Compellent, XIOtech Swap Suits

Having founders and former employees in common isn't helping

April 8, 2004

3 Min Read
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Two competing SAN startups are seeking their day in court, in a case that demonstrates the risks involved in so-called serial entrepreneurship.

Compellent Technologies Inc. and XIOtech Corp. have swapped motions in what looks to be the start of a typical technoworld legal tangle (see Compellent, XIOtech Go to Law).

It began several weeks back, when Compellent allegedly sent a complaint to XIOtech about "wrongful acts of business interference and unfair competition." Just what that means is tough to pin down. XIOtech's not telling, and Compellent had not answered questions at press time.

But the legal definition of business interference includes behavior such as hiring another company's employees with intent to obtain trade secrets from them, or threatening would-be customers.

The two companies seem to have fertile ground for potential trouble. XIOtech, now a late-stage startup, was founded in 1999 by Phil Soran, John Guider, and Larry Aszmann -- who subsequently left the company and went on to found Compellent in 2002 (see XIOtech Founders Back in Business). Soran is now CEO, Guider COO, and Aszmann CTO of Compellent.Other employees wandered over as well. Indeed, according to XIOtech CFO Steve Snyder, his company's suit doesn't name the two companies' founders specifically in its complaints. Instead, it names four former employees who aren't Compellent founders, along with Compellent itself. The employees are accused by XIOtech of violating terms of noncompete agreements with their former employer.

XIOtech also has beefs about the alleged straying of its intellectual property, meaning patents pending or trade secrets, to the newer startup. Again, specifics are unavailable. Neither company actually has patents in the online records of the U.S. Patent and Trademark Office -- not yet, anyway. But both compete in the SAN space, with claims to offer modular, simple-to-use systems aimed specifically at the small-to-medium-sized enterprise (see Compellent and XIOtech Stresses Simple SANs).

Apparently, XIOtech stewed over Compellent's complaint awhile before deciding to up the ante by filing a motion on Friday, April 2, not just with its attorneys and Compellent's but also with Hennepin County Court in Minnesota. Both companies are located in the Minneapolis area.

Part of the filing, according to XIOtech's Snyder, included a motion to dismiss Compellent's accusations as being without merit. Compellent filed a countermotion in Minnesota state court. Now, the case is on its way to being a full-blown legal battle.

There's nothing unusual in all this. The storage market is full of litigation involving patents and cross-company disputes of various kinds (see SOS Loses Appeal in HDS Lawsuit, WD Settles Cirrus Lawsuit, Crossroads Sues Dot Hill, and Nishan Founder: VCs Screwed Me).It's also not unusual for serial entrepreneurs to run into problems as they move from one company to the other, particularly if they stay within the same market. What's more, storage networking is a small world, and the temptation for execs and engineers to jump from one opportunity to another has increased with the improved economic outlook. With this in view, it will be interesting to see how the Compellent/XIOtech litigation fares as competition and activity heat up.

Mary Jander, Site Editor, Byte and Switch

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