Threats

I received this today [see the email below]

Sure seems like somebody at Microsoft is unhappy with the facts coming out.

To be clear – so that there is nothing misleading on this site here are my responses:

1. Microsoft has every right not to renew any agreement. There is no representation on this site otherwise. What is at issue is not its right to discontinue service from RealNames, or the messages since March 2002 that this was likely, but the fact that it did not renew and the consequences of that decision. The final negotiation was on 7 May 2002. Only at that point was closure inevitable. The terrible consequences – primarily the closure of Multi-lingual naming for all non-english languages and the withdrawal of service to those who used Keywords 500 million times during Q1, and withdrawal of service from more than 100,000 RealNames customers – are Microsoft’s responsibility alone. Good luck in trying to persuade anybody otherwise.

2. Microsoft was not just a business partner of RealNames it was a 20% shareholder. As a shareholder I expected it to behave like one. It did not. In fact it is currently behaving like a creditor and nothing more, although it is still a shareholder. Microsoft’s offer to waive cash may be more genuine if it waived its rights as a creditor totally. The millions of dollars that it will get could be put to much better use with customers and partners.

3. The severance paid to RealNames employees was entirely consistent with previous packages paid to employees (actually the lowest ever). The company rehired, as consultants, a group of people who are charged with two things. Firstly, a wind down with customers and partners. Secondly, an asset sale (physical and IP). All of these consultants are being paid 2 times their normal salary for the number of weeks the process takes. This is consistent with industry norms in a closure situation. I am being treated no diffferently to any other consultant in that respect. The goal of this sale incidentally, is to raise more cash that it costs – and early indications are promising. Pointing to my salary – which is considerably less than Microsoft’s CEO – really is just an attempt at popularism. Shame on you.

4. You also use the phrase “executive bonuses”. There are no executives – all employees were terminated on 10 May 2002. Nobody received any bonus. A standard severance package was paid to all employees, irrespective of grade.  As you say, RealNames went through this plan with you on May 9th, at that time you made clear that you did not see it as Microsoft’s business to comment on the plan and that you had no intention of making further remarks beyond what was raised on the call. It seems that your decision to comment now is prompted by some other events since the plan has not changed since that call.

5. As far as I can see the non-renewal of RealNames contract was because Microsoft wants former Keywords like “IBM Thinkpad” to result in an MSN Search page rather than going to the IBM Thinkpad site at ibm.com. And it wants control over the user experience. 500 million uses during Q1 suggests many people disagree. I am one of them. The browser is being turned from a conduit for a naming platform into a conduit for MSN Search. Once again, I do not dispute your right to do this. I do suggest it is wrong headed and narrow in its vision. Attempts to poison journalists with misleading stories about RealNames selling “generic terms” will not wash. especially when terms like “cars” and “software” consistently point into Microsoft properties. Tell me again, who is it that wants generic terms?

6. It now materialises that Microsoft has applied for and been granted a patent for “Flexible Keyword Searching”. This strikes me as odd if Microsoft truly “doesn’t believe” in the product as we are constantly told.

I intend to make sure many people see and understand this.  I made a bet on Microsoft. It failed. I hope I can make sure other entreprenuers learn the lesson of this before they repeat my mistake. I do not believe my individual rights, including my right of free speech can be stymied by bullying threats to me. Let me be clear teare.com is my sole responsibility and has been discussed with no third party. The RealNames board, incidentally, have no mandate to tell me what I put onto a server in my garage.

 

For those interested here are the threats.

Attention:          RealNames Corporation c/o Terri Holbrooke
RealNames Corporation Board of Directors

You have requested comment on the portions of RealNames’ dissolution plan provided to Microsoft on May 8, 2002, and implemented on May 10, 2002.  In response, we urge the Board to give immediate and serious reconsideration to reducing the cost of liquidation and increasing the payment to customer creditors (i.e., Keyword resellers and customers).  Microsoft volunteers to waive its right, as a substantial creditor, to participate in its share of any pro rata distribution available as a result of dollars saved through reducing transition expenses so that the distribution to other creditors, primarily resellers and customers, can be increased.

RealNames currently plans to use $1,193,998 to continue operations through the transition period.  We propose that the Board reduce these transition expenses, particularly funds intended for executive bonuses, which are excessive so that much of this money can be distributed to non-Microsoft creditors, primarily resellers and customers.

