BOSTON (TheStreet) -- In 1971, Marshall Peterson flew helicopter sorties over Vietnam. One day, hovering over a village near My Lai, he spotted what appeared to be a Viet Cong running into a straw hut.

Rather than letting loose a burst of machine-gun fire, Peterson positioned the end of the helicopter skid under the lip of the hut's roof. He flipped it off to get a closer look. Peterson found a scared old man inside, unarmed, and left him alone. The helicopter flew away.

In the battlefield, it's called "getting intimate," an act of due diligence to avoid killing innocent civilians. In modern warfare, close-quarters contact of wars past has been replaced by long-distance automation, with soldiers controlling unmanned drones from electronic consoles half a world away.

Four decades later, the issue of wars that appear like video games rankles Peterson. As it turns out, his company is in the midst of a lawsuit that alleges, indirectly, that the U.S. Central Intelligence Agency may have bought faulty software to target terrorists in Afghanistan.

From helicopters to supercomputers

Peterson, 62, is an aeronautical engineer who worked for the Army Missile Command after the Vietnam War ended. He subsequently launched a career in supercomputing at

Digital Equipment Corp.

He left DEC after 13 years to join

Celera Genomics

( CRA), where he oversaw the supercomputer that sequenced the

human genome

, and helped to birth the biotechnology industry.

Now Peterson is the chairman of

Intelligent Integration Systems

, a Boston-based company that specializes in high-speed data-analysis systems. The company, which he co-founded in 2005, is embroiled in a legal battle with

Netezza

( NZ), based in nearby Marlborough, Mass., which competes with

Oracle

(ORCL) - Get Report

and

Teradata

(TDC) - Get Report

. Netezza makes data-warehouse appliances, which are computer systems designed to store and process massive amounts of information.

At issue is the source code behind Spatial, which is geographic-data-analysis software that can parse and pinpoint map-based information such as hurricane patterns, wireless phone calls and, potentially, people.

Intelligent Integration Systems developed the technology behind Spatial, which initially ran on an earlier Netezza's data-warehousing platform, the Netezza Performance Server. Netezza alleges Intelligent Integration Systems was contractually required to develop a new version of the Spatial software for its newer platform, dubbed TwinFin, and sued Intelligent Integration Systems accordingly -- along with terminating its relationship with the company.

(Before he co-founded data-analytics company Intelligent Integration Systems, Marshall Peterson flew helicopters in Vietnam. Here he discusses the military's remotely operated predator-drone program, based on his knowledge as a pilot and supercomputer pioneer.)

Intelligent Integration Systems officials say they didn't know about plans for TwinFin when they signed the contract with Netezza, and that the company never agreed to develop software for future platforms.

Intelligent Integration Systems has filed a counterclaim of wrongful termination. The counterclaim also alleges wrongful use of the Intelligent Integration Systems software. Intelligent Integration Systems executives say -- and a series of email messages among Netezza executives indicate -- that Netezza sold a version of Spatial for TwinFin to the CIA for use in its predator-drone program before the software was feasible, tested and deemed accurate.

The email messages reveal accuracy problems with the software, fueling growing concerns about predator drones -- unmanned aircraft that drop missiles on enemy targets. The systems, used by both the U.S. military and the CIA, include control systems from

Raytheon

(RTM) - Get Report

and aircraft from

General Atomics

.

Pilots use joysticks to control the planes remotely, often from thousands of miles away. Drones have faced increasing scrutiny from the United Nations and multiple-incident reports that question the efficacy of targeting enemy from afar. The Obama administration has supported the program for missions in Afghanistan and Pakistan, and President Obama drew verbal fire when he publicly

joked about using drones to kill the boy band Jonas Brothers

.

The CIA doesn't publicly disclose information about its drone projects. According to an analysis by the

New America Foundation

, a public-policy think tank whose board is led by

Google

(GOOG) - Get Report

CEO Eric Schmidt, 142 reported drone attacks in Pakistan killed between 1,013 and 1,362 people from 2004 to 2010. Of those killed, up to a third were non-militants, the analysis found. Meanwhile, the federal government last month approved the use of drones to patrol the Texas/Mexico border for drug trafficking.

Intelligent Integration Systems alleges that in the fall of 2009, "Netezza began asserting to

Intelligent Integration Systems that an agency of the United States Government needed immediately to purchase and deploy TwinFin to process geospatial data relating to vital military operations. Netezza, fully aware that TwinFin did not have the capability to process geospatial data, further represented to

Intelligent Integration Systems that the agency was willing to accept an incomplete beta product designed to perform that function, and urged

Intelligent Integration Systems to immediately begin work on developing such a product."

Netezza, the CIA and the House Intelligence Committee, which helps oversee the CIA's budget, declined interview requests for this story, each citing policies against commenting on issues related to pending litigation. But much of the story already lies in court documents housed at the Suffolk County Superior Courthouse in Boston, where the case is awaiting summary judgment. According to Intelligent Integration Systems officials, those "vital military operations" involved targeting enemy combatants with predator drones.

"The dispute before the court is about contract terms and the core legal issue wouldn't be any different whether it involved direct-mail marketing applications or the CIA," says Paul Davis, CEO of Intelligent Integration Systems. "But the nature of the work exposes some large problem areas for Netezza that go beyond a contract and our product. A customer like the CIA needs a fail-safe solution, not just a data-warehouse product."

Court documents, company emails

The predator drones' role in the companies' conflict comes to light in a court deposition of Intelligent Integration Systems Chief Technology Officer Rich Zimmerman, in which he recalls a Friday, Oct. 9, 2009, conversation with Jim Baum, CEO of Netezza, and Jon Shepherd, Netezza's general manager for location-based services. Zimmerman says Netezza officials told him it was Intelligent Integration Systems' "patriotic duty" to develop the geospatial software for the new hardware in a matter of days, even if there wasn't sufficient time to ensure its accuracy.

