In the course of a legal proceeding between an Israeli company and a former employee, it became apparent that Microsoft is penetrating the smart cards arena. Microsoft, which was negotiating the purchase of the Israeli technology, finally decided to develop it itself, with the active assistance of a brilliant young Israeli software engineer.
The story begins with an action filed by Fortress of Beer Sheba, which engages in smart cards, with the regional labour tribunal in Beer Sheba, against David Milstein, its employee until last month. Fortress alleged that since 1994, it had engaged in "the development of a technology related to a smart card system, protection of the information stored therein and the safeguarding of its authenticity". The company maintained that this technology enables the user to communicate in "Windows" environment, and hence its great significance for Microsoft.
According to the statement of claim, Milstein contacted Fortress in November, 1994, while a student at the Ben Gurion University of the Negev. The young man proved to be a gifted programmer, gained rapid promotion and received company financing to study for his master’s degree. All this was based on a verbal understanding between him and general manager Ran Granot, that Milstein would remain with the company for a long time.
This March, Fortress claims, it was contacted by Philip Gotteshal, Microsoft’s smart card department manager. He told Granot that the US giant was going into the field of smart cards, had heard warm recommendations of the Israeli technology and wished to explore Fortress’s capabilities. Within twenty four hours, Gotteshal came to Beer Sheba, where he conducted a three-day marathon of talks with company heads, including Milstein. The negotiations continued in Seattle, where Milstein aroused the admiration of the Microsoft people. Negotiations continued until July, when Microsoft announced that it had decided to develop the said operating system itself.
The dispute between Fortress and Milstein derived from the latter’s announcement of his resignation, last August. According to Granot, Milstein was vague about his plans, hinting at the possibility that he might join Microsoft’s smart card development team. Granot alleged that he had discovered, after the event, that Milstein had been negotiating on his own behalf with Microsoft while still employed by Fortress. Milstein, he alleged, was in possession of trade secrets, which he intended to exploit for the benefit of Microsoft, a company which, in his opinion, as expressed to Granot, would liquidate Fortress’s system.
Milstein rejected Granot’s allegations, incidentally exposing details on Microsoft’s smart card project. He maintained that on the day he resigned, he informed Granot that he was about to join Microsoft. Milstein also said that the secrets alleged by Fortress are common knowledge, and he certainly had no intention of using the company’s business secrets.
As regards the negotiations between Fortress and Microsoft, Milstein said, in his affidavit: "It was obvious to me that the product we presented to Microsoft did not meet the requirements it stipulated". Milstein alleges that the big difference between Fortress’s system and the one Microsoft seeks to develop was what caused the failure of the negotiations between the companies. Granot, he alleged, had told him he intended to "extort" substantial monetary compensation from Microsoft, on the grounds that the negotiations had not been conducted in good faith. Milstein alleged that he had become a pawn in the struggle between the Israeli dwarf and the US giant.
Last week the parties reached a compromise whereby Milstein will refrain from engaging in smart cards at Microsoft until the latter begins to distribute the beta version of its smart card. This restriction will be in force for only two months, since Microsoft intends to start marketing in January 1999.
Published by Israel's Business Arena November 26, 1998