Announcing strong earnings yesterday, Aruba Networks also had some not-so-good news for shareholders: Aruba has been sued by Motorola for patent infringement relating to Aruba's core wireless LAN technology.
Motorola filed suit Monday in U.S. District Court in Delaware alleging that Aruba has violated four patents held by its subsidiaries Symbol Technologies and Wireless Valley Communications. Two of the patents, held by Wireless Valley, use 3-D representations for wireless LAN design and management; the other two relate to WLAN switching architecture technology originally developed by Symbol.
Motorola acquired Wireless Valley in Dec. 2005 and Symbol in January of this year. The company is seeking monetary damages and a permanent injunction against Aruba.
The patents at issue were filed between March and September of 2000. Aruba was founded in 2002. Asked why the lawsuit was filed now, Symbol's VP and general counsel for intellectual property, Aaron Bernstein said, "two of the patents, relating to state of the art wireless switch technology, were just issued a few months ago." Bernstein also indicated that Aruba may not be the only company that Motorola considers in violation of its patents.
Aruba officials have declined to comment directly on the lawsuit. In the company's earnings conference call, CEO Dominic Orr said that "while we are not prepared to comment on this litigation at this time," Motorola has never contacted Aruba regarding the patent claims and has not served Aruba with official notification of the suit. That would indicate that Motorola has not attempted to negotiate a license fee with Aruba for the technology at issue.
"Patent litigation is a part of doing business in our industry," Orr added. "We are evaluating the lawsuit and will respond at the appropriate time."
The Motorola suit provides further evidence that the patent wars over wireless networks are heating up. Earlier this summer U.S. District Judge Leonard Davis of the Eastern District Court of Texas issued an injunction against wireless-LAN equipment vendor Buffalo Technology in its patent fight with the Australian science agency CSIRO over patents underlying Wi-Fi technology. There are currently three other cases in the Texas court involving CSIRO and big tech companies, and Davis has ordered mediation in those suits to be completed by November. A group of major tech companies that includes Intel, Dell and Hewlett-Packard filed countersuits in May 2005, seeking to have the CSIRO patent invalidated.
After New York markets closed yesterday, Aruba reported that revenues for the fourth quarter of 2007 increased 74% from the same period last year, to $41.7 million, while full-year 2007 revenues were up 76% from 2006, hitting $127.5 million. The company's net loss widened from $1.4 million in 4Q of 2006 to $3.4 million last quarter, largely due to increased sales and marketing expenses. Leaving aside stock-based compensation and R&D costs, Aruba posted a profit of $2 million for the quarter.
Aruba has performed strongly since going public earlier this year, moving into the No. 2 position in the enterprise wireless LAN market behind Cisco Systems, which holds 66% of the market. No. 2 Symbol's market share has slipped significantly according to figures from market research firm Dell Oro. Aruba's share price, which had increased 48% since its March 27 IPO, fell 4.6% yesterday on news of the Motorola lawsuit.