Iomega Sues Castlewood

-July 12, 1999

New York--Iomega Corp. Wednesday said it has filed suit in a U.S. District Court in Salt Lake City against its newest competitor, Castlewood Systems Inc., charging it with patent and trademark infringement and unfair competition.

Castlewood, Pleasanton, Calif., makes the Orb drive, a 2.2Gbyte removable cartridge drive that competes directly with Iomega's 2Gbyte Jaz drive product.

Iomega says Castlewood is using two key patents, one of which is related to disk drive control and was issued to Iomega in 1984, said Tony Radman, Iomega's senior vice president of business development. The other patent, assigned to Iomega in 1998, is for an apparatus that detects when a removable disk drive is empty, Radman said.

Castlewood vice president Martin Fishman said the company was in the process of reviewing Iomega's claims.

"We would never knowingly infringe on anyone's intellectual property or patent ownership rights," Fishman said.

Castlewood was founded in 1996 by Syed Iftikar, who also founded Syquest Technology Inc., Iomega's former arch rival, which went bankrupt in late 1998 only to have its intellectual property and remaining inventory scooped up by Iomega. Iomega's Radman said the latest suit does not involve any intellectual property that Iomega acquired when it bought out Syquest early this year.

Castlewood began shipping its drives in November of 1998, but only in recent months has begun marketing the products broadly. The company sells multiple versions of its drives for various interfaces, including SCSI, parallel ports, Universal Serial Bus and IEEE 1394.

Internally, the two products differ. Iomega's Jaz cartridge uses two internal disks, while the Orb uses a single disk. With a lower component cost, Castlewood's Orb retails for about $200, while the cartridges sell for about $30. Iomega's Jaz drive sells for $350 while the cartridges sell for about $125 for 2Gbytes, and $100 for 1Gbyte. Iomega's next generation Jaz product, which is rumored to employ a single disk inside the cartridge, is not expected to ship any time soon.

Jim Porter, president of Disk/Trend Inc., a storage industry market research firm in Mountain View, Calif. said the lawsuit comes at a time that Jaz sales have been sagging.

"Iomega does have a history of suing companies that annoy them," Porter said. "They carried on quite a campaign against Syquest and Nomai. In the case of Nomai, I think it was just cheaper to buy them out than carry on all the lawsuits they had against them."

Iomega's legal battle with Nomai SA, a French concern that made a disk product that was compatible with Iomega's Zip drive, ended in June of 1998, when the companies settled their disputes and Iomega paid $21 million for a majority stake in Nomai. The settlement came after Iomega sued Nomai in the United States and in four European countries.

For its part, Syquest had sued both Iomega and Nomai for producing Syquest-compatible cartridges. Those cases were settled with licensing agreements in 1994.

Syquest also sued Castlewood in June of 1997 for misappropriation of trade secrets. The suit targeted Iftikar and several other former Syquest employees who had moved to Castlewood. That case was never completed before Syquest's bankruptcy and now hangs in legal limbo.

"That was not one of the assets we acquired," Radman said.

Iomega also claims that Castlewood is misusing Iomega trademarks within so-called Meta tags on its Web site, leading a person who searches for an Iomega product name to be led to Castlewood's Web site. As of Wednesday, the words " iomega, zip, jaz" still appeared in the source code for Castlewood's Web page.

In one of the more high-profile cases involving meta tags, Playboy Enterprises, publisher of the men's magazine, won a $3 million judgement in 1998 against two Hong Kong-based adult Web sites that used the words "playboy" and "playmate" embedded within the HTML code for their Web sites. A federal court in Virginia agreed with the magazine publisher use of the trademarked words in meta tags constituted a trademark infringement.

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