By Zachary Shess
IBM filed suit against EMC in late December alleging EMC violated a 1999 patent cross-licensing agreement and illegally transferred disputed patents to a shell company.
The genesis of the litigation began in 1994 when Data General Corp. (DG) filed the first of two lawsuits contending that IBM's AS/400 systems violated several of DG's patents. Those complaints have not yet gone to trial. Separately, IBM and EMC entered into a patent cross-licensing agreement last March, which in part enabled IBM to license EMC patents, including those acquired in the future from acquisitions or mergers. Subsequently in October 1999, EMC subsequently purchased DG.
IBM's complaint, filed in U.S. District Court in Worcester, MA, states that it now has access to DG patents. The suit further alleges EMC and former DG officials Jacob Frank and Ronald Skates, knowing the IBM-DG litigation would be terminated because of the merger, purposefully moved the patents to a holding company, DG Patent Holdings LLC, to keep DG's suits alive.
EMC immediately submitted a motion to stay IBM's action, contending the suit itself violated the terms of the licensing agreement by not following the prescribed pre-suit dispute procedures. According to EMC spokesman Mark Fredrickson, the IBM-EMC licensing agreement stipulates that if there is a dispute, senior officials from both companies must first meet to settle the issue. If a resolution doesn't occur, an independent arbiter is brought in, and only if that process fails may the companies begin litigating.
In its motion, EMC's attorneys didn't dispute the transfer of DG patents to DG Patent Holdings, and even stated this action was legal pursuant to the terms of the IBM-EMC licensing pact. EMC owns 50% of the shell company, formed for the benefit of some Massachusetts charities. The other half is owned by an unnamed charitable foundation.
While IBM refused comment on the matter, EMC's Fredrickson says IBM's action is a stall tactic. "We understand from DG that IBM has pulled off numerous maneuvers over the years to keep the original cases from being heard," he says.