The 10 Ugliest Legal Disputes Of 201110:00 AM EST Fri. Dec. 23, 2011
Like a divorce case in a marriage gone bad, lawsuits between IT vendors bring out all the acrimony that's been bubbling below the surface -- maybe for a long time.
Here's what we think were the 10 ugliest legal disputes in 2011. Some were new this year, while others started a long, long time ago and dragged on into this year. We've focused on the cases with some real venom behind them and those that may have broader implications for the industry.
While Microsoft pursued legal action against a number of companies for alleged patent infringement, it quietly paid $290 million to Toronto-based i4i in June after the small company won its own patent infringement suit against the software giant.
In the long-running case, i4i claimed that technology Microsoft built into Word 2007 and Office 2007 for editing and customizing XML code infringed on i4i patents. In 2009, a U.S. District Court jury agreed and said Microsoft had to pay $290 million in damages and fines.
For two years Microsoft pursued appeals of the verdict through ever-higher courts, maintaining that the burden of proof needed to declare a patent to be invalid was too high. Had Microsoft won that argument, challenging software patents in court might have become easier. But in June the U.S. Supreme Court rejected Microsoft's final appeal, leaving Microsoft just one last task – cutting i4i a $290 million check.
Worries about ex-employees taking corporate secrets with them when they get hired by competitors is a common source of lawsuits. Case-in-point is the suit PayPal filed against Google in May claiming the search engine giant stole PayPal's ideas for an online payment service.
On May 26, Google launched its "Google Wallet" mobile payment service. Later that day PayPal sued, claiming that Google Wallet was based on research PayPal had been working on and that Google obtained those trade secrets by hiring former PayPal executives Osama Bedier and Stephanie Tilenius.
Google's position: Along with insisting it respects trade secrets, Google said individuals have the right to seek better employment opportunities. In an industry where the biggest assets are in peoples' heads, these kinds of suits are becoming more common. And because they often involve charges of corporate espionage and betrayal, they can be very personal -- and very nasty.
On June 19 customers of the Dropbox cloud storage system discovered that they were able to access accounts using any password. The next day Dropbox acknowledged that an authentication bug opened a gaping security hole for a four-hour period that made users' cloud storage accounts accessible without proper credentials.
"This should never have happened," admitted Dropbox CTO and co-founder Arash Ferdowski, in a blog. Customers agreed because little more than a week later they filed a class action lawsuit seeking damages over their data's possible exposure. The suit claims Dropbox was negligent and didn't adequately notify users that their data may have been exposed.
Businesses and consumers are increasingly relying on the cloud for applications, data storage and other services. The Dropbox incident shows that cloud service providers have high expectations to meet. And they can expect legal action when they fail.
This case that has dragged on since March 2007 may be drawing to a close with only the amount of damages SAP owes Oracle left to be decided.
In 2005 SAP acquired TomorrowNow, which provided services for Oracle customers. Oracle sued claiming that TomorrowNow illegally obtained Oracle software and support materials from Oracle web sites. The case, officially a copyright infringement issue, finally went to trial last year and in November a U.S. District Court jury in Oakland, Calif., sided with Oracle, awarding a stunning $1.3 billion in damages.
SAP, which shut down TomorrowNow, has acknowledged that the subsidiary unlawfully obtained the materials, but has argued the true damages were far less. In July, a U.S. District Court judge agreed and reduced the damages to $272 million. The two sides are trying to negotiate a compromise.
Google and Microsoft were constantly butting competitive heads in 2011 and this litigation was one of the more visible results. In January Google won an injunction halting a nearly $60 million cloud computing contract that had been awarded to Microsoft by the U.S. Department of the Interior. The stakes are high: Google is trying to expand sales of its Google Apps beyond individual users to businesses and government organizations, while Microsoft is trying to maintain the dominant position it holds with its Microsoft Office and other desktop and small business software. Microsoft, for example, beat Google for a cloud e-mail migration contract with the city of San Francisco, a counter-point to the high-visibility deal Google won from the City of Los Angeles in 2009. In this case the Interior Department decided to start over to pick a cloud application vendor, citing changes in the cloud landscape since first awarding the contract to Microsoft. Given that decision, a judge dismissed the Google lawsuit – after it apparently accomplished its goal.
