IBM, Cybernex Settle Trade Secret Suit
International Business Machines said Monday that it has reached an out-of-court settlement prohibiting the use of its trade secrets by Cybernex, a maker of computer memory devices whose founders include five former IBM employees.
Cybernex of San Jose announced separately that it agreed to the settlement without admitting that it ever used IBM trade secrets.
Cybernex said it would phase out the technology challenged by IBM and merge that part of the company with Read-Rite Corp. of Milpitas, Calif. The merged company will be called Read-Rite.
And in a related announcement, Cybernex and Xerox said Cybernex was buying Xerox Corp.’s Century Data Systems, a maker of computer disk drives in Anaheim.
Terms of the deal with Xerox were not disclosed. Cybernex makes its own disk drives through a partially owned affiliate, CAST.
International Business Machines said it invested more than $200 million and more than 14 years in research and development of its technology for thin-film heads. The heads are like record needles and are used to read and write information on magnetic disks, the memory storage area of computers.
IBM said that within months after its formation, with no significant research or experimentation, Cybernex came out with a nearly identical system. IBM sued in 1983.
The stipulation, order and judgment ending the lawsuit was approved last week by U.S. District Judge Robert Aguilar of San Jose, said Armonk, N.Y.-based IBM.
As part of its agreement with IBM, Cybernex said it would make a “substantial payment” to IBM to defray IBM’s legal costs and reimburse IBM for the salaries that it paid to Cybernex’s founders for a period of time before they left IBM.
The five former IBM employees who founded Cybernex are William Klein, Robert Hempstead, Ning-Gau Wu, Surendra Gupta and John Dellos.
Klein, Cybernex’s chairman and chief executive, predicted that the new Read-Rite would have sales of about $40 million to $50 million next year. He said the combined Century Data Systems-CAST company would have sales approaching $100 million next year. He declined to say what the units’ current sales are.
Klein said Cybernex settled out of court because it could not afford to spend millions of dollars defending itself against IBM in court.
