PH elections become pawn in Smartmatic-Dominion dispute

by RG Cruz, ABS-CBN News

Posted at Feb 13 2013 09:22 PM | Updated as of Feb 14 2013 05:23 AM

MANILA - The 2013 Philippine mid-term elections have become the latest casualty in an ongoing exchange of legal cases and bitter rivalry between 2 foreign companies.

Commission on Elections (Comelec) Chairman Sixto Brillantes noted that the impasse over the source code of the Precint Count Optical Scan (PCOS) machines bought by the Comelec for the 2013 election came after earlier battles between Smartmatic and Dominion Voting Systems Inc. overseas.

“That's in fact the case in Delaware, the fight in Puerto Rico and Mongolia. Nasabit ang Pilipinas. 'Di ko naman minamasama masyado. I'm still talking to them," he said.

The source code is the human readable instruction software for the PCOS machines, as well as the consolidation and canvassing systems that will be used in the election.

The Automated Election Law requires that the source code be open to review 90 days before the polls.

However, third-party reviewer Systest Labs Inc. has not released the source code and its certification because of the legal battle between Smartmatic and Dominion, which owns the original software.

Asked if he thought the legal battle was a portent of Dominion's possible entry into the Philippines as provider of election systems in the 2016 elections, Brillantes said, "they're only interested in one thing -- money."


Based on documents sent to ABS-CBN News by election watchdogs, 2 cases are pending in Delaware -- a collection suit filed by Smartmatic against Dominion for what it believes was the illegal termination of its software license agreement for the PCOS machines in the Philippines with Smartmatic, and a counterclaim filed by Dominion against Smartmatic for alleged breach of contract.

In both cases, both companies also traded accusations of unfair competition in securing election supplier contracts in Mongolia and Puerto Rico.

"Dominion International's conduct in Mongolia and Puerto Rico appear to be consistent with a pattern of activity designed to interfere with Smartmatic's prospective business relationships and prejudice Smartmatic International’s ability to compete," according to one of the documents.

Smartmatic's collection suit, which was filed in September 11, 2012, accused Dominion of, among others:

(1) improperly purporting to terminate the License Agreement based upon an incorrect and pretextual interpretation of the geographic scope of the Agreement’s non-compete clause;

(2) failing to deliver fully functional technology for use in the 2010 Philippines national election;

(3) failing to provide timely technical support during and after the Philippines election;

(5) failing to provide Smartmatic with information relating to the Licensed Technology, including new developments to the licensed technology;

(6) intentionally frustrating Smartmatic's right to market, lease, and sell the licensed technology; and

(7) failing to place in escrow the required source code, hardware design, and manufacturing information.

Smartmatic questioned Dominion's basis for terminating the license agreement because of an alleged breach by Smartmatic of a non-compete clause with Dominion in the US.

Defective technology

The complaint further held Dominion liable for a defect in the technology, with the latter's software allegedly failing to correctly read and record the paper ballot during a test of the automated voting system conducted shortly before the election.

"This relates to the problems encountered one week before the Elections in May 2010, where the software provided by Dominion was producing inaccurate results of the testing and sealing ballots," Smartmatic's Cesar Flores said.

This prompted Smartmatic to redeploy a new set of CF cards with the corrected configuration.

"Smartmatic spent millions of dollars to save the automated elections in the Philippines, and we have been requesting Dominion to reimburse the costs that we incurred due to the defect in their technology," Flores added.

"Even though Smartmatic is entitled by the licensing agreement to make adjustments and modifications to the licensed software, we did prefer in the interest of time to commission Dominion for said improvements," he said.

"Dominion tried to keep Smartmatic hostage and force us to waive our claims from the CF card rescue operation. Smartmatic could not allow this attempt by Dominion to hijack the elections in the Philippines."

Smartmatic argued this was the case in Mongolia, where Dominion ended up supplying the needs of the Mongolian election administration despite competition from Smartmatic.

"Dominion has acknowledged that it demonstrated certain critical functionality relating to the Cyrillic language before the Mongolian election authorities, but refuses to provide Smartmatic International with sufficient information regarding such functionalities," the complaint filed by Smartmatic said.

It also accused Dominion of misrepresenting itself in securing the election supply contract for Puerto Rico.

"Smartmatic recently learned that Dominion informed the (Puerto Rico) Commission that Smartmatic does not have access to the latest Certificated PCOS technology developed by Dominion," it added.

In its reply to the complaint, Dominion flatly denied Smartmatic’s allegations.

It also argued that while the license agreement was in effect through May 23, 2012, Smartmatic was only entitled to market licensed products and technology, and not all voting systems developed by various Dominion entities.

"This is an inaccurate statement from Dominion," Flores said. "Dominion did include the Cyrillic language into the licensed technology and denied access to that upgrade to Smartmatic with the intention to sabotage our commercial efforts in Mongolia."

Flores said Dominion does not deny a flaw in their system that prompted the redeployment of CF cards in 2010. "They are basically saying that Smartmatic should have tested the licensed technology even more, which is a clear confession of their lack of confidence in their own technology."

In October 2012, Dominion filed its own counterclaim for damages, arguing that "because Smartmatic and Dominion were competitors, Dominion made clear that any license for its PCOS technology would be limited in nature and, in particular, would not include Canada and the United States."

License fees

Dominion maintained that its contract was limited so that Smartmatic "would not modify, enhance or otherwise make any changes to Dominion International's PCOS voting systems without prior written agreement; and would pay Dominion International a license fee for each voting machine delivered by Smartmatic to a third party."

In addition, Dominion alleged that despite numerous requests by Dominion International, Smartmatic International refused to provide information to Dominion International about payments by the Comelec.

"Smartmatic International was not forthcoming with accurate information about the Comelec payments, and only upon a notice of default from Dominion International did Smartmatic International eventually pay the fees it owed to Dominion International," the company said.

Flores, however, said "Smartmatic has never denied payment to Dominion International."

"However, in May 2013, two months after the option to purchase was exercised, Dominion attempted to terminate the license agreement," he added. "We expect the Delaware court to decide now if that termination is actually legal, as Dominion did not follow the clauses stipulated in the licensing agreement for terminations."

Dominion in its complaint also said that "on June 14, 2012, Dominion International, through counsel, wrote to Smartmatic International to advise it that, due to the termination of the license agreement, Smartmatic International was no longer licensed to provide those 81,000 machines to Comelec, and that Dominion had no obligation to undertake the upgrades."

Flores argued, "that is also inaccurate, even if the termination of the licensing agreement was legal -- which Smartmatic maintains is not -- Dominion has to honour their obligations as defined by said agreement."

"Dominion knew that Comelec was entitled to the full access and support to the technology, and now they are legally bound to provide all support to this perpetual license that Comelec finally purchased two months before the alleged termination of the licensing agreement," he added.

ABS-CBN News has sent an email to Dominion for its comments but no response has so far been received.