Seagate Files Patent Infringement Lawsuit Against Competitor

I.     Introduction
        In response to increasing market pressure on their core business, Seagate Technologies is asserting a handful of its patents against manufacturers of flash memory-based solid state drives (SSDs) products.  Seagate Technology is currently the world’s largest manufacturer of hard-disk drives (HDDs), but lags behind several competitors in the SSD market.  [1]  On Monday, April 14th, Seagate Technology filed a patent infringement lawsuit against STEC.  The lawsuit, filed in the US District Court for the Northern District of California, alleges infringement of four Seagate patents.   [2]  Industry commentators believe that Seagate’s lawsuit is a result of increasing market pressure on their core business, which competes directly with that of STEC.  By filing an infringement lawsuit now, Seagate opens several options for itself in the face of a potential collapse in sales for its major products.   

        In recent years, SSDs have made significant inroads into the digital storage market that is presently dominated by HDDs.  As demand for storage is exploding, technology watchers are waiting to see if SSDs develop into a suitable replacement for HDDs.   [3]  As of early 2008, several notebook computers have hit the market featuring SSD, instead of traditional HDD.  Only SSDs relatively high cost has kept the otherwise superior technology from rapidly sweeping HDD out of the storage market altogether.  However, prices for SSDs have been “dropping so fast that it’s surprising even the pros.”   [4]  In the face of plummeting prices, HDD manufacturers like Seagate are bracing for a SSD price war that may make them more attractive than HDDs.

II.     Background
        Under the current state of technology and economies of scale, HDDs cost significantly less than a comparable SSD.  However, SSDs possess several important advantages over their HDD counterparts.  Traditional storage devices are based on HDD technology, which store information on rapidly spinning disks.  Stationary arms access these disks to read and write information, in a configuration similar to a record player.  Like a record player, there are many moving mechanical parts in a HDD, making them prone to damage on sharp impacts.  Simply dropping an HDD may catastrophically damage it.
        HDDs are currently a limiting factor in the speed of consumer electronics, including personal computers and laptops.   [5]  Because HDDs store information on a spinning disk, the speed at which data may be stored and accessed directly correlates to how fast the disk is spun.  Unfortunately for HDD technology, there are limits as to how fast these metal disks may be spun before the device tears itself apart.  The operation of HDDs also results in other problems, such as heat and power consumption, two issues accentuated in laptops.  [6]   Many of these shortfalls are easily addressed by SSD technologies.
        SSD stores data using transistor technology similar to that found in microprocessors.  SSDs simply trap electrons between two transistors in order to store data.  Because there are no mechanical or moving parts, SSD speeds are not limited in the same way that HDD speeds are.  The lack of mechanical parts also reduces the potential for device failure, either through wear and tear or as a result of something catastrophic, such as dropping the device.  All of these factors present clear advantages over HDD devices.  However, the costs differential between SSD and HDD has, thus far, forestalled a stampede to SSDs.  But the recent introduction of notebook computers equipped exclusively with SSDs suggests that HDD’s market dominance may end within a few years.

III.     Analysis – The Storage Market and Consumers
        Industry watchers voice concerns that a Seagate victory in the infringement suit may stifle innovation and increase costs for consumers.   [7]  Because Seagate is already the leader in HDDs, they are already in position to squeeze out smaller competitors.  Given a patent infringement victory involving fundamental technologies would dramatically increase its leverage against competitors, especially smaller companies with fewer resources.
        Seagate faces criticism from a variety of sources, many of whom charge that the company is simply trying to stifle competition in the storage industry.   [8]  One analyst sees the lawsuit as affirmation that SSD technology is a viable successor to HDD.  [9]   But most agree that Seagate simply seeks to hamstring their smaller competitors, and potentially even their larger foes.   [10]  Both Intel and STEC are developing SSD systems that would compete directly with Seagate’s bread and butter.
        Some commentators may simply be upset over what is perceived to be bad faith by Seagate.  In late 2007, Seagate announced its intention to seek licensing agreements, or to pursue infringement lawsuits should negotiations fail.  Even at that time, many saw these threats as an attempt to slow or control the development of rival technologies that threaten Seagate’s dominant market position.  However, most industry watchers agree that, regardless of Seagate’s success in these lawsuits and negotiations, it will not be able to halt the erosion of HDD’s market-share in the face of SSD gains.  [11] 

