Quantum Gains on Rival's IPO

Quantum has quietly racked up almost $6 million, thanks to its de-dupe rival Data Domain's headline-grabbing IPO yesterday. (See Data Domain Goes Public, Data Domain Prices IPO, and Data Domain Files S1.)

In addition to 7 million shares of Data Domain's common stock, documents filed with the SEC reveal that a "selling stockholder" also offered an additional 390,000 shares yesterday. Tucked away within a recent amendment to Data Domain's S-1, Quantum is revealed as the recipient of this windfall.

A spokesman for Quantum confirmed today that, at $15 apiece, Data Domain shares had netted his firm a cool $5,850,000 -- not bad considering the two firms are head-to-head in one of the hottest parts of the storage market. (See Insider: De-Dupe Demystified, Top Storage Predictions for 2007, and 2006 Storage Winners & Losers .)

The roots of this strange situation can be traced back to March, when Data Domain inked a cross-licensing deal with Quantum to avoid future lawsuits. This followed an inquiry from Quantum late last year.

Specific details of the agreement have not been revealed, but as part of their deal, Quantum received 390,000 shares from Data Domain. Those shares have now turned into a sizable chunk of money.Both Quantum and Data Domain use a de-duplication technique called "variable length," which accommodates changes in patterns of data such as bytes or characters, as opposed to checking for "fixed-length" packets of data.

Earlier this week, Quantum became the first storage vendor to offer both inline and post-processing versions of de-duplication, whereas Data Domain has focused primarily on the in-line model. (See Quantum to Offer De-Dupe Duo, Quantum Intros DXi7500, and Quantum Leaps Into De-Duplication.)

"It's ironic, in a way, that you get a settlement between two ostensible rivals," says Simon Robinson, research director at analyst firm The 451 Group. But he believes there is still enough scope within de-duplication technology for Quantum and Data Domain to step on each other's toes. (See Dovado Supports Option Cards, ADIC in De-Dupe Deal, and Quantum Takes Tape Rival ADIC.) "Both Quantum and Data Domain have realized that the most sensible thing they could do was not to get into protracted legal battle that would slow both companies down."

Data Domain refused to comment on the stock agreement today, although it is widely acknowledged that patent infringement lawsuits can be a major distraction for technology firms, particularly those in emerging markets. (See Patently Profitable and Crossroads, Dot Hill Ponder Patents.)

Quantum has also been down this road before, paying Sun $25 million to resolve a patent lawsuit last year. (See Quantum, StorageTek Bury Hatchet and Crossroads, Dot Hill Ponder Patents.) The April 2003 lawsuit related to the use of an optical servo system in Quantum's SDLT tape drives, although the two firms eventually signed a cross-license agreement providing access to a limited number of the other's patents.Data Domain's stock continued to perform strongly today, closing at $22.70, slightly down on yesterday's close of $24.95. (See Data Domain Dives In.)

James Rogers, Senior Editor Byte and Switch