At least it's better than the Valentine's Day gift I received yesterday.
A boa constrictor who hugs you tighter than your one true love?<g>
Do you think it will ever make it to court, or will there be the traditional "undisclosed settlement" a la Qualcomm, Intel, Broadcom and the endless list of technology battles that go on and on and on and on....?
Naw, I think this one is going all the way. Fibre Channel is an open standard. This means that around 85% of the technology is in the public domain. That leaves ONLY around 15% open for vendor differentiation. That strikes me as jury-friendly a case as one can get since the lawyers have less room to argue about the number of angels that can fit on the head of a needle. One can glean as much from the precise focus of McDATA's patents.
The clear incentive for McDATA to take this all the way is to get the valuation premium that Brocade has enjoyed so far as a result of its revenue leadership. That's worth billions even today and worth more billions as the economy recovers and as SANs reach 30% to 50% market penetration in the next 18-36 months. Brocade insiders, for example, have generated more dollars from its frenetic selling than the company's combined revenues in 6 years. It's natural to expect McDATA insiders and employees to want some of that kind of action.
At the very least, I think McDATA will take this to the discovery phase which will allow them take a closer look at Brocade's switches. Keep in mind that MCDTA has 25 utility patents and 15 pending patent applications while Brocade only has one utility patent and 4 to 7 pending patent applications. Common sense tells you that in addition to its well-established ESCON/FICON patents, MCDTA owns more territory than Brocade in the 15% of the Fibre Channel open standard that is not in the public domain. Odds are that Brocade is violating more McDATA's patents. Look at the relative ease at which McDATA was able to get 10 patents issued in the same time that it took Brocade to get 1 patent issued!
Not surprisingly, Brocade did not even mention the number of patents and patent applications that it has in its FY2002 10K after disclosing the numbers in FY2000 (2 ornamental patents, 8 pending patent applications) and FY2001 (2 ornamental patents, 1 utility patent 4 patent applications, 3 provisional patent applications). I think the numbers would have shown the increased difficulty that Brocade is having its patents approved especially when McDATA also has 15 patent applications covering pretty much the same 15% of the FC open standard not in the public domain.
What will start to confirm all these will be the actions of the OEMs in the next few months which will most likely affect BRCD's financial performance during the next few quarters. BRCD has done a good job of touting to everybody that its frame filtering technology is unique because it is implemented on the ASIC level. They did a job so good that they now find themselves trapped in their own public rhetoric. McDATA, I think, will be able to show that it has already implemented its frame filtering patent at 1Gbps and the patent is also applicable at 2Gbps.
Because of the high stakes, OEMs and System Integrators are now faced with the unpleasant prospect of being dragged into this lawsuit by reasons of indirect infringement or contributory infringement not just from this patent action but from the subsequent patent actions that will most likely result from the discovery phase. Changing the ASIC is very disruptive to a systems vendor because it means costly re-qualifications and delays not to mention more customer skepticism. Chances are that they will qualify more vendors while closely monitoring the case.
Brocade is the industry's problem child in interoperability because its switches are not that unique. Reyes and company are also starting to slime more people out with their empty boasts and frenetic insider selling. I personally think it's time for a change in leadership so that the storage industry can reinvent itself more in terms of information flows coming out of this downturn.
I think that this case effectively slows down the momentum of the 3800, which has generated around $40-$50M in sales so far, and turns the 12000, which has generated less than $8M in deferred sales so far, from a very risk first generation data center design to a very high risk gamble that will probably not generate significant revenues any time soon.
As sure as night follows day, Brocade is going to file a counter-lawsuit soon to gain some negotiating leverage, but it only has 1 patent and a heavily amended patent at that based on the length of time it took to issue from filing date -- 45+ months vs average of around 18-24 months. You can't beat somethin' with nothin'.
In McDATA vs Brocade Round 1 in 1998, McDATA was still part of EMC and the consensus was still to validate the SAN market at 1Gbps. EMC and HWP were also still trying to patch up a reseller relationship that was deteriorating because HWP was openly trying to use Hitachi to get more account control from EMC so EMC and HWP were able to convince BRCD and MCDTA to settle their dispute at 1Gbps and to take it up later at 2Gbps.
That time is now. |
