Will patent lawsuit hurt Marimba's comeback?

The legal troubles erupted nearly three years ago when Marimba rival Novadigm filed a patent suit against the company. A trial date for Novadigm's suit has been set for Nov. 7.

The fight is a bitter, yet common battle between two companies haggling over use of patented software. Novadigm alleges Marimba, which makes software that allows companies to deliver software and information across the Web, used Novadigm's patented technology in its Castanet product line. In a statement issued this week, Marimba chief executive Kim Polese said the suit is without merit. Marimba is counter-suing, alleging that Novadigm infringed on a Marimba patent involving the distribution of code for content updates.

Citing an SEC-mandated quiet period in light of pending quarterly earnings announcements, Marimba's Polese declined comment.

In Wall Street's eyes the two companies couldn't be more different. Though both are publicly held, Marimba is viewed as a sexy Internet stock now trading at more than twice its IPO price of $20 per share with a market value of $1 billion.

Last year, Credit Suisse First Boston and Hambrecht & Quist both reiterated "buy" ratings on the stock and BT Alex.Brown initiated coverage with a "buy" rating, calling Marimba "a key player in providing Internet infrastructure services with technology that stands above the crowd."

Meanwhile, Novadigm, though profitable and successful in its own right with corporate clients including AT&T, services giant EDS, and MetLife, is still viewed as an old-school client-server company that lacks any Wall Street buzz. The company has a market value of about $385 million.

International Data Corp. analyst Paul Mason says it's ironic that the companies are perceived so differently on the Street when their technologies are so similar.

"Plenty of companies have the capability to do the same thing (as Marimba)," he said. "But (Marimba) positioned themselves very well. They got a lot of press and they designed their product to deliver over the Net?Novadigm hasn't been successful in getting the mind share."

Marimba's success is a reflection of the Internet feeding frenzy, he said, noting that Novadigm has technology capabilities in managing large distribution of content to different users under varying rules "that Marimba can't possibly match."

Although the first commercial applications for "push" technology were in reaching consumers over the Internet, the technology has proven to be more viable for pushing software updates across internal corporate networks, areas both Novadigm and Marimba have targeted. All new online applications go through some growing pains, however, and whether new push applications will become prevalent depends on their success in their new niche--and possibly the end of using the poison word "push."

But Marimba has proven itself to be a hard-core competitor in a market with many players, including Sterling Software, StarBurst, BackWeb, Tibco and others. It also boasts a raft of top-notch customers including Charles Schwab, Home Depot and Sears.

"(Marimba) has come a long way from where they were," said Giga Information Group analyst Rob Enderle, noting that the same forces that brought down the once-hot PointCast when push technology took a Wall Street dive also threatened Marimba. "The market responded to Marimba's IPO (last April). They were trendy again." Not so lucky to ever execute on a plan to go public, PointCast agreed to be acquired by Idealab last May, ending its search for a buyer.

Novadigm's CEO and founder Albion Fitzgerald believes Marimba's success is due in part to use of his company's technology. In his suit, Fitzgerald is seeking royalties for lost sales and business opportunities.

Fitzgerald said in an interview that the suit is a "question of drawing lines," calling the case a "property dispute."

"Someone's putting up a building on the corner of our property," he said.

In Polese's statement, she said: "Marimba firmly believes Novadigm's suit to be without merit, and we feel strongly that we do not infringe Novadigm's patent."

In technology circles, there are two schools of thought on software patent lawsuits: that patents are invalid and much too broad to enforce, or that they are business tools meant to be used as weapons in a highly competitive technology landscape. Nonetheless, companies such as Amazon.com, which sought an injunction against Barnes & Noble, and Priceline.com, which sued Microsoft, in recent months have both hotly pursued patent cases against companies they believe nabbed their technology.

In a 1999 report, the American Intellectual Property Law Association estimated that a company spends an average of $1.5 million on a patent lawsuit through the end of discovery, and between $2 million and $3 million to take the suit to trial.

"If (Novadigm's) got a trial date, they're very, very serious," said Craig Opperman, a lawyer at Cooley Godward, in Palo Alto, Calif., who has practiced patent law for 12 years and specializes in e-commerce cases. "By this time, they've each spent about $1.5 million on this thing."

At worst, Marimba could be forced to license its technology from Novadigm, or stop using it altogether, as Fitzgerald has demanded.

"That could be an interesting question that Marimba will have to deal with," Opperman said.

IDC's Mason said he has doubts about what Novadigm is hoping to accomplish with a lawsuit.

"This suit may be more about trying to establish who was there first than (it is) about money," he said. "It's about who was there first and who is the top dog here. It's very hard to enforce a software patent. I see it as something that's probably not worth the effort--except to establish that they were there first. "