|Nvidia trial to be heard in secret|
|MERCURY NEWS PLANS TO FIGHT RULING BY BANKRUPTCY JUDGE|
|By Therese Poletti|
San Jose Mercury News
|Article Launched:03/22/2007 01:45:40 AM PDT|
A judge in U.S. bankruptcy court in San Jose ruled Wednesday that he will conduct a trial involving graphics-chip company Nvidia in secret.
On the opening day of the trial, U.S. Bankruptcy Judge Roger Efremsky barred reporters, including one from the Mercury News, from covering the proceedings unless they agreed to sign a confidentiality agreement. The Mercury News plans to fight the trial's closing.
Before anyone could enter the courtroom Wednesday, they were asked to sign a statement, agreeing not to disclose anything they learned in the proceedings.
Reporters from the Mercury News and The Recorder, a San Francisco legal newspaper, refused to sign a statement. They were allowed to hear the opening arguments, but when Nvidia co-founder and Chief Executive Jen-Hsun Huang was about to take the witness stand, attorneys for Nvidia reminded the judge that reporters had not signed the confidentiality agreement and they were told to leave the courtroom.
Creditors of now-bankrupt 3dfx, which was based in San Jose, are suing Santa Clara graphics-chip company Nvidia. The creditors contend that they are still owed 1 million shares of Nvidia's stock, as promised in the 2001 merger agreement, if 3dfx met certain financial conditions. That stock would be worth $29.97 million based on Wednesday's closing price of $29.97 a share for Nvidia stock.
Nvidia purchased 3dfx Interactive, the developer of graphics chips and the popular Voodoo graphics card for video gamers, for $70 million in cash. Nvidia, which competed fiercely against 3dfx, now claims the assets it bought were worth about $14 million.
Efremsky, ruling from the bench, denied a motion by attorneys for the creditors asking the judge to set aside his prior order requiring members of the public to sign a non-disclosure agreement before entering the courtroom.
"We think it raises significant constitutional issues," said Peter Bertrand, an attorney for the creditors and for Bill Brandt, their trustee. Bertrand said conducting a trial in secret could allow witnesses to take different positions in their testimony than they would in a truly public forum.
The Mercury News plans to fight the closing. "A trial can be closed only in the most extraordinary of circumstances," said Mercury News Executive Editor Susan Goldberg. "Asking our reporter to sign a confidentiality agreement is unheard of, and then removing her from the courtroom when she refused to do so is unconstitutional. We, and the public, have a right to be at this trial."
Attorneys for Nvidia disputed the notion that a closed trial would affect the truthfulness of testimony. They said confidentiality is necessary because there are documents in the case that discuss trade secrets. They also said the trustee had been operating with sealed documents and confidentiality orders for the past four years.
"This is a problem of the trustee's own making," said Jim Kramer, an attorney for Orrick, Herrington & Sutcliffe, representing Nvidia. "He has been operating under a protective order for four years."
Nvidia's counsel said all the parties that have submitted documents in the case, including Nvidia's investment banker, Morgan Stanley, and its former accounting firm, KPMG, have submitted them knowing they would be under seal by the court and not for public view.
Bertrand, counsel for the creditors, argued that he does not believe the defendants have demonstrated that the documents are confidential.
"Why can't they see the light of day?" he asked the court.
Efremsky said he did not want to discourage members of the public from going to the court for the trial, as long as they agreed to sign the confidentiality statement.
Nvidia's counsel, Karen Johnson-McKewan said in her opening statement that the trial is about what Nvidia got when it purchased assets of 3dfx.
"The debate is whether you can count people and how do you value them," Johnson-McKewan said. Because 3dfx was near collapse and was winding down its operations, Nvidia did not take over a going business that employed people, she said. Nvidia had to individually interview engineers and make them an offer to join the company, she said. Nvidia ended up hiring 100 of 120 3dfx engineers, she said.
Bertrand, the creditors' attorney, said Nvidia at one point valued the deal at an even higher price than what it paid.
"Nvidia's presentation to the board placed the value of these engineers alone at $100 to $150 million," he said.
Contact Therese Poletti at email@example.com or (415) 477-2510.