Inslaw, Inc. is a Washington, D.C. based information technology company that markets case management software for corporate and government users.
Inslaw is known for developing Promis, an early case management software system. It is also known for a legal suit that it brought against the United States Department of Justice in 1986 over Promis. The dispute eventually resulted in several Justice Department internal reviews, a bankruptcy case which Inslaw won but which was vacated on appeal, two Congressional investigations, the appointment of a special counsel by one Attorney General, and a review of the special counsel's report by another Attorney General. The case was finally referred by Congress to the Court of Federal Claims in 1995, and ended with the Court's ruling against Inslaw in 1998.
During the decade long legal proceedings, the Department of Justice was accused of conspiring to steal Inslaw's software, attempting to drive Inslaw into Chapter 7 liquidation, using the stolen software for covert intelligence operations against foreign governments, and involvement in a murder. These accusations were eventually rejected by the special counsel and the Court of Federal Claims.
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History of Inslaw
Inslaw began as a non-profit organization called the Institute for Law and Social Research. The Institute was founded in 1973 by William A. Hamilton to develop case management software for law enforcement office automation. Funded by grants and contracts from the Law Enforcement Assistance Administration (LEAA), the Institute developed a program it called "Promis", an acronym for Prosecutors' Management Information System, for use in law enforcement record keeping and case-monitoring activities. When Congress voted to abolish the LEAA in 1980, Hamilton decided to continue operating as a for-profit corporation and market the software to current and new users. In January 1981 Hamilton established the for-profit Inslaw, transferring the Institute's assets over to the new corporation.
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Development of Promis
Promis software was originally written in COBOL for use on mainframe computers; later a version was developed to run on 16 bit mini-computers such as the DEC PDP-11. The primary users of this early version of the software were the United States Attorneys Office of the District of Columbia, and state and local law enforcement. Both the mainframe and 16 bit mini-computer versions of Promis were developed under LEAA contracts which contained specific data rights clauses; in the litigation that later followed, both Inslaw and DOJ eventually agreed that because of this, the early version of Promis was in the public domain, meaning that neither the Institute nor its successor had exclusive rights to it.
The Promis implementation contract
In 1979, the DOJ contracted with the Institute to do a pilot project that installed versions of Promis in four US Attorneys Offices; two using the mini-computer version, and the other two a "word-processor" version which the Institute was developing. Encouraged by the results, the Department decided in 1981 to go ahead with a full implementation of locally based Promis systems, and issued a request for proposals (RFP) to install the mini-computer version of Promis in the 20 largest United States Attorneys offices. This contract, usually called the "implementation contract," in the later litigation, also included developing and installing "word-processor" versions of Promis at 74 smaller offices. The now for-profit Inslaw responded to the RFP, and in March 1982 was awarded the three year $10m contract by the contracting division, the Executive Office of United States Attorneys (EOUSA).
Contract disputes and Inslaw bankruptcy
The contract did not go smoothly. Disputes between EOUSA and Inslaw began soon after its execution. A key dispute over proprietary rights had to be solved by a bi-lateral change to the original contract. (This change, "Modification 12," is discussed below.) EOUSA also determined that Inslaw was in violation of the terms of an "advance payment" clause in the contract. This clause was important to Inslaw's financing and became the subject of months of negotiations. There were also disputes over service fees. During the first year of the contract, the DOJ did not have the hardware to run Promis in any of the offices covered by the contract. As a stopgap measure, Inslaw provided Promis on a time-share basis through a Vax computer in Virginia, allowing the offices to access Promis on the Inslaw Vax through remote terminals, until the needed equipment was installed on-site. EOUSA claimed that Inslaw had overcharged for this service and withheld payments.
The DOJ ultimately acquired Prime computers, and Inslaw began installing Promis on these in the second year of the contract, in August 1983. The "word-processor" Promis installation, however, continued to have problems, and in February 1984 the DOJ cancelled this portion of the contract. Following this cancellation, the financial condition of Inslaw worsened, and the company filed for Chapter 11 bankruptcy in February 1985.