Amidst the fallout of the growing rancor between Oracle and Hewlett-Packard was this lawsuit against former HP executive and one-time channel chief Adrian Jones, claiming Jones stole proprietary information about HP products and customers before leaving to take a job with Oracle.
Jones left his post as senior vice president of Enterprise Storage, Servers and Networking for HP Asia Pacific in February and resurfaced a month later as senior vice president of Asia pacific/Japan at Oracle.
HP accused Jones of downloading and removing sensitive documents containing confidential and strategic data, according to court documents. All told, HP alleged that Jones took hundreds of files and thousands of e-mails via a USB device.
In July Jones' attorneys responded by calling the lawsuit "malicious" and based on a "knowingly false accusation."
Apple sued Samsung in the U.S. in April for patent infringement, claiming that Samsung's Galaxy smartphones and tablets bear a suspicious resemblance to the Apple iPhone and iPad.
So far it's been advantage Samsung: Earlier this month a U.S. District Court judge in California ruled that Samsung could continue selling the Galaxy products in the U.S. pending a trial in the case, now set for July 2012.
Samsung has long manufactured the ARM-based A6 system-on-a-chip used in the Apple iPad, and a subtext for the Apple-Samsung dispute are reports that Apple is thinking of moving its chip production away from Samsung to another fabrication partner, Taiwan Semiconductor Manufacturing Co.
Speaking of alleged patent infringements in Android, Oracle sued Google in 2010 claiming that Google's use of Java technology in the mobile operating system violated Java patents and copyrights Oracle acquired when it bought Sun Microsystems.
In June of this year, Oracle updated its court filings to say that it's claiming damages "in the billions of dollars" from Google -- the first time Oracle had given any hint of the potential damages. But in July a U.S. District Court judge rejected Oracle's damage estimates, suggesting that $100 million was a more reasonable starting point for negotiations.
Industry observers are closely following the case given its potentially wide ramifications for the mobile device industry -- Google says 400,000 Android devices are activated every day -- and for the open-source software industry.
Taking the position that Google's Android mobile OS infringes on a number of its patents, Microsoft was busy in 2011 negotiating licensing pacts with manufacturers of Android devices -- and suing those who refused to pay up.
Microsoft sued Barnes & Noble, whose Nook e-reader runs on Android, as well as Nook manufacturers Foxconn and Inventec. Microsoft also pursued a lawsuit against Motorola Mobility, which is in the process of being acquired by Google, charging that Motorola's Android-based smartphones and tablets also violate Microsoft patents.
Microsoft, meanwhile, reportedly collected millions of dollars in royalties from a handful of Android device manufacturers, including HTC, ViewSonic, and Acer. In September Microsoft inked an extensive patent licensing deal with Samsung and it was reported last month to be holding similar talks with Chinese manufacturer Huawei .
Yes, there were lawsuits in 2011 with bigger stakes, both in the amount of money involved or the potential legal ramifications. But when it came to pure vitriol, it didn't get any uglier than the legal battle between Oracle and HP over the future of Itanium.
Oracle announced in March that it was halting software development for Intel's aging Itanium processor. Trouble is, the only hardware vendor still building Itanium-based servers is Hewlett-Packard. So Oracle's announcement produced howls of indignation from HP execs, followed by a breach of contract suit against Oracle which argued that it is contractually committed to supporting Itanium -- a claim Oracle denied in a countersuit charging HP with fraud and defamation.
The legal back-and-forth dragged on all year with no resolution in sight. In November Oracle charged in a court filing that HP had been "secretly" paying Intel to keep producing the Itanium line of processors "so that HP can maintain the appearance that a dead microprocessor is still alive. The whole thing is a remake of 'Weekend at Bernie's.'"