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Sun Microsystems settles lawsuit with Fenton firm.
From bizjournals.com Friday January 12, 2007 1:12 pm ET
Sometimes the little guy does win.

That's what David York learned last month when a subsidiary of Sun Microsystems Inc. settled a lawsuit it had filed against York's computer consulting firm in Fenton.

Sun StorageTek, part of Sun Microsystems since 2005, filed a lawsuit in 2002 against York and his company, CHE Consulting Inc, over alleged copyright and patent infringement. After years of litigation, StorageTek decided to settle the case by paying CHE an undisclosed amount.

CHE -- whose business includes maintaining and repairing data storage libraries produced by StorageTek -- had produced a diagnostic tool based on StorageTek technology, an illegal act StorageTek claimed in its suit. CHE later countersued, claiming StorageTek was trying to maintain an illegal monopoly on the maintenance of its robotic tape libraries by bullying CHE.

"It is referred to in the industry as FUD -- fear, uncertainty and doubt," said York, who owns CHE with his wife, Phyllis. "What they would do is... state that my personnel were less than credible, state that my parts were less than credible. They would also utilize the litigation to threaten the customers."

Sun Microsystems officials and their attorney didn't return a call for comment. The settlement became official in early January after five weeks of trial in U.S. District Court in Boston, where StorageTek filed the suit.

"We were very pleased with the amount," Anthony Simon, CHE's attorney, said about the settlement. "We were seeking $140 million -- not just seeking it, but we had put on evidence of $140 million in damages -- and we settled for a confidential amount. But we were very pleased with the amount."

StorageTek, based in Louisville, Colo., produces cabinets that contain some 6,000 data storage tapes and 80 tape drives that read them. A robotic arm in the unit shuffles the tapes to and from the drives for users, which include government agencies and businesses.

"I always thought of it as kind of like a jukebox," said Simon, who works at the St. Louis firm of Simon Passanante PC.

CHE and other third-party companies maintain and repair the robotic tape libraries, work that StorageTek also performs. York said CHE developed its own technology to perform the work and captured 12 percent of the maintenance market by 2000. Two years later, StorageTek sued, accusing CHE of illegally exploiting StorageTek's technology to produce its own to maintain and repair the libraries.

CHE's work maintaining the libraries accounts for about 40 percent of its annual revenue, which in 2004 reached $14.64 million, York said. The remaining revenue comes from other computer services the firm offers. About 75 of CHE's customers use StorageTek's robotic tape library, including IBM, GE Capital, Equifax and Honeywell.

That year, a federal judge granted StorageTek a preliminary injunction, prohibiting CHE from copying code the company used to maintain and repair the libraries. However, a federal appellate judge threw out the preliminary injunction in 2005. The case went to trial in Boston in late October 2006 and was settled in December last year.

Simon said CHE was protected by a 1998 federal law aimed at protecting computer repair companies from the original equipment manufacturers.

"What they basically said was, copying (code), if it's done by a maintenance and repair provider for the purposes of maintenance and repair, then it's not copyright infringement," he said.

As part of the settlement, StorageTek agreed also to drop a patent suit it had filed against CHE and David York in U.S. District Court in Colorado. CHE, which employs about 95 people, also may resume using StorageTek's tools to maintain robotic tape libraries and may order upgrades from StorageTek for customers, according to the settlement.

For its part, CHE agreed not to license its maintenance and repair technology to other third-party companies or to say how much money it received from the settlement, Simon said.

Published January 12, 2007 by the St. Louis Business Journal
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Sun settles old StorageTek lawsuit.
From The Denver Business Journal - January 4, 2007
Sun Microsystems Inc. reached a settlement in a patent infringement suite against Custom Hardware Engineering & Consulting Inc., according to documents filed in U.S. District Court of Colorado in mid December.

Judge Marcia S. Krieger finalized the agreement.

Originally filed in early 2003, the case involved a dispute over robotic tape library maintenance code developed by Louisville-based Storage Technology Co. (or StorageTek), which Sun acquired in 2005. Sun alleged that Custom Hardware Engineering marketed a "remote computer monitoring service" previously sold by StorageTek.

Custom Hardware Engineering, a third-party maintenance provider of StorageTek libraries, filed an antitrust counterclaim later in 2003 -- seeking $140 million in damages against StorageTek.

By agreeing to the settlement, StorageTek and its parent, Sun, agreed to withdraw all litigation against Custom Hardware & Engineering and its owner, David York. Sun also ended up paying an undisclosed sum to settle the counterclaim from Custom Hardware Engineering and received reassurances that the company wouldn't pursue further litigation.

The agreement allows Custom Hardware Engineering to continue to receive upgrades from Sun while using maintenance tools on customers' robotic tape libraries.

