Seagate Fires First SSD Legal Salvo

Some times people just rattle the saber, other times they draw it. After doing the former, Seagate Technologies on Monday did the latter. It filed a patent infringement suit against STEC over its solid state drive (SSD) controllers.

STEC is a tiny company; only $189 million in sales with about a dozen patents, compared to the $11.3 billion giant with almost 4,000 patents that is Seagate (NYSE:STX). So why pick on them and not Samsung ($103 billion in revenues), Toshiba ($70 billion), or Intel ($38 billion), all of which have shown off their own SSDs and have tens of thousands of patents?

Because STEC is a $189 million company with about a dozen patents, say the analysts.

Intel (NASDAQ: INTC), Samsung and Toshiba “will be in a stronger negotiating position against Seagate, and may fight back more aggressively than will STEC. In addition, these companies have the financial wherewithal to underwrite a costly lawsuit,” wrote Jim Handy, chief analyst for Objective Analysis in a research note.

“I think Seagate is trying to send a message, which is why they are picking on a small guy,” said Krishna Chander, senior analyst for storage with iSuppli.

However, Seagate CEO Bill Watkins positioned it differently in an open letter. Watkins wrote “others in our industry have taken shortcuts in the race to innovate, and in the process, we believe they are relying on intellectual property developed or acquired by Seagate to their own benefit.”

He went on to say that despite “some speculation in the press,” the suit was not about “stifling innovation or threats to our business from solid state technology.” The suit was about “preserving for our shareholders the value we have created by building an industry-leading patent portfolio.”

STEC (NASDAQ: STEC) issued a public statement claiming that it shipped SSDs “as early as 1994” and that it believes Seagate’s lawsuit is completely without merit and primarily motivated by competitive concerns rather than a desire to protect its intellectual property.

The company insisted it will defend itself and examine the Seagate patents for prior art, meaning the Seagate patents could be declared invalid if STEC received similar patents first, and therefore Seagate would be the infringing party.

Handy wrote that it is “rare and very costly for such cases to be taken all the way to trial” and he expects a settlement of royalties and perhaps for a cross-license as well. That might prove tough for STEC as its technology is its crown jewels.

However, things may be a little more complicated, according to Chander. He’d heard rumors Seagate was considering an outright purchase of the firm prior to the suit, and he said it could still happen. But at the end of the day, “I think they just want to have some cross licensing,” said Chander.