Update: SPSS announced at 3:30 p.m. that it has reached a settlement with Norman Nie regarding the trademark litigation. Terms of the settlement were not disclosed, and the company said it would have no further comment on the issue.
Normally when a company is involved in litigation significant enough to be noted in its annual report the potential liability is resolved before any merger is consummated.
In the case of SPSS Inc., a Chicago-based software company, IBM Corp. went so far as to threaten to reduce its $50 a share offer to take over SPSS because of a trademark suit by a co-founder.
But now IBM is steaming ahead with its $1.2 billion offer to buy SPSS as if the litigation didn't matter. SPSS shareholders will vote next Friday on the merger offer while the trademark suit is slated to go to trial three days later in Chicago federal court.
SPSS is in negotiations to settle the suit, and a source said a settlement could be announced as soon as Friday.
The situation illustrates how the value of a name apparently can be trumped by an even bigger name.
The SPSS name derives from a computer program known as Statistical Package for the Social Sciences. The full name of the software is clunky so the acronym is widely recognized, Barry Wellman, a sociology professor at the University of Toronto said. "It's like IBM."
But it's not IBM.
"If SPSS were to remain an independent company, then the brand was pretty material to the company," said technology consultant Dick Reck, who advised SPSS from 1985 to 2002. "When you are absorbed into a worldwide technology company that dwarfs SPSS, the importance of that name becomes less meaningful over time."
Even before IBM's proposed acquisition was announced on July 28, SPSS had begun de-emphasizing the trade name. In April, the company announced that the entire portfolio of SPSS software will start carrying a new name, "Predictive Analytics Software," or PASW for short.
Nie's attorney, Peter Baugher of Chicago-based Schopf & Weiss, said the name change is tied to the lawsuit. A company spokesperson directed the Tribune to the company's news release that said the new software name will unify the company's product families.
Baugher said the price IBM is willing to pay for SPSS shows that the trademark is a valuable right that his client isn't willing to give up without a fair price. IBM's offer represents a 42 percent premium over SPSS' closing price on July 27, the day before the acquisition was announced.
"The company asked him to transfer the trademark rights for $10," Baugher said. "What IBM is willing to pay reflects in part the trademark that he owns."
Nie, 66 years old, would not comment for the story, Baugher said. IBM and SPSS also declined to comment for the story because the merger and the litigation are pending.
The bitter dispute over control of the SPSS trademark seems an unusual question to come up for a company that is more than 30 years old.
Nie worked with two friends to create the software in 1960s while he was a graduate student at Stanford University. In 1968, Nie moved to the political science department at the University of Chicago, and brought the software and one of his friends, C. Hadlai "Tex" Hull with him.
Together they continued to refine the software and distribute it to other universities. Tom Smith, a senior fellow at Chicago's National Opinion Research Center where Nie and Hull also worked, remembers the excitement around the software.
"They created a product that was cutting edge," said Smith, who helped mail SPSS instruction manuals to universities. "It allowed scientists to analyze data easier by an order of magnitude."
Soon the software business became too big for the university and Nie and Hull formed a separate company called SPSS in 1975. In forming the company, Nie and Hull registered as owners of the "SPSS" trademark and licensed the mark to the company. The agreement provides the company with an exclusive, perpetual, worldwide, royalty-free license.
Nie helped expand the company's customers beyond other social scientists like himself. The software now is one of the most widely used analytical tools in government and business intelligence. SPSS had revenues of $302.9 million in 2008.
Nie was chief executive until 1992, the year before the company went public, after which he served as chairman of the board. But as chairman, according to court papers, Nie "found himself increasingly at odds with company management and other board members on important matters of company strategies, operations, investments, acquisitions, product development priorities and product quality control." In 1998, Nie left the University of Chicago and returned to Stanford.
In May 2007, according to Nie's claims, SPSS asked him and Hull to transfer ownership of the trademark to the company. SPSS offered them $10. The proposal jogged Nie's memory about the 1976 license agreement, which was still in effect, according to court papers. He had had completely forgotten about it, Baugher said.
Nie notified the company in October 2007, after reviewing the license deal, that he intended to assert his legal rights under the license, which he claimed included the right to inspect and approve products sold under the SPSS trademark and to obtain other information regarding those products. According to public filings at the time, the company depended on the mark to promote the sale of virtually all of its technology, solutions and products.
In addition, Nie asserted that the trademark was more likely worth tens of millions of dollars.
The company balked at his demands and on Dec. 31, 2007, went public with the dispute. In a public filing, the company said Nie and Hull wanted $20 million for the trademark. SPSS' net income in 2007 was $33.7 million.
Three days later, SPSS filed a lawsuit in federal court, seeking to stop the founders from enforcing any rights under the license agreement. Nie resigned as chairman the same day and the board immediately replaced him with CEO Jack Noonan. At the time the suit was filed, Hull was a SPSS employee but he was laid off sometime last year, Baugher said.
"Norman feels a great amount of pride and loyalty in the company and its products and the people associated with it," Baugher said. "This was very disappointing to him."
On Jan. 28, 2008, Nie and Hull filed counterclaims against the company, asserting that SPSS is infringing on their rights as owners of the trademark. The company has denied their allegations in court papers. Hull has since assigned his claims to Nie and is no longer part of the case.
The case was scheduled to go to trial in May but the judge postponed it. Little did Nie and his attorney know that at the time company was in the middle of negotiations with IBM. In June, IBM's negotiator told Noonan that SPSS would have to accept a lower price than $50 a share or delay the timing of the transaction, according to SPSS' proxy materials.
SPSS rejected the price reduction but agreed to slow the pace of negotiations while the litigation was addressed. On July 23, IBM came back and said it would proceed with the acquisition at the previously agreed upon price.
"That tells me that IBM felt the price offered was fair including the litigation risk," Reck said.