Proprietary rights dispute
The implementation contract called for the installation of the mini-computer version of Promis, plus some later modifications that had also been funded by LEAA contracts and like the mini-computer version were in the public domain. In addition, the contract data rights clause "gave the government unlimited rights in any technical data and computer software delivered under the contract." This presented a potential conflict with Inslaw's plans to market a commercial version of Promis which it called "Promis 82" or "Enhanced Promis." The issue came up early in the implementation contract, but was resolved by an exchange of letters in which DOJ signed off on the issue after Inslaw assured the DOJ that Promis 82 contained "enhancements undertaken by Inslaw at private expense after the cessation of LEAA funding."
The issue arose again in December 1982 when the DOJ invoked its contract rights to request all the PROMIS programs and documentation being provided under the contract. The reason the DOJ gave for this request in later litigation was that it was concerned about Inslaw's financial condition. At that point, DOJ had access to Promis only through the Vax time-sharing arrangement with Inslaw; if Inslaw failed, DOJ would be left without a copy of the software and data it was entitled to under the contract. Inslaw responded in February 1983 that it was willing to provide the computer tapes and documents for Promis, but that the tapes it had were for the Vax version of Promis, and included proprietary enhancements. Before providing the tapes, Inslaw wrote, "Inslaw and the Department of Justice will have to reach an agreement on the inclusion or exclusion" of the features.
The DOJ response to Inslaw was to emphasize that the implementation contract called for a version of PROMIS in which the government had unlimited rights and to ask for information about the enhancements Inslaw claimed as proprietary. Inslaw agreed to provide this information, but noted that it would be difficult to remove the enhancements from the time-sharing version of Promis and offered to provide the Vax version of Promis if the DOJ would agree to limit their distribution. In March 1983, the DOJ again informed Inslaw that the implementation contract required Inslaw to produce software in which the government had unlimited rights, and that delivery of software with restrictions would not satisfy the contract.
After some back and forth, DOJ contracting officer Peter Videnieks sent a letter proposing a contract modification. Under the modification, in return for the software and data request, DOJ agreed not to disclose or disseminate the material "beyond the Executive Office for United States Attorney and the 94 United States Attorneys' Offices covered by the subject contract, until the data rights of the parties to the contract are resolved." To resolve the data rights issue, the letter proposed that Inslaw identify its claimed proprietary enhancements and demonstrate that the enhancements were developed "at private expense and outside the scope of any government contract." After these were identified, the government would then "either direct Inslaw to delete those enhancements from the versions of PROMIS to be delivered under the contract or negotiate with Inslaw regarding the inclusion of those enhancements in that software." Inslaw eventually agreed to this suggestion, and the change, referred to as "Modification 12," was executed in April 1983. Inslaw then provided DOJ with tapes and documentation for the Vax version of Promis.
Under this arrangement, however, Inslaw had substantial difficulty demonstrating the extent of the enhancements and the use of private funding in their development. It proposed several methods for doing this, but these were rejected by DOJ as inadequate. Inslaw's attempts to identify the proprietary enhancements and their funding ended when it began installing Promis on the USAO Prime computers in August 1983. By the end of the contract in March 1983, it had completed installing Promis in all 20 of the offices specified in the implementation contract. Since none of the available versions of Promis was compatible with the Department's new Prime computers, Inslaw ported the Vax version, which contained Inslaw's claimed enhancements, to the Prime computers.
Inslaw's bankruptcy case
After Inslaw filed for bankruptcy in February 1985, the DOJ continued planning for further office automation. In place of the originally planned "word-processor" version of Promis, it installed the version of Promis ported to Prime mini-computers in at least 23 more offices. When Inslaw learned of the installations, it notified EOUSA that it was in violation of Modification 12 and filed a claim for $2.9m, which it said was the license fees for the software DOJ had self-installed. It also filed claims for services performed during the contract, for a total of $4.1m.<Bua Report, p. 174</ref>
The contracting officer, Peter Videnieks, denied the claims, and Inslaw appealed the denial of the service fees to the Department of Transportation Board of Contract Appeals (DOTBCA). For the data rights claim, however, Inslaw took a different approach. In June 1986 it filed an adversary hearing in the Bankruptcy Court, claiming that DOJ's actions violated the automatic stay provision of the bankruptcy code.
