Acquisitions 101: Buying a company brings benefits as well as baggage.
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Advanced Digital Information Corp. (ADIC), learned this recently when it settled a year-old lawsuit against its newly acquired subsidiary Pathlight Technology Inc. The suit alleged that Pathlight infringed on patents held by Crossroads Systems Inc., one of its competitors in the storage router market.
ADIC will make a $15 million lump sum payment to Crossroads and receive a full license to permanently use and resell all technology covered by the patent.
In April of last year, Crossroads Systems, Austin, Texas, filed a lawsuit in the U.S. District Court for the Western District of Texas claiming that Pathlight's SAN Router and SAN Gateway products infringed on its intellectual property.
Pathlight pledged to "vigorously defend" itself when the lawsuit was originally filed and said the case was without merit. But time marches on and Redmond, Wash.-based ADIC has agreed to settle the case.
But there might be an upside for ADIC. One analyst said the outcome of this situation will prove beneficial for the company.
"This deal is very favorable for ADIC as they bought Pathlight aware of this suit and actually have settled for much less than they originally planned," said Tony Prigmore, senior analyst for the Enterprise Storage Group, Milford, Mass. "ADIC management never wanted to go through a complete patent trial and have now reached a business arrangement that will be favorable in the long-term as they will have full rights to the Crossroads technology at price points that presumably their competition can't touch."
Crossroads sees the settlement as a victory, stating that settlement validates Crossroads claim to the patent and reinforces its market position. More importantly, the settlement might serve as ammunition for Crossroads in an upcoming court battle against Chaparral Network Storage Inc. over the same patent.
ADIC said it was prepared for the possibility of a settlement prior to buying Pathlight. According to Whitner, ADIC set aside funds before the Pathlight acquisition in an escrow account and only used about half of what it put aside to settle the suit. "The settlement will have zero financial impact on ADIC as a company," said Whitner. "This s a tiny amount of money."
Whitner said the unpredictability of patent cases led ADIC to settle the case. "Fundamentally, we wanted to be able to move forward without impediment," he said.
ADIC has been one of Crossroads largest customers and stockholders in the past. Last year, ADIC systematically sold its stock in Crossroads earning the company close to $100 million. The company still holds a minority stake in Crossroads.
As far as the $15 million infusion of cash is concerned, Crossroads chief executive officer, Brian Smith, said the company is still deciding how to spend the money. "We are in the drive toward profitability and are evaluating a number of options going forward," said Smith.Let us know what you think about the story, e-mail Kevin Komiega, assistant news editor
For more information:searchStorage Even Transcript: Storage Networking Crossroads loss smaller than expected ADIC settles Crossroads patent suit for $15 million Pathlight Technology admits infringement and settles lawsuit with Corssroads Systems Chaparral Network Storage drops lawsuit against Crossroads