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Xiotech and Prism settle grievances in arbitration

Xiotech and one of its key resellers, Prism, have parted ways in a vicious legal dispute that highlights the fierce competition in the industry.

CHICAGO -- Xiotech Corp. and one of its largest resellers in the Midwest, Prism Technologies Inc., are headed to arbitration this summer over lost revenues as both companies seek to capture what they claim each is owed by the other.

In January 2006, Xiotech issued a notice to Prism terminating the reseller's contract. "Prism is no longer an authorized Xiotech reseller or service provider … Xiotech terminated the relationship with Prism and has commenced litigation," according to Mike Stolz, vice president of marketing at Xiotech. He declined to give any details on why Xiotech took this course of action.

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In an interview at the Storage Decisions show in Chicago this week, Prism founder, president and CEO David Klauser gave Prism's side of the story. He claims that prior to the contract being terminated, Prism had introduced Xiotech rival, Compellent Technologies Inc.'s products into its portfolio, which upset Xiotech. "They really didn't like the fact that we were selling Compellent," Klauser said.

He claims that once Xiotech heard Prism was reselling Compellent, the company immediately contacted Prism's 120 or so existing Xiotech customers and took the business direct, leaving Prism high and dry. "They broke the law and the spirit of our contract, and caused significant financial and character damage to our company," Klauser said.

Stolz argues to the contrary that Xiotech had no issue with Prism selling Compellent. "All our resellers sell other products … and we probably worry more about EMC [Corp.] than Compellent."

Industry insiders point out that the history between Xiotech and Compellent is littered with legal tangles and bitter rivalry. Xiotech was founded in 1999 by Phil Soran, John Guider and Larry Aszmann -- who all left the company in 2002 to found Compellent. In April 2004, both companies swapped motions claiming wrongful acts of business, patent disputes and violation of trade secrets, among other things of that nature. All claims between the two firms were eventually settled in June 2005.

Stolz insists the history between Xiotech and Compellent has no bearing on the Prism case. Both Xiotech and Prism are seeking financial damages from each other.

Klauser says Prism took a significant drop in revenue in the first quarter of this year when Xiotech terminated the contact. "We predicted we could take a couple of million dollar swings to reposition the company. It's half a step back for three forward." He says Prism now has 45 to 60 customers using products from a mix of different storage vendors, including EMC, EqualLogic Inc., Compellent, Network Appliance Inc., CommVault Systems Inc. and Data Domain Inc. among others.

"We wanted to be able to offer the best possible product to our customers, but Xiotech had fallen so far behind on features, we couldn't look our customers in the eyes and say this is the best solution," Klauser said.

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