The Justice Department agent responsible for making payments on the contract was a former, fired Inslaw employee, C. Madison Brewer. Brewer would later claim in federal court that everything he did regarding Inslaw was approved by Deputy Attorney General D. Lowell Jensen. "Brewer was aided in his new DoJ job by Peter Videnieks," wrote Wired, "Videnieks was fresh from the Customs Service where he oversaw contracts between that agency and Hadron, Inc., a company controlled by [Edwin] Meese and Reagan-crony Earl Brian. Hadron, a closely held government systems consulting firm, was to figure prominently in the forthcoming scandal." Both Brewer and Videnieks had obtained their positions under suspicious circumstances, according to the Chicago-based weekly, In These Times. Furthermore, "Before moving over to the Justice Department and taking charge of the Promis program in September 1981," wrote In These Times, "Videnieks had administered three contracts between the Customs Service and Hadron...[Hadron] was in the business of integrating information-managing systems such as Promis into federal agencies."
Simultaneously with the withholding of payments in the 1983 Modification 12 agreement, the government then substituted the enhanced VAX version of Promis for the old Prime version originally specified in the contract. The government did not negotiate the payment of license fees as promised, claiming that Inslaw had failed to prove to the government's satisfaction that Inslaw had developed the enhanced version with private, non-government funds and that the enhanced version was not otherwise required to be delivered to the government under any of its contracts with Inslaw--that is, Inslaw had provided it voluntarily. Enhanced Promis was eventually installed in a total of forty-four federal prosecutors' offices following the Modification 12 agreement.
According to affidavits filed by William Hamilton, as the contract details were modified, Hamilton then received a phone call from Dominic Laiti, chief executive of Hadron. Laiti wanted to buy Inslaw. Hamilton refused. According to Hamilton's affidavits, Laiti then warned him that Hadron had friends in government and if Inslaw did not want to sell willingly, Inslaw could be coerced.
By February 1985, the government had withheld payment of almost $1.8 million for Inslaw's implementation services, plus millions of dollars in old Promis license fees. Inslaw filed for Chapter 11 bankruptcy protection. Meanwhile, the government began highly suspicious activities to force Inslaw into Chapter 7 liquidation.
Federal investigations into allegations of theft
In his court cases, William Hamilton was represented by several attorneys, one of whom was lawyer Elliot Richardson, formerly the United States Attorney General under President Richard Nixon.Two different federal bankruptcy courts ruled that the Justice Department "took, converted, and stole" the Promis installed in U.S. Attorneys' Offices "through trickery, fraud, and deceit," and then attempted "unlawfully and without justification" to force Inslaw out of business so that it would be unable to seek restitution through the courts.
Three months after the initial verdict, George F. Bason, Jr., the federal judge presiding over the Bankruptcy Court for the District of Columbia, was denied reappointment to a new 14-year term on the bench by the U.S. Court of Appeals for the District of Columbia, the appointing authority. His replacement, S. Martin Teel, took over shortly after Judge Bason announced his oral findings of malfeasance against Inslaw by the Justice Department; Teel had been the Justice Department Tax Division attorney who had argued unsuccessfully before Judge Bason for the forced liquidation of Inslaw. Leigh Ratiner (of Dickstein, Shapiro and Morin, which was the 10th largest firm in Washington at the time) was fired in October 1986; he had been the lead counsel for Inslaw and had filed the suit against the Justice Department in federal bankruptcy court. His firing came reportedly amidst "back channel", discussions involving the DoJ, his law firm's senior partner, and the Government of Israel; moreover, there were rumors that the Mossad had arranged a payment of $600,000 to Ratiner's former firm as a separation settlement.
