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Simon Passanante settles complex copyright/antitrust suit concerning robotic tape library error code access.

May 1st, 2007 by Erich Vieth

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 again 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 the 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 & Passanante, P.C. who represented CHE at trial and in the settlement. “We were 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. Businesses and government agencies purchase the robotic tape libraries and 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 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 Millenium 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 “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.

Simon۰Passanante, P.C. is a St. Louis-based law firm that handles complex business litigation including intellectual property and antitrust cases nationwide. For further information, please contact Anthony G. Simon, (314) 241-2929 or asimon@simonpassanante.com.

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