Sun (NASDAQ: SUNW), which is based in Santa Clara, Calif., employs about 31,000 people.

Custom Hardware & Engineering, which is based in Fenton, Mo., employs approximately 95 people.
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News Release:
January 4, 2007

After four years of protracted litigation, Fenton-based Custom Hardware Engineering & Consulting, originally sued for copyright infringement, received a cash settlement and promise not to sue from StorageTek, who had initiated the litigation, and its parent Sun Microsystems.

St. Louis - Even though Storage Technology Company (StorageTek or STK) originally filed a copyright and patent infringement lawsuit against Custom Hardware Engineering & Consulting Inc. (CHE) in a dispute over robotic tape library maintenance error code access, it was StorageTek that ended up paying in order to settle CHE's antitrust counterclaim.

In addition to payment of a confidential sum and signing a covenant not to sue, StorageTek and Sun Microsystems also agreed to dismiss all claims against CHE and owner David York pending in U.S. District Court for the District of Massachusetts. StorageTek agreed to dismiss a separate patent suit against CHE filed in the U.S. District Court for the District of Colorado. As part of the agreement, CHE is also allowed to resume using its maintenance tools on robotic tape libraries and can order upgrades from StorageTek for its customers.

The settlement came after five weeks of trial and was finalized on Jan. 2, 2007. At trial, CHE presented damages of $ 140 million dollars. Under the Sherman Antitrust Act, if CHE had prevailed on its antitrust claims, CHE's $ 140 million in damages would have been entitled to treble damages.

"By engaging in anticompetitive conduct and mounting a four-year litigation campaign, StorageTek tried unsuccessfully to put CHE out of business," said Anthony G. Simon, the St. Louis lawyer with Simon & Passante, P.C. who represented CHE at trial and in the settlement. "We are delighted to be able to bring this matter to a successful conclusion for our client. This settlement allows CHE to get back to its business."

David York, president and chief executive officer of CHE, a business located in Fenton which employs approximately 95 people, praised Simon's handling of the case. "This settlement allows us to continue to use our tools. It means StorageTek, a multi-billion dollar business, is going to leave us alone and we're going to be able to compete on a fair and equitable playing field."

STK is the original equipment manufacturer of robotic tape libraries. Business and government agencies purchase the robotic tape libraries to store critical information on them. Proper maintenance is vital. Owners can enter into maintenance service contracts with STK or third-party maintenance providers. CHE, owned by David and Phyllis York, is a third-party maintenance provider for the STK robotic tape libraries. CHE performed quality work often at 70 percent less than price charged by STK. By 2000, CHE had approximately 12 percent of the STK maintenance contract market.

On Oct. 29, 2002, StorageTek filed suit against CHE and David York personally in the U.S. District Court for the the District of Massachusetts alleging copyright infringement. On July 2, 2004, the district court granted a preliminary injunction against CHE prohibiting it from copying the microcode into the random access memory by turning on the equipment and from overriding StorageTek's software mechanism that shut off error codes generated by the equipment. The error codes are used by CHE to perform its maintenance and repair services. However, on Aug. 24, 2005, the U.S. Court of Appeals for the Federal Circuit vacated the preliminary injunction.

In a ruling of first impression, the Federal Circuit held that the copying and circumvention was done solely for the purpose of maintaining and repairing the robotic tape libraries, therefore CHE's actions fell under 17 U.S.C.A Section 117(c), a statutory exception to a claim of copyright infringement for maintenance and repair providers. Moreover, because StorageTek did not state a claim for copyright infringement, it did not have a claim against CHE under the Digital Millennium Copyright Act.

The case returned to trial court where StorageTek pursued claims against CHE for patent infringement, misappropriation of trade secrets and tortious interference with business relationships. CHE counterclaimed against StorageTek, alleging antitrust violations of relationships. CHE counterclaimed against StorageTek, alleging antitrust violations of "tying" and "monopolizing the maintenance market." On the tying claim, CHE alleged that if a robotic tape library owner did not enter into a service contract with StorageTek, it would not receive functional microcode upgrades. In addition, CHE alleged StorageTek attempted to monopolize the maintenance market by embarking on a campaign of "fear, uncertainty and doubt" among customers considering using CHE's services.

The trial before U.S. District Court Judge Rya W. Zobel began in Boston on Oct. 31, 2006 and was preliminarily settled on Dec. 1, 2006.

Simon*Passanante, P.C. is a St. Louis-based law firm that handles complex business litigation in including intellectual property and antitrust cases nationwide. For further information, please contact Anthony G. Simon, (314) 241-2929 (work), (314) 355-6553 (cell), or asimon@spstl-law.com.