Microsoft Settles Patent Dispute with Stac Electronics Inc.

Strategic Insights -

Microsoft Corporation has agreed to license Stac's technology and acquire a minority equity stake in Stac, bringing an end to a closely watched patent infringement suit brought by Stac Electronics Inc. The settlement comes after a jury in Federal District Court in Los Angeles found that Microsoft's MS-DOS versions 6.0 and 6.2 infringed Stac's patents for data compression, awarding Stac $120 million in damages. The agreement will benefit both companies, allowing them to work together in partnership, which analysts say will be to the benefit of both parties.

Key Takeaways:

  • Microsoft will pay Stac license royalties of $1 million a month for 43 months, totaling $43 million.
  • Microsoft will also buy $39.9 million worth of nonvoting convertible preferred stock in Stac, which matures in 2004.
  • The stock features of the accord will allow Stac to gain $12 million a year in licensing revenues for a time, plus the equivalent of $2.70 a share in cash from the equity investment.
  • Analysts say the settlement is a significant victory for Stac, allowing it to benefit from licensing revenues and a partnership with Microsoft.
  • The judgment will disrupt sales and distribution of Microsoft products, but the recall is temporarily stayed by the Federal Court of Appeals in Washington.
  • Microsoft will continue to offer its own Drive Space compression technology, which is the replacement for the Double Space feature that was found to have infringed Stac's patents.
  • Stac will receive a license to Microsoft's preload technology in MS-DOS 6, which was previously found to have infringed Stac's patents.

Statistics:

  • The jury awarded Stac $120 million in damages.
  • The settlement totals $43 million in license royalties and $39.9 million in stock purchases, totaling $82.9 million.
  • The preferred stock has a conversion price of $9 a share and is convertible into a total of 4.44 million common shares.
  • Stac shares closed at $6.625, up $1.50, in Nasdaq trading.
  • Microsoft shares fell in Nasdaq trading to $52.625 a share, down 87.5 cents.

Sources:

  • "Microsoft Pays Stac $82.9 Million to Settle Patent Lawsuit" (February 28, 1991)
  • "Microsoft and Stac Join Forces After Patent Dispute" (March 7, 1991)