According to Zimmerman's deposition, Baum told him "the CIA called them on the phone, said we need this to target predator drones in Afghanistan, that ... we need Spatial up and running immediately. Jon Shepherd made a comment somewhere along the way that

suggested, 'just give us anything ... we need it right now.' "

Asked by Intelligent Integration Systems' attorney how he responded to the request, "my reaction was one of stun, amazement that they want to kill people with my software that doesn't work," Zimmerman said in the deposition.

The case file includes emails among Netezza officials, in which they discuss how to handle the situation, in light of the fact that Intelligent Integration Systems wouldn't give up its source code while the customer is in a hurry. The emails imply that Netezza promised a product to the CIA before anyone had developed it. They also reference "floating point" difficulty, a mathematical computing issue that can lead to accuracy problems. (A Nov. 12 email from a Netezza account manager refers to "errors in the spatial toolkit hack." "Hacking" usually means gaining unauthorized access to a computer, a key point in Intelligent Integration Systems' countersuit.)

"Someone should have told me this product was not ready," Netezza Federal Account Manager Joe Wiltshire wrote in an email to Shepherd, which is included among the court documents. "We are negatively exposed to one of our most important customers now. In his eyes, we concealed info to close the deal, or we are not 'in the know.' Either one is not good. Please get this product ready immediately so we can get out of this predicament."

An email from Netezza project manager Razi Raziuddin on Oct. 10, a Saturday, implies the CIA's acceptance of a rush job.

"We have a critical need to get the Netezza Spatial package ported over to TwinFin as soon as possible," he wrote. "A U.S. Gov customer is expecting the toolkit to be available as soon as Monday for use in a mission-critical project. They do understand that we won't have a fully qualified, production-ready release and are OK with it."

Subsequent emails in the case file indicate concern over the floating-point problem. A message from a Netezza product manager on Oct. 16, the following Friday: "The results on the customer's TwinFin 12 return much faster than the 10100 but for some strange reason, many of the calculations are a little off, from 1 to 13 meters." (The 10100 was the model number of the Netezza Performance Server, the appliance that preceded TwinFin.)

There's initial frustration at the lack of access to the Intelligent Integration Systems software. "No matter how you slice this, however, we are likely screwed," Netezza CEO Baum wrote in an email Oct. 17, a day later.

An email exchange from Oct. 23, also in the court record, indicates that the customer signed off on the deal, after all. "They are satisfied," Wiltshire wrote in an email to Netezza executives, adding that the customer "believes that the minor discrepancy in metrics between the 10100 and the TwinFin 12 is due to the TF doing a better job."

"Thank god for optimists," Shepherd replied.

An Oct. 29 document says David Flaxman, Netezza senior vice president of products and technology, ordered the team to proceed with

"the Project"

.

Flaxman is the former chief electronic-solutions technology officer for

Fannie Mae

( FNM), where he worked from 2002 to 2006 in the years leading up to the subprime mortgage crisis. During his tenure, the company announced plans to streamline the mortgage process through automatic underwriting and launched an online counseling program targeting would-be minority homeowners.

Predator drones' target errors

The Pentagon has acknowledged target errors with its predator drones, which are operated 6,000 miles away on American soil, at Creech Air Force Base in the Nevada desert. In one report, the International Security Assistance Force details a Feb. 21, 2010, military strike in which 23 Afghani civilians were killed and several children injured when they were mistaken for insurgent forces.

According to the report, the attack was the result of "inaccurate and unprofessional reporting of the Predator crew operating out of Creech, AFB Nevada, which deprived the ground force commander of vital information. ... Information that the convoy was anything other than an attacking force was ignored or downplayed by the Predator crew."

In May, the United Nations issued a report that criticized the use of predator drones for targeted attacks for a number of reasons.

"A drone-operation team sitting thousands of miles away from the environment in which a potential target is located may well be at an even greater human intelligence gathering disadvantage than ground forces, who themselves are often unable to collect reliable intelligence," the U.N. report says.

"Furthermore," the report says, "because operators are based thousands of miles away from the battlefield, and undertake operations entirely through computer screens and remote audio feed, there is a risk of developing a 'PlayStation' mentality to killing. States must ensure that training programs for drone operators who have never been subjected to the risks and rigors of battle instill respect for

International Humanitarian Law and adequate safeguards for compliance with it."

While the robotics industry is in a slump, there has been widespread support for robots that perform life-threatening missions, such as the bomb-disposal and surveillance robots from

iRobot

(IRBT) - Get Report

. That was a talking point at a gathering of robotics experts in

Microsoft's

(MSFT) - Get Report

New England Research and Development Center.

"There's incredible headroom and growth in the military market," said Michael Greeley, a general partner at

Flybridge Capital Partners

, a venture firm that invests in companies such as

PolyRemedy

, a startup that makes wound-care robots, at the gathering of entrepreneurs and investors in Cambridge, Mass.

With drones, the military is in the position of weighing the benefits of protecting American soldiers by replacing them with robots against the risk of inaccurate targeting.

"In the military, killing people is not the objective," Peterson, Intelligent Integration Systems' chairman, says. "The objective is to win over the hearts and minds of people. You can kill a thousand bad guys, but if you kill one civilian, you've turned 10,000 people against you. When you separate yourself from the consequences of your actions, I don't care if you're playing video games, fighting a war or running a company -- there's something really wrong."

-- Reported by Carmen Nobel in Boston.

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