By Don Clark
A federal judge issued a preliminary injunction against a
Canadian company barring sales of chips used in a new variety of
data storage products sold by SanDisk Corp. and International
Business Machines Corp.
The injunction issued Monday against Diablo Technologies Inc.
was sought by Netlist Inc., a Southern California company that in
2013 filed a suit accusing Diablo of stealing trade secrets and
violating contracts between the companies.
Diablo, which is based in Ottawa, didn't respond to requests for
comment Monday. It has previously called Netlist's charges baseless
and filed counterclaims accusing Netlist of unfair business
practices.
IBM and SanDisk representatives also didn't respond to requests
for comment.
Chuck Hong, Netlist's chief executive officer, said the
injunction would effectively stop sales of SanDisk and IBM products
that incorporate Diablo chips--at least until a trial on the merits
of the case, set to begin March 9 in U.S. District Court in
Oakland, Calif.
"We feel very good," Mr. Hong said. He said the ruling clarifies
confusion in the industry about rights to intellectual property
covering an important new class of data storage products. "This is
a strategic technology," he said.
Netlist's shares rose nearly 13% Monday to $1.16, up 13
cents.
The technology at issue is designed to wring greater performance
from server systems by using flash memory chips in a different way
than earlier hardware.
Such chips, known for mobile products such as smartphones, are
most often used in servers in the form of solid state
drives--hardware modules that use the same sockets as drives based
on spinning disks. Alternatively, some companies sell flash-based
boards that transfer data over a faster connection called PCIe.
Netlist focused on developing technology to exploit an even
faster pathway, normally used for plugging in another class of
memory chips called DRAMs, or dynamic random access memory.
The company, based in Irvine, Calif., has been working on the
technology for about 10 years, Mr. Hong said. It forged a
relationship in 2008 with Diablo to help produce chips and other
hardware based on Netlist's technology, according to court
filings.
Netlist alleged that Diablo violated agreements between the
companies to develop and sell its own products. One Diablo customer
is SanDisk, according to court filings. The Milpitas, Calif.,
company, which sells a variety of products based on flash chips,
began using the Diablo technology in products under the name
ULLtraDIMM SSD following its 2013 acquisition of Smart Modular
Technologies.
Injunctions are much rarer than monetary damages in such
disputes. But U.S. District Judge Yvonne Gonzales Rogers concluded
that an injunction was warranted based on the odds that Netlist
will prevail following a trial.
"The evidence strongly indicates that Diablo breached the
parties' agreements, and that these breaches allowed Diablo to
bypass many months in normal development time to get its own
product to market," the judge wrote.
Write to Don Clark at don.clark@wsj.com
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