MCAD Tech News #108 (October 23, 2003)

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Many people in the CAD industry have been following the Spatial vs. Autodesk lawsuit that lasted almost two years. It culminated in a trial that dragged on nearly four weeks and ended up in an Autodesk victory. I had a chance to watch most of the courtroom "drama" unfold and afterward talk with Carl Bass, the executive vice president for the Design Solution Group at Autodesk, and Mike Payne, Spatial's CEO.

A little background history. Spatial was suing Autodesk for material breach of its 1991 contract, saying that Autodesk violated two provisions: One was regarding the dissemination of Spatial's ACIS source code to a third party; the other involved storing the code at more Autodesk locations than was allowed by the contract. Spatial alleged that when Autodesk leveraged its ACIS technology to create its new kernel called ShapeManager, it breached the contract by sharing the source code with D-Cubed; Autodesk felt it was within its contractual right to do so.

What the Executives Say

So what do Bass and Payne have to say after the trial? Bass believes that the reason Dassault Systemes bought Spatial's component division in November 2000 was to hold the rights to the ACIS modeling kernel, which Inventor used at that time, thus giving Dassault control of a competitor's technology. Bass feels that Dassault's plan was to eventually get Inventor off the market, "because it cuts into their profits."

Payne, of course, believes this to be nonsense. He points to the fact that after Dassault took over, it spent over six months developing ACIS Release 7 to meet Autodesk's request for bug fixes and new features. Payne pointed to Spatial's evidence presented at the trial, which included an email from Richard Jones, the VP of engineering at Autodesk, who saw a beta version of R7 and praised Spatial for doing great work.

However, Bass' beliefs are not without merit. There was an October 2001 meeting which featured, among other executives, the CEOs of both Autodesk (Carol Bartz) and Spatial, where a representative from SolidWorks, also a division of Dassault, reportedly called in to suggest that Autodesk drop Inventor and focus on reselling SolidWorks.

During the hearing, Carol Bartz testified that Spatial said, "We will not give you any new bug fixes. We will give you [a] separate code stream so you will not get the new technology coming from Paris [from CATIA]."

Regarding the "drop Inventor" idea, Mike Payne testified that this is how business is sometimes done: "You just throw out an idea, and if it's rejected, you move on." After the trial, I talked to him and he compared it to how Dassault Systemes ended up buying SolidWorks in 1997, pointing out how that acquisition started out as a Dassault executive's casual comment over lunch and ended up as a full-fledged business deal.

Payne did admit in court to some strong-arm tactics, but says that he was just trying to create a better deal for Spatial, as he felt that the one-million-dollar-a-year royalty that Autodesk was paying wasn't enough for the work Spatial was doing. He says he feels that Spatial has stuck to its side of the bargain by delivering ACIS 7 with the requested fixes, but Autodesk has yet to renegotiate the contract as promised. Bass says that Spatial was never interested in renegotiating the contract; it was all about hurting Inventor.

What I think, Part 1

While this comment in the October 2001 meeting about dropping Inventor was mentioned a few times during the trial, it wasn't the backbone of Autodesk's defense. In any case, it probably should have never been said in the first place. As Bass puts it, EDS doesn't ask Dassault Systemes to drop SolidWorks and resell Solid Edge, just because it makes the kernel SolidWorks is built upon.

There is, however, an issue with the timing. Bass says, after the October 2001 meeting, Autodesk talked to its corporate legal counsel, which eventually led to Autodesk deciding to work with D-Cubed to leverage ACIS to create ShapeManager. On November 27th 2001, Autodesk announced this in a press release entitled "Autodesk to Develop Next Generation Solid Modeling Kernel to Improve and Speed Customers' 3D Design and Product Development Cycles," and two months later, Inventor 5.3 was announced, with ShapeManager as its engine. However, if the October 2001 meeting was the impetus for ShapeManager, why did Roger Mullon, a project manager at Autodesk, testify that contract negotiations with D-Cubed began in September 2001? Also, is two months really enough time to create a new kernel and get Inventor working with it? Regarding the other threats, if Spatial was trying to bully Autodesk into accepting a sweeter deal financially, it seems like it could have handled it differently.