Decisions about liquidation are the responsibility of RealNames’ corporate officers and its Board of Directors who owe fiduciary duties to various constituents; this fiduciary duty extends to all of RealNames’ creditors, which include its customers and resellers as well as Microsoft.  Based on the information provided by RealNames on May 8 and a telephone discussion with Terri Holbrooke on May 9, Microsoft concludes that some of these wind-down expenditures are excessive.  Microsoft is concerned, in particular, that the executive bonuses and transition expenses that RealNames proposes to pay do not satisfy the fiduciary duties owed to all creditors.

Microsoft notes that at least one Board member benefits from the generous severance and transition package and, as such, appears to have a conflict of interest.  RealNames’ dissolution plan shows Board President and CEO, Keith Teare, receiving severance of $80,769, vacation pay of $21,350 and, on a going forward basis, compensation at double his $300,000 annual salary.  Such compensation arrangements are excessive in light of RealNames’ conclusion that it will have insufficient funds to pay its creditors.  We trust the Board deliberations and decisions on the severance and transition plans were properly protected from the influence of conflicts of interest. 

Furthermore, events have occurred since May 10 that merit comment.

In addition to its obligations under the Non-Disclosure Agreement, RealNames has duties under the License and Marketing Agreement relating to public announcements and press releases which, if honored, would promote fair and balanced communications to the public.  However, RealNames and members of its transition team (primarily through Keith Teare) have elected to repudiate these obligations, to disclose confidential information, to unilaterally issue misleading press releases and to communicate misleading information to RealNames’ customers and resellers.  Such divulging of confidential information and the patently misleading innuendo of the communications may also constitute a breach of the Boardês fiduciary duty to creditors; that is its resellers, customers, lenders and vendors.  In response to this misinformation, customers and resellers are contacting Microsoft, complaining about non-renewal of the License and Marketing Agreement. 

The actual facts are undisputed.  Amendment No. 2 to the License and Marketing Agreement signed by RealNames on October 3, 2001, specifically states:

RN acknowledges the possibility that this Agreement will not be renewed by Microsoft, and agrees that it has not and will not expressly represent anything to the contrary to the press or to third parties, including to other business vendors, associates or partners. (¶7.C.)

Amendment No. 3 to the License and Marketing Agreement signed by RealNames on March 3, 2002, states:

RN acknowledges the likelihood that the Agreement will not be renewed by Microsoft beyond June 28, 2002, and RN agrees that it has not and will not expressly represent anything to the contrary to the press or to third parties, including to other business vendors, customers, investors, creditors, associates, or partners.  (¶3.)

Despite RealNamesê acknowledgement and commitment to Microsoft, communications received by Microsoft from RealNamesê customers and resellers suggests that RealNames previously misled its customers and resellers, as it continues to do in recent statements to the press as well to its customers and resellers.

Microsoft has no direct relationship with RealNames’ customers and resellers relating to Internet Keywords.  Microsoft was not involved in negotiations between RealNames and its customers and resellers.  Moreover, Microsoft is not a party to any agreement between RealNames and its channel partners.  However, since May 10, Microsoft has received numerous communications from these persons, who are reacting to RealNamesê dissemination of false and disparaging statements.

Accordingly, Microsoft requests that RealNames immediately take remedial steps to provide fair and accurate information to its customers and resellers.  Specifically, we invite your attention to the web site at www.teare.com.

Please be advised that in light of RealNamesê actions, Microsoft may elect to disclose to affected parties, particularly RealNamesê resellers and customers, the actual facts such as the terms of the Agreements as referenced above.

If RealNames or anyone provided with the contents of this communication elects to post, summarize, or otherwise make public comment on any portion of this e-mail through use of a website or other medium, Microsoft will make the entire contents of this communication public to prevent the perpetuation of misleading and incomplete disclosures. 

Microsoft requests a response by close of business Wednesday, May 22, to this request for corrective action and communication by RealNames with its customers and resellers. 

Sincerely,

 

John Krass

MSN Search

Microsoft Corporation

 

bcc:      MSN Internal

Microsoft Law & Corporate Affairs

Microsoft PR

2:45:51 PM