Aussie cognitive software startup overturns Court Judgement in landmark Appeal.

In 2015 two Shareholders sued our small start-up company, Semantic Software Asia Pacific Limited, “SSAP”. The Shareholders were the superannuation funds of a husband and wife, Simon and Terri Vinson, recently divorced. In 2012 Simon Vinson invested $2 million through his superannuation fund and persuaded Terri Vinson to invest $500,000 through her superannuation fund.

After making these investments, Terri Vinson requested that her then husband Simon Vinson be given a role in the Company. Simon Vinson is a property developer which is not a full-time role and Terri Vinson felt that an executive role in SSAP would be a suitable role for him and a recognition of their investment. In late 2012 SSAP offered Simon Vinson a Board Adviser role in order to assess his suitability for a Directorship. In mid-2013 the Board decided not to offer Simon a Directorship. Simon and Terri greeted this advice with strongly expressed resentment. At a subsequent Annual General Meeting, Terri Vinson made it clear that she was very angry that Simon was not given a Board Directorship.

Notwithstanding this, Simon Vinson continued to support SSAP by raising capital for the Company from his friends and business associates. In 2015 the relationship with Simon broke down again and Simon and Terri Vinson, via their Superannuation Funds, sued both SSAP and its Founder and Managing Director for Breach of Contract and Misleading and Deceptive Conduct.

The commencement of litigation had a definite negative impact on the ability of SSAP to raise capital, as the litigation was declared in our Financial Statements.

In 2016 attempts were made to settle the matter but Simon, representing the Plaintiffs, made demands that were far in excess of the obligations the Company had to the Plaintiffs. In a Court ordered mediation, Simon told the Mediator, in a loud profanity-laden declaration that “if I don’t get what I want I will smash this company to pieces”.

The magnitude of demands made by Simon Vinson and Terri Vinson through late 2016 and early 2017 increased to the extent that they were impossible for SSAP to meet. Our many settlement offers were rejected.

The matter was heard in the NSW Supreme Court in early 2017. The Plaintiffs, the respective superannuation funds of Simon Vinson and Terri Vinson, were represented by Senior and Junior Counsel. The Senior Counsel, Elizabeth Collins, had been a Junior Counsel to the Presiding Judge when he was a Senior Counsel. The Defendants, SSAP and Mark Bradley, were represented by Mark Bradley (who is not a lawyer). The Plaintiffs argument, supported by a Melbourne suburban accountant, was that SSAP shares were worthless because SSAP’s extensive patent portfolio was worthless and that SSAP had substantial contingent liabilities. The Defendants argument was that we had obtained a valuation from a highly credentialed and respected US company that was expert in valuing Intellectual Property for the US Supreme Court, and that valuation was US$246 million.

The Presiding Judge, the Honourable Justice James Stevenson advised that he would not allow our expert valuation witness to participate via video-conference, insisting that he travel from Boston to appear early the following week. That proved impossible, so the Presiding Judge struck out our valuation, and all reference to it, from evidence.

When Terri Vinson was asked why she was angry at an Annual General Meeting she replied “because you shafted my husband”. When Simon Vinson was asked the same question he replied that he didn’t really care that he wasn’t offered a Board directorship.

During the trial, the Plaintiffs’ Solicitor approached SSAP with an offer of settlement that would see damages awarded of three times the investment made by the Plaintiffs and they would be able to keep their “worthless” shares. This would effectively hand control of the Company to two small shareholders, and was refused. The Defendants argued to the Court that the claims of the Plaintiffs amounted to a scam, and that they actually believed that the shares were very valuable. In final submissions, the Plaintiffs argued that they should be awarded damages plus be able to keep their shares. The Defendants argued that it is a fundamental principle of law that “you can’t have your cake and eat it too”.

Justice Stevenson delivered a Judgement and Orders on February 24, 2017 that was strongly adverse to SSAP and Mark Bradley. However, in awarding damages to the Plaintiffs against SSAP and Mark Bradley, Justice Stevenson said the Plaintiffs must surrender their shares in exchange for the damages.

Simon and Terri Vinson took no steps to enforce the Orders that SSAP and Mark Bradley pay the damages that had been awarded.

On May 5, 2017 the Defendants filed an Appeal against the Judgement.

On February 14, 2018 the NSW Court of Appeal overturned all judgements against SSAP. They overturned the judgement against Mark Bradley for misleading and deceptive conduct.

In the Appeal Hearing the Barrister for SSAP and Mark Bradley argued that in striking out the SSAP valuation, Justice Stevenson had failed to provide ‘procedural fairness’ which was required of him according to the procedural rules of the Court.

While this whole matter made capital raising very difficult, working capital was tight, and we have had to lower the price at which we sell shares to considerably below true value, existing Shareholders have been very supportive, contributing most of the $2,842,943 of new capital raised in the 2018 financial year, and more since July 1.

We are anticipating a $2 million R&D Tax Rebate from the Australian Government in December and substantial investor commitments during the last three months of 2018.

We are back on our feet now, and will put all this behind us, but as Grandma used to say, “be very careful who you take money from”.

The number of US Patents issued to us has increased seven fold since the US$246 million valuation, and these are very important “premium Patents” that describe core fundamental technologies for the next generation of computing.

After 6 years of R&D and over $20 million invested, in July we released our world-leading “cognitiveAI” cognitive computing platform on Amazon Web Services. With sophisticated Semantic Technologies like Ontologies and RDF/XML Triple Stores at its core, our customers can quite easily build knowledge bases for more robust Artificial Intelligence. Our patented interoperability technology selectively and automatically collects data from IoT devices and curates the data into semantic triples (facts), for AI. It also allows you to create a “putative ontology” from a schema, a DB catalogue, and tagged data.

Forrester Research published “TechRadar: Artificial Intelligence Technologies Q1 2017” last year. They opined “This (Semantic Computing) technology is on a trajectory of moderate success. However this could move to significant success if the market and buyers hit an inflection point where they realize the importance of semantic technologies in making AI systems more robust and automated.”

Our reading of the market now is that Semantic Technologies will be at the heart of the next major advances in Artificial Intelligence because the market has hit Forrester's “inflection point”, and is now becoming aware that you can’t have Artificial Intelligence without the computer understanding concepts, to recognize the meaning of words and phrases, necessary for true cognitive computing. Bill Gates calls it “the holy grail of software”.

As IBM said in 2014 after announcing Watson, “ Semantic computing facilitates and automates the cognitive processes involved in defining, modelling, translating, transforming, and querying the deep meanings of words, phrases, and concepts. Semantic computing is what natural-language processing, the heart of cognitive computing, is doing.”

Today we are working on some of the most advanced applications of natural language understanding in the world today, combining the strengths of semantic technologies and deep learning to gain very deep insights into technical documents. The applications for such technology are broad and the potential benefits are massive.