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New Era of Networks Gets Blinded By the NEON

Written By: M. Reed
Published On: July 9 2001

New Era of Networks Gets Blinded By the NEON
M. Reed - July 9, 2001

Event Summary

A recent ruling by a judge in the 268th Judicial District Court in Texas has upheld a jury verdict that awarded NEON Systems (NASDAQ: NESY) $39 million in damages against New Era of Networks (NASDAQ: NEON, recently acquired by Sybase as its new "e-Business division"), which, the jury found, had a nasty habit of abbreviating "New Era of Networks" as, guess what, Neon. If upheld on appeal, this ruling will cause the e-business division of Sybase a lot of administrative grief and expense (not to mention the money from the jury award).

As part of his final ruling on June 22, 2001, Judge Brady Elliott issued an injunction instructing that New Era of Networks can ship no new products or materials with the NEON trade name. In addition, New Era of Networks has 60 days to retrieve from existing customers any documentation or manuals with the NEON name. These materials can be substituted with materials not bearing the name NEON. Judge Elliott also instructed that New Era of Networks must eliminate the use of the NEON name from existing product code over the next six months.

"Our purpose in this suit from the very beginning was to alleviate confusion in the marketplace," said Wayne Webb, president of NEON Systems. "New Era of Networks' incessant use of the mark NEON has been very confusing for customers, analysts, and the media. It has proved very difficult to brand the NEON name, but we believe this verdict is a step in the right direction toward rectifying this confusion and further establishing ourselves as a leader in e-Business solutions."

This verdict comes during the same month that Sybase completed the acquisition of New Era of Networks, adding to the overall confusion that is usually caused by acquisitions anyway.

Market Impact

This ruling will have no effect on the product offerings of either company. However, if the part of Judge Elliott's ruling which states that "New Era of Networks has 60 days to retrieve from existing customers any documentation or manuals with the NEON name" holds, a lot of time, money, and trouble is going to have to be expended by Sybase to track down user documentation and manuals and replace them with (probably as yet unprinted) stock which does not bear the NEON name. The people responsible for the "in the trenches" effort of this retrieval will likely be the Sybase/ New Era of Networks field force, as they are the only people who might know where this documentation may actually live at customer sites. If they try to solve the problem with a form letter stating, "please send us back our manuals and we'll replace them", the judge might not feel that due diligence had been exercised.

In addition, the judge's statement that "New Era of Networks can ship no new products or materials with the NEON trade name" may have a deleterious effect on Sybase's revenue stream, as accounting practices for the recognition of software revenue generally require that the product has been shipped.

A final nail in the New Era of Networks saga is that now that Sybase owns the company, the stock symbol on NASDAQ of NEON should eventually free up. We wonder if NEON Systems might want it?

User Recommendations

Customers evaluating application integration and data movement strategies should not be concerned with this announcement from a product standpoint. Its major effects will be that NEON Systems can say "I told you so", and New Era of Networks (now the e-Business division of Sybase) will have to devote time and effort to comply with the judge's order. Even though they have stated that they will appeal, they will likely take steps to ensure that they don't dig the hole any deeper than it already is, so they may be taking precautionary measures such as delaying shipments while new documentation is printed. On top of the turmoil caused by the acquisition by Sybase, this is undoubtedly the last thing they needed.

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