October 8, 2004
Sun Microsystems (Nasdaq: SUNW ) shareholders have one less headache to medicate thanks to management's wise decision to settle its patent infringement litigation with crusty old Eastman Kodak (NYSE: EK ) . Earlier this month, a federal jury found that Sun's ubiquitous Java software violated patents Kodak had previously acquired from Wang Laboratories. (Stop your snickering. You'll get us both fired.)
Why is this wise? Because the $92 million payoff looks pretty cheap compared with the billion dollars Kodak was pushing the jury to consider. That would have eaten nearly a tenth of the firm's top line.
As described, the patented processes sound awfully vague: methods of inter-program communication for identifying common file types. It may remind some of us tech nerds of the drawn-out fight between Microsoft and former plugin tsar, Eolas Technologies. Had the patent office not invalidated the Eolas claim, firms as diverse as Apple (Nasdaq: AAPL ) , Macromedia (Nasdaq: MACR ) , Red Hat (Nasdaq: RHAT ) , and others may have had substantial fixes to make or checks to write.
No surprise that in this era of FUD and counter-FUD, both sides are declaring victory. Kodak gets to flex its muscles for the public and snarl a warning to the whole tech world. Meanwhile Sun skips away with barely a shiner, pointing out that the hush money is just a drop in their bucket.
As a player in the open-source community, Sun will likely take its share of blows from purists who would have preferred that the firm go down swinging. Patent cases like these are one of the few times that the big money sees support from the Linux types -- at least until they drop the gloves and pay up. But investors should be glad that management just limited the damage. Often, it's better to be happy -- or even just satisfied -- than right.
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Seth Jayson has applied for patents on breathing, eating, and other innovative functions. Make your checks out to cash, please. At the time of publication, he had positions in no company mentioned. View his stock holdings and Fool profile here. Fool rules are here.