EMC and HP have devised one of the weirder patent settlements you'll ever see to get rid of a four-year-old dispute around storage intellectual property (IP).
On the surface, the deal seems pretty straightforward. HP will pay EMC $325m over the next five years. Such an agreement, however, would be too simple for these vendors who have been squabbling over storage patents since 2000.
In actuality, HP will pre-pay $65m to EMC at the start of five consecutive "purchase periods," otherwise known as "years." During these periods, HP can hand EMC cash or it can put that money toward the purchase of EMC's hardware, software and services. HP can use the EMC gear it buys in-house or resell it.
Many of you will see where this leads.
HP is basically being, er, encouraged to buy software such as EMC's VMware server partitioning products or Legato backup products and wrap these applications with its own hardware sales. Such a move opens a new channel to EMC and possibly a longer-term partnership with HP.
"By expanding our relationship with EMC's various software divisions, HP will be able to deliver a more formalized approach to selling these solutions, and explore new ways to integrate and leverage our complementary offerings," said HP vice president Joe Beyers.
Also on the friendly front, the two vendors have signed a five-year patent cross-license agreement.
This agreement along with settlement erases three separate lawsuits between the vendors. Their dispute dates all the way back to a 2000 lawsuit over replication software patents between EMC and StorageApps. HP later acquired StorageApps and, in 2001, inherited the EMC lawsuit. HP would go on to countersue EMC but appears to have lost out in the end.
EMC and HP already do business together. HP has been one of VMware's most consistent customers, and HP likely resells EMC hardware or software from time-to-time when it needs to close a large deal. It's unlikely, however, that HP sells $65m worth of EMC kit per year.
So, EMC's software unit has won itself a major hardware partner. HP can either give money straight to EMC or find a way to sell EMC's software to mutual customers. Which option do you think it will pick?
The folks at Veritas must be seething just a bit about this settlement. Last year, HP agreed to use Veritas's file system and volume manager software at the core of its HP-UX operating system. This deal seemed to put Veritas in prime position to sell HP customers lots of storage software. Now it will have to compete with EMC on at least $65m worth of deals. ®
Earlier this year, HP and EMC agreed to settle this matter out of court via a private arbitration.
For those interested in the real fine details of the deal, here's a note from an 8-K filing HP made about the agreement.
"If EMC purchases HP products or services during the Purchase Periods, HP will be required to make an equivalent amount of additional product or services purchases from EMC of up to an aggregate amount of $108 million over five years, with caps for each Purchase Period as follows: $10,830,000 for the first Purchase Period, $21,660,000 for each of the second, third and fourth Purchase Periods and $32,490,000 for the final Purchase Period. If HP does not make the required amount of additional purchases of EMC products and services attributable to such Purchase Period, HP will be required to pay the difference to EMC.
For purposes of computing the amount of HP products that EMC purchases, hardware products shall be deemed to have been purchased for 50% of the actual purchase price."