would appear to have little power to address that broader federal question, though it seems to be a matter which raises implications that should be of real concern for a far larger constituency than ISSI.

The judge’s ruling in the ISSI/Netezza lawsuit can be found at this link.

Stay tuned …. 

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