Lawyer tells inside story how Visio got IntelliCAD from Softdesk

Boomerang-ing

 

It's been 18 years since a little something now known as IntelliCAD got it start, and in that time various people involved have told me bits and pieces of the story: How Visio ended up with IntelliCAD.

From May 19, 1997 issue of Broeck Bulletin, we have a "Team B&T Success Story" published by the legal firm Brobeck Phleger & Harrison. Their story begins like this:

The Boomerang personnel engaged in an off-site skunk works project in a San Diego suburb, under the protection of Softdesk's CEO, to develop a CAD engine (with which application software designed for AutoCAD would be compatible) to compete directly with AutoCAD.

But then the directors of Softdesk got worried about becoming a competitor to Autodesk, and so ordered the project be shut down. The CEO, however, arranged for the project to continue, and so Boomerang was spun off and then incorporated on Oct 1, 1996.

The ten Boomerang employees had no funding, except for a promise that Softdesk would license their technology for sale in limited markets. Once royalty payments reached $3 million, Softdesk said that they would take over the technology.

Until payments were forthcoming from Softdesk after the software was finished, however, Boomerang needed an income to continue programming, and so they tried contacting a couple of venture capital sources. One of them advised Visio of the opportunity, knowing that Visio was into computer graphics. Visio executives immediately took a look, liked what they saw, and offered $9.5 million -- of which $3 million would be passed along to Softdesk.

According to Broeck, Boomerang now made some negotiating errors, such as letting Softdesk know about Visio's interest, and proposing that Softdesk receive only half of the $3-million amount. In the meantime, Boomerang staff kept right on working on IntelliCAD, without pay and without rights to the technology. But then Softdesk became uncommunicative.

Shortly thereafter, events occurred in quick succession:

• Nov 25, 1996. Softdesk sent Boomerang a new agreement, that included benefits like being able to occupy offices worth $4000/month for free. Boomerang signed
  
  
• Dec 4. Softdesk kicked Boomerang out of the offices, and ended negotiations
  
  
• Dec 5. Softdesk took possession of everything that "belonged" to Boomerang
  
  
• Dec 10. Softdesk announced it was being acquired by Autodesk for $72 million

B&T lawyers "identified the antitrust defect in a quasi-monopolist's merger designed to suppress a potential competitor technology." In other words, Autodesk was seen as a quasi-monopolist, and its merger with Softdesk could suppress the ability of IntelliCAD to be a technological competitor. Another law firm that specialized in software antitrust investigations determined the quickest route to success would be to write a letter to the Antitrust Division of the Department of Justice -- instead of suing Softdesk.

In the meantime, Softdesk goofed by stating that there actually were two bidders (the other was rumored to be PTC). If Autodesk had lost, Softdesk admitted it would have sold IntelliCAD to Boomerang; but since Autodesk won, Softdesk blocked the sale to Boomerang -- a no-no, in the eyes of the lawyers.

When the lawyers advised Softdesk of the anti-trust issues, Softdesk still refused to hand the technology to Boomerang, but offered them a mere $7,500 to go away. Further negotiations went nowhere; Visio began to lose interest, because they did not want to finance Boomerang's litigation costs.

Visio did offer to hire Boomerang's programmers as independent contractors. Their job was to write from scratch a new AutoCAD workalike, because Softdesk still owned the IntelliCAD code. By January, the team were hired as employees. Visio showed interest in joining the anti-trust action, but the law team worried Visio might use the action to acquire technology for nothing.

The FTC took over from the Department of Justice, and Boomerang's law team suggested to them a remedy of divesting the technology to Boomerang, instead of to the highest bidder. By mid-February of 1997, Visio agreed to pay Boomerang $9.5 million (or another amount, as determined by circumstances listed in a letter of intent), no matter how Visio acquired the technology. Plus, Visio agreed to contribute $10,000 towards the antitrust legal fees.

While Boomerang and Visio were still negotiating the agreement, Softdesk's general counsel called, "who could not disguise the terror in his voice," offering to start negotiating again with Boomerang. The anti-trust threat had worked:

The FTC had concluded an antitrust violation existed, which justified blocking the Softdesk/Autodesk merger, and had chosen the remedy of mandatory divestiture to Boomerang. In effect, the FTC had given Softdesk/Autodesk an "offer they could not refuse."

The timeline quickened:

• Feb 20, 1997. Softdesk called to negotiate again
• Boomerang counted: they would pay $1 million to Softdesk in exchange for no use-restrictions, even though Boomerang didn't have a penny to its name (they were counting on Visio coming through on time)
  
  
• Feb 21. Boomerang signed its agreement with Visio
• Softdesk agreed to accept the one-million the following week, even while handing over ownership of the technology immediately
  
  
• Week of Feb 28. Visio sent Softdesk the $1 million, and an initial $5.7 million to Boomerang shareholders (the original ten employees)
  
  
• Mar 31. Autodesk and Softdesk finalized their merger

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In the end, it did not work out well for Visio. They spent something like $25 million on acquiring, developing, and marketing IntelliCAD, but sold only 30,000 copies before setting up the IntelliCAD Technical Consortium in 1999 to take over the effort.Visio, however, retained ownership of the IntelliCAD code base.

Microsoft purchased Visio for $1.2 billion in early 2000, and so to this day, Microsoft owns code found in IntelliCAD 98 through to IntelliCAD 6; IntelliCAD 7 was the first version released by ITC completely free of Microsoft-owned code.

 

 

 

 

 

 

 

 

Comments

[Ron Prepchuk]

Fascinating behind the scenes details. I want to point out one correction. Microsoft only owns IntelliCAD code through version 2000, not IntelliCAD 6 (or 4 or 5) which was developed by the IntelliCAD Technology Consortium. IntelliCAD 2000 was developed by Visio but never released except to the ITC. I took over the ITC in 1999 when it was divested from Visio.

[Ralph Grabowski]

Thank you for the historical note. Useful!

Microsoft's purchase of Visio create a lot of headaches for CAD vendors depending on the ITC code!