IV.     Analysis – Legal Strategies
        Seagate claims that it tried to sell licenses for its SSD patents to many of its competitors.  [12]   However, STEC counters that it was never approached with such a licensing offer.   [13]  By filing the lawsuit, Seagate may hope to force STEC to pay royalties on all of its SSD products.  Conversely, Seagate may simply seek to slow STEC’s development of more cost-competitive SSDs while Seagate ramps up its own research and production.   However, STEC is a relatively small manufacturer, suggesting that the current lawsuit may simply be a test case for Seagate.  If successful, Seagate will be more likely to file suit against major players like Intel and Samsung Electronics, whose legal defenses will be better funded and more ferocious.
        In similar patent infringement lawsuits between large technology companies, the two parties “usually settle after squaring off over which has more patents.”   [14]  Each party typically infringes several of their opponent’s patents to varying degrees.  Both parties try to predict the likelihood of enforcing each of their patents against the other, along with size of a possible judgment or licensing agreement.  The party whose patents were worth less, in total, simply writes a check to the other party, thereby avoiding a costly and lengthy litigation battle.  Such negotiation settlements also preserve the patent portfolios of each company, since a judge may potentially invalidate a patent at trial.  In these cases, unless one party faces a substantial settlement sum, neither party will want to risk their trove of patents before a judge, since judicial invalidation would deprive them of valuable weapons for their next infringement battle.
        STEC’s initial defensive position is that the allegedly infringed technology actually predates the patents that Seagate set forth in the lawsuit.   [15]  STEC claims to have developed, manufactured and marketed the technology in question as early as 1994, potentially precluding infringement.   [16]  If STEC can show that it developed, manufactured or sold such technology prior to Seagate’s priority date, then they will escape infringement liability.  In the media, STEC claims that the lawsuit is in response to STEC’s attempt to develop SSDs for the enterprise storage market.  [17] 
Among the patents that Seagate asserted is US Patent 6,404,647, which involves the simple idea of shaping and structuring SSD in such a way as to replace HDDs in computers and laptops.   [18]  The ‘647 patent appears to be among the patent portfolio that Seagate purchased from Hewlett-Packard Corp. a few years ago.   [19]  Although the patent is being panned as ridiculous, Seagate may still prevail on the merits in a lawsuit.  Seagate likely acquired the patent after losing a nearly-identical case in 1992, when a Scottish hard drive manufacturer alleged infringement against Seagate.  That 1992 case involved a patent referring to the physical size of a 3.5-inch hard drive.  [20] 
        Many critics questioned why Seagate choose to target a relatively small manufacturer in STEC, as opposed to market leaders Intel and Samsung Electronics, speculating several plausible explanations.  [21]   First, STEC also supplies SSD devices to storage giant EMC, who is Seagate’s second largest customer.  STEC is also the first company to develop a “viable, reliable solid-state solution adopted by a major storage OEM.”   [22]  And relative to Samsung and Intel, STEC is a relatively small player, with little leverage, a smaller war chest, and a smaller patent portfolio.  The smaller patent portfolio will favor Seagate should the dispute enter a typical infringement settlement negotiation.  However, any Seagate win over STEC does not necessarily imply a similar victory against Intel and Samsung.   

V.     Conclusion
        Much of the criticism focused on Seagate suggests that their patent infringement lawsuit is simply a bad faith impediment to innovation.  This may be based largely on Seagate’s vulnerability in the market, as SSD emerges as a viable rival technology.  Seen through this prism, Seagate’s lawsuit indeed appears to be an attempt to block an emerging threat to its dominance of the storage market.  Seagate’s alleged failure to offer STEC a licensing agreement could be interpreted in two different ways.  Seagate may indeed have foregone a license offer, instead seeking to assert overwhelming pressure on its smaller rival.  However, this strategy has little utility, since a thorough examination of Seagate’s patents will expose any frivolous claims.  Ultimately, both parties are unlikely to pursue a trial, where a judge may invalidate Seagate’s patents, and where a technologically unsophisticated jury might not fully comprehend the issue.

[1]  Dan Nystedt, Seagate Suit Against STEC Could Raise SSD Prices, April 16, 2008, http://www.arnnet.com.au/index.php/id;1753501293
[2]  Nystedt, supra 1.
[3]  Nystedt, supra 1.
[4]  Jon Fortt, Flash vs. Hard Drive battle Heats Up, Mar. 17, 2008, http://bigtech.blogs.fortune.cnn.com/2008/03/17/flash-vs-hard-drive-battle-heats-up/
[5]  Brian White, Seagate Patent Claim Could Spell Trouble For PC Industry, April 17, 2008, http://www.bloggingstocks.com/2008/04/17/seagate-patent-claim-could-spell-trouble-for-pc-industry/
[6]  White, supra 5.
[7]  Martin Czernowalow, Seagate Sues Rival, April 16, 2008, http://www.itweb.co.za/sections/computing/2008/0804161031.asp?A=COM&S=Computing&T=News&O=SBR [8]  Beth Pariseau, Is Seagate Trying to Stifle Solid State Disk Adoption?, April 17, 2008, http://searchstorage.techtarget.com.au/articles/24250-Is-Seagate-trying-to-stifle-solid-state-disk-adoption-
[9]  Pariseau, supra 8.
[10]  Joel Hruska, A Fistful of Patents: Seagate’s Saber Rattling Aimed at SSDs, Mar. 25, 2008, http://arstechnica.com/news.ars/post/20080325-afistful-of-patents-seagates-saber-rattling-aimed-at-ssds.html
[11]  Hruska, supra 10. [12]  Don Clark, Seagate Files Patent Suit Over Chip-Based Drives, April 15, 2008, http://online.wsj.com/article/SB120821108792914215.html?mod=googlenews_wsj
[13]  Don Clark, Seagate Files Patent Suit Over Chip-Based Drives, April 15, 2008, http://online.wsj.com/article/SB120821108792914215.html?mod=googlenews_wsj
[14]  Nystedt, supra 1. 
[15]  Audley Jarvis, Seagate Sues STEC Over “Patent Infringements”, April 17, 2008, http://www.techradar.com/news/computing-components/seagate-sues-stec-over-patent-infringements-321578 [16]  Dawn Kawamoto, STEC Responds to Seagate Patent Lawsuit, April 15, 2008, http://www.news.com/8301-10784_3-9919122-7.html
[17]  Kawamoto, supra 16.
[18]  Paul Roberts, Seagate’s Ridiculous Patent Weapon, April 17, 2008, http://blocksandfiles.com/article/4843
[19]  White, supra 5.
[20]  Roberts, supra 18.
[21]  Jarvis, supra 15.
[22]  Pariseau, supra 8.

Comments are closed.