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Judge: Imation must pay Quantum royalties

Storage-hardware maker Quantum wins a preliminary injunction requiring its rival to pay for using its tape format, but the judge lets Imation keep selling the tapes.

Storage-hardware maker Quantum has won a preliminary injunction that requires rival Imation to pay royalties for a Quantum backup-tape format, but the judge stopped short of barring Imation from selling the tapes.

Judge William Elfving, of the Santa Clara County Superior Court in California, said Monday that Imation must pay a 30 percent royalty to Quantum on its DLT tape cartridges.

"After two years of collecting Quantum's trade secrets and benefiting from their use, Imation has repudiated the license agreement without authorization," Elfving said in a ruling.

Imation had been working with Quantum to qualify the tapes for use on Quantum's tape drives but hadn't achieved certification. Imation began selling the tapes anyway and filed an antitrust lawsuit lawsuit alleging Quantum was fixing prices, but Quantum countersued, arguing Imation had misappropriated Quantum trade secrets.

Elfving didn't agree to Quantum's demand that Imation halt shipments of its DLT tapes, however, and Imation will continue selling them, said Brad Allen, Imation's vice president of corporate communications and investor relations.

"We welcome the ruling in that it denies Quantum's bid to try to exclude us from the market. We believe we will prevail at full trial," Allen said.

Allen also said the 30 percent royalty rate the judge imposed shows why Quantum has an interest in keeping DLT tape cartridge prices high.

"The higher they can fix prices, the more revenue they get at 30 percent," he said. Typical royalties for tape products are less than 10 percent, he said.

Currently, the DLT cartridges, used to back up data stored on servers, have a street price in the mid-$40 range, Allen said. He refused to say whether the company would change its pricing but said its DLT tapes will be priced competitively.

But the 30 percent royalty the judge imposed isn't necessarily what Quantum charges in general, said John Gannon, the newly appointed president of the DLT tape group. "The actual royalty agreements we have with suppliers is not discussed," he said.

But Allen said Quantum sought a 30 percent royalty before the companies' legal wrangling, and that's the royalty other licensees have told Imation they must pay.

Overall, Quantum was pleased with the ruling.

"The judge has vindicated the position that we've taken, that Imation is in violation of our patents and our trade secrets in shipping this media without having a license, which they'd get with full qualification of the media," Gannon said.

Gannon, formerly with Quantum's hard-disk business before that group was sold to Maxtor, replaced Barbara Nelson, who now is Quantum's executive vice president for corporate marketing and strategy.