House Judiciary Committee investigation and report
Then, in September 1992, the House Judiciary Committee issued the result of a three-year investigation. House Report 102-857 Inslaw: Investigative Report confirmed the Justice Department's theft of Promis. The report was issued after the Justice Department convinced the D.C. Circuit Court of Appeals on a jurisdictional technicality to set aside the decisions of the first two federal bankruptcy courts. The House Committee also reported investigative leads indicating that friends of the Reagan White House had been allowed to sell and to distribute Enhanced Promis both domestically and overseas for their personal financial gain and in support of the intelligence and foreign policy objectives of the United States. The report even went so far as to recommend specifically further investigations of both former Attorney General Edwin Meese and businessman Earl Brian for their possible involvement in illegally providing or selling Promis "to foreign governments including Canada, Israel, Singapore, Iraq, Egypt, and Jordan." The Democratic majority called upon Attorney General Dick Thornburgh to compensate Inslaw immediately for the harm that the government had "egregiously" inflicted on Inslaw. The Republican minority dissented and the committee divided along party lines 21-13. Attorney General Thornburgh ignored the recommendations, and reneged on agreements made with the committee.
Bua Report
On November 13, 1991, newly appointed, Attorney General William Barr, appointed a retired federal judge, Nicholas J. Bua, as Special Counsel to advise him on the allegations that high-ranking officials had acted improperly for personal gain to bankrupt Inslaw.
By June 1993, a 267-page Bua Report was released, clearing Justice officials of any impropriety. Inslaw's attorney, Elliot Richardson immediately wrote Inslaw's 130-page Rebuttal with evidence suggesting Bua's report was riddled with errors and falsehoods. On September 27, 1994, Attorney General Janet Reno released a 187-page review concluding "that there is no credible evidence that Department officials conspired to steal computer software developed by Inslaw, Inc. or that the company is entitled to additional government payments." The House Judiciary Committee had also recommended further investigation into the death of Danny Casolaro, a reporter investigating the story whose body was found in a Martinsburg, West Virginia hotel room with both wrists slashed. The review reaffirmed the earlier police findings that Casolaro's death was a suicide.
Court of Federal Claims trial and ruling
In May 1995, the United States Senate asked the U.S. Court of Federal Claims to determine if the United States owed Inslaw compensation for the government's use of Promis. On July 31, 1997, Judge Christine Miller, the hearing officer for the U.S. Court of Federal Claims ruled that all of the versions of Promis were in the public domain and that the government had therefore always been free to do whatever it wished with Promis. The following year, the appellate authority, a three-judge Review Panel of the same court, upheld Miller's ruling; it also determined that Inslaw had never granted the government a license to "modify Promis to create derivative software" although Inslaw was automatically vested with the exclusive copyright rights to Promis. The Review Panel then held that the United States would be liable to Inslaw for copyright infringement damages if the government had created any unauthorized derivatives from Promis, but noted that Inslaw "had failed to prove in court that the government had done so;" moreover, the Board held that the issue of "derivative works" was "of no consequence." Inslaw challenged this interpretation but the Review Panel refused Inslaw's request to reopen discovery. In August 1998, Chief Judge Lorin Smith of the U.S. Court of Federal Claims sent an Advisory Report to the Senate, noting that the court had not found that the United States owes Inslaw compensation for the government's use of Promis, and enclosing the decision of the hearing officer and the decision of the Review Panel.
Later developments
In early 1999, the British journalist Gordon Thomas published a history of the Israeli intelligence agency Mossad, titled Gideon's Spies: The Secret History of the Mossad. The book quotes Canadian businessman Ari Ben-Menashe as claiming that former Mossad officer Rafi Eitan arranged a partnership between Israeli and U.S. intelligence to sell foreign intelligence agencies over $500 million worth of licenses to a trojan horse version of Promis, in order to spy on them.
In 2001, the Washington Times and Fox News each quoted federal law enforcement officials familiar with debriefing former FBI Agent Robert Hanssen as claiming that the convicted spy had stolen copies of a Promis-derivative for his Soviet KGB handlers. Later reports and studies of Hanssen's activities have not repeated these claims.
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