View from the Hill - #14

Re: Crossroads Systems Wins Patent Infringment Lawsuit Against Chaparral Network Storage

It makes a pleasant change to have an ordinary storage news story to comment about this week.

For the details, click on

Austin, TX— September 17, 2001—Crossroads Systems, Inc announced that a jury found Chaparral Network Storage, Inc.'s RAID and router products using LUN zoning willfully infringe the Crossroads 5,941,972 ("972") patent.

The jury has awarded damages with a royalty amount of 5% for Chaparral's router product line and 3% for their RAID product line. Crossroads will be pursuing an injunction based on the jury's finding of infringement. The federal judge in this matter will consider assessing punitive damages.

In a recession, your competitors can become a useful source of additional revenue from technology licenses, and if that fails, from court judgments. The network storage market has now gotten big enough so that you can afford to hire lawyers to pursue a case, and still have a worthwhile amount left after you've paid their fees. Network storage is a very complicated business which has grown very fast, and it's likely that we're going to see a lot more news stories about companies cross licensing their technology (if they have developed some) or suing others (if they haven't).

Looking back at another high technology industry, the semiconductor industry, shows how this can work. For many years Texas Instruments earned far more income collecting money from its competitors for some obscure IC patents than it ever made from selling its own products.

Closer to home, in the memory market, that example probably helped Rambus formulate its own business plan, which was heavily weighted towards licensing technology to third parties. However the Rambus plan backfired in May this year when Infineon Technologies successfully sued Rambus for fraud.

Usually a manufacturer develops a technology, because it gives them a competitive advantage in the products which they sell. But sometimes they may wish to license this to others to help develop a bigger overall market.

A good example of how not to do this was IBM's decision in the late 1980's that the 32 bit bus in 2nd generation PC's should be a proprietary bus called Microchannel Architecture (MCA). Unless you're very old and have a good memory you won't have heard of MCA, because it flopped. The reason for MCA's failure weren't technical. Technically it was much better than the 16 bit PC-AT bus which it was trying to replace. And the reason it failed wasn't legal... IBM can afford the best lawyers as they demonstrated during the 1970's fighting the US goverment and others on anti-trust. (The story goes that that's how relational databases got invented, so IBM's lawyers could have an edge over everyone else when sifting through mountains of evidence. Maybe true, maybe not...) But when it came to the MCA licensing IBM got greedy and said that PC manufacturers who used MCA would have to pay IBM 3% of the whole PC price as a licensing fee. Most PC companies thought that was a bad idea, so instead most PC's used a 32 bit bit bus developed by Intel and Compaq which included no licensing fees and was compatible with the earlier generations.

A good example of how to do this properly, and probably learning from IBM's failure with MCA, was Sun Microsystems' decision, when it launched the SPARCstation 1 in 1989, to make the information on that workstations's SBus technology freely available and have no licensing fee. Within a few years over 250 manufacturers were churning out SBus compatible cards and systems, but it never took hold outside the Sun market. Years later, PCI did for PC's what SBus did for Sun, and eventually even Sun adopted the PCI standard. But by then the SBus had served its purpose in helping Sun to differentiate its servers with high speed adapter cards designed by third parties which only worked in Sun compatible systems. By then the little Unix upstart Sun had started to become a heavyweight server company, and didn't need to talk about open systems anymore. There was one standard in Unix, and that was Sun. That was a good enough reason to develop Sun compatible products (as long as they didn't compete head to head - because then you migh get squashed.)

So, if you've been running a high tech storage company for a couple of years, and are feeling the cold drafts of recession, here's something useful you can do to change your fortunes...

1. stop laying off your engineers (they may be the only people in your company who understand your intellectual assets)

1. lay off 50% of your sales people (because you're going to need the money to hire a good lawyer)

1. tell your marketing people that they should talk to the engineers (in 1 above) and the new lawyer (in 2 above) and start a new marketing program aimed at cross licensing your technology (whatever it is) and sending out press releases about it.

You never know, there could be a better business in chasing up those lawsuits than there is trying to sell those funny shaped plastic boxes which are still sitting on the shelf at your distributors:-)

SPARC(R) is a registered trademark of SPARC International, Inc. SPARC PRODUCT DIRECTORY(SM) is a service mark of SPARC International, Inc used under license by ACSL. Products using the SPARC trademarks are based on an architecture developed by Sun Microsystems, Inc.