However, regardless of the timing, threats, and all the reciprocal allegations, does it make sense that Autodesk was a little nervous about Dassault owning Spatial? Yes. And would a company in its position look into creating its own kernel, especially if it could leverage existing technology? Yes. And there actually was a provision in the 1991 contract that allowed Autodesk to create a divergent kernel. However, the issue is this: Was D-Cubed a valid third-party contractor for Autodesk and therefore within its rights to work on Spatial's source code? And this essentially comes down to one word in the 1991 contract.

The Contract

This was the contract that replaced an original 1989 agreement and one of the key edits was the changing of a single word from "employee" to "individual." Autodesk feels that this change allowed them to hire D-Cubed to work on the ACIS source code, and points a 1996 hidden line project called AHL, where Spatial let Autodesk share the source code with D-Cubed, as proof that Spatial did not object to such an arrangement previously. However, the testimony from Mike Hansen, a former Spatial VP, indicated that Spatial gave Autodesk special permission to share source code with D-Cubed only for the AHL project. Autodesk's Roger Mullon, on the other hand, said it wasn't only for the AHL project.

In addition, there is one section in this 1991 contract that essentially reads "in no event shall Autodesk have the right to distribute, sublicense, or otherwise transfer to any third party the source code to the ACIS Modeler," unless the appropriate agreements are in place, and Spatial felt they weren't. Spatial points to the fact that no one at D-Cubed signed the standard Autodesk Employee Confidentially Agreement until early December of 2001, after Autodesk's announcement. Spatial also pointed that in none of its licensing agreements with other companies (such as HP, Bentley, CADAM, and so on) did non-employees have access to source code.

Autodesk's best witness was Spatial's cofounder, Dick Sowar, who testified that the main intent of the contract was to allow Autodesk to use the ACIS source code in order get its software applications to market, which would result in both companies making money. While he was concerned about too many people getting code, as long as the proper agreements were in place, he felt it was acceptable. Spatial's counter to this testimony was that, while Sowar may have certain "feelings" to how things were done, he wasn't familiar with the actual details of the contract, and that Kathy Cunningham, the person who was familiar with the terms of the contract, testified that the contract didn't permit this type of action.

What I think, Part 2

Well, the jury ruled in favor of Autodesk. But, in my personal opinion, I think the jury had very little idea of what was going on. Can you blame them? Nine days and about 30 hours of testimony spread out over four weeks! Scores of names thrown at them, so many that on the sixth day of the trial, the judge, after yet another name was dropped, asked the lawyers to write the names of the key players for Autodesk, Spatial, and D-Cubed on a board which soon filled up with over 30 names (and that wasn't all of them). There were also many other CAD companies mentioned, and more acronyms than you could count. There were dozens of witnesses, both live and via videotape, and each side sent the jury back to review over 40 exhibits (contracts, emails, faxes, notes, and so on). The two alternate jurors had been spent (one got sick and the other had to go on vacation) and other jurors were complaining how they had business and personal trips that were coming up real soon. So despite all this information and the judge's instructions to go into the jury room with an open mind and to review all the data presented, a verdict was returned in less than two hours. No matter what one's feelings were, one way or another, I think the matter deserved more deliberation than it received.

Again, I don't blame the jurors. The deliberations could have, like the trial, gone on forever. For every point made by a witness, there was a counterpoint, so what should they believe? However, most of Autodesk's key witnesses either still work for Autodesk or have business with them, whereas several of Spatial's key witnesses such Hansen and Cunningham, don't even work in the CAD industry anymore. Interesting? Maybe, maybe not.

Now, can't we all just get along?

Relevant Links

Autodesk: www.autodesk.com

Dassault Systemes: www.3ds.com

D-cubed: www.d-cubed.co.uk/