No longer dreading the subpoena

My first open source consulting client was Medsphere Systems Corporation in Orange County — not far from UC Irvine (where I did my Ph.D.) and with ties to UCI. I worked closely with the two founders, Steve and especially Scott Shreeve. The founders took VC money, and so eventually had to turn control of the company over to "professional" management.

Medsphere is a healthcare software company that was taking public domain code (Vista), adding their own software and services, and hoping to build an open source community. I was a consultant from 2003-2005, which included writing a paper with Siobhán O’Mahony on what makes a sponsored open source community work (to be published in revised form next year), and co-founding the first Vista-specific trade association. (NB: The Veterans Administration was using "Vista" long before Microsoft started their Longhorn project, but so it goes).

The Medsphere slogan was "professional open source," and while I was a consultant there I offered advice on how to create an open source community. But after they brought in an outside CEO (and then another one), it seemed like the people who "got" open source no longer had authority to do anything about it, so my last involvement was in November 2005.

From the outside, it seemed that the Shreeve brothers didn't get along very well with the second CEO (who was not very entrepreneurial). But it still came as a shock when the CEO, backed by the board fired the Shreeves in June 2006. The offense? That CTO Steve Shreeve had (gasp!) released some of the company’s code as "open source" on SourceForge.

A few months later, the company sued both Shreeves, seeking $50 million in damages. The result was a public relations disaster, with the open source community saying things like "Medsphere betrays community." This article summarized the community reaction:

Recently Medsphere, supposedly an “Open Source” Medical Software Company, has sued its founders Scott and Steve Shreeve. Why? Medsphere claims that the Shreeves illegally released Medsphere software to Sourceforge. An “Open Source” Software company is suing its founders for releasing code under a free license… that’s a bit like Ford suing its employees for making cars. Recently Fred Trotter has come forward with evidence that he claims makes the Medsphere lawsuit baseless. Read on for an email interview with Fred Trotter regarding who did what in the Medsphere lawsuit, and why every free software developer should care about what is happening to the Shreeves.

Since Vista is still in the very early stage of commercial adoption, the potential early adopters are all Vista (i.e. open source) fans, and thus carry a disproportionate influence. Influential open source blogger Matt Asay called it a “debacle” tied to corporate egos.

Because I helped them develop the open source strategy, I was worried about being named as a defendant or at least being tied up having to testify. Thus it was a huge personal relief to read this afternoon that the case has been settled, although all sides are staying mum. The company has also hired a new CEO (3rd since the Shreeves), a new chief medical officer (replacing Scott Shreeve) and a new chief marketing officer.

More important than my anxiety, the Shreeves (two very talented and energetic medical professionals) can put the whole sorry affair behind them and move on with their lives. Scott Shreeve has started a new venture, Crossover Health, and is now back in the limelight.

Even if the lawsuit is over, IMHO this sordid mess leaves the VCs with a permanent black mark. From 2002-2006, they invested $12 million in a company whose strategy was always to release open source, and then they wholeheartedly backed the decision both to fire the officers who released open source and to sue them. Were the investors (Azure Capital, Thomas Weisel, Wasatch) incompetent in not knowing what an "open source company" meant? Did they panic when deployments ran behind schedule? Were they duplicitous? All of the above?

I have no inside information, but their performance in the Medsphere debacle raises grave questions about any future open source investments that these VCs make — both from their limited partners (the ones who provide the money) and any prospective portfolio companies.