Ariba Prevails in Patent Litigation Against Emptoris

Earlier this morning, Ariba announced that it had prevailed in its patent suit against Emptoris. According to Ariba’s press release on the subject, "Yesterday, a jury in the U.S. District Court for the Eastern District of Texas returned a verdict that Emptoris has willfully infringed an Ariba patent covering key functions for electronic auctions and found infringement on a second patent also pertaining to electronic auctions. The jury awarded Ariba $4.9 million in damages. Due to the finding of willful infringement of one of the patents, the court has discretion to increase the award related to that patent up to three times. In addition, Emptoris voluntarily filed a request to dismiss with prejudice its own patent infringement case against Ariba which was pending in the same court in exchange for Ariba’s agreement to dismiss its counterclaims in that case. The judge has granted this request and dismissed the action against Ariba in its entirety."

While I need more time to dig into the specifics of the ruling -- which I plan to do tonight and over the weekend and report back on these virtual pages next week -- my initial thoughts are as follows.

First, let me get out on the table my bias for the record -- the patent madness has got to stop. Last year, I wrote that the “software patent race and enforcement has got to stop unless we want the lawyers to win at the expense of innovation.” Who won here? Without question, Ariba and Emptoris both spent millions of dollars in legal fees to take this to trial. So Ariba won (as we know). But so did a bunch of attorneys slaving over papers and depositions for $600+ per hour.

Second, and more important to Spend Matters readers, is the impact the ruling will have on Ariba, Emptoris and the market. From an Ariba perspective, I suspect that we might see additional suits against other competitors just as ePlus took on some larger providers following its victory over Ariba (which ended up costing Ariba far more than it will cost Emptoris from a monetary award standpoint). As to Emptoris, my greatest concern here has little to do with the features the patent ruling impacts -- I have no doubt they will find suitable work-arounds to the features in question (which I will share with Spend Matters readers when I know more). Perhaps most important, the ruling does not impact any Emptoris products outside of sourcing – spend visibility, contract management, performance management, etc. are not affected.

Rather, my concern with Emptoris in this case is to what degree the final damage settlement will dip into Emptoris’ balance sheet. My own estimates based on discussions with various investment firms over they past year or so suggest tht Emptoris has somewhere between $6 million and $20 million cash on hand. They also have receivables and deferred reveue as well. But will cash-on-hand and near-term receivables be enough to cover a potentially treble damage award? Since the maximum damages appear to be somewhere in the $10-11 million range based on a rough estimate, it would appear that Emptoris can cover the potential liability (which to reiterate, we do not know yet).

More important, I suspect that Emptoris will be able to raise additional capital if necessary as it emerges from this judgement. It’s also worth noting that until the actual damage rulling, it would be too early to jump to any conclusions on the overall balance sheet impact on Emptoris. In the meantime, I will make the judgement call that while Emptoris customers and prospects have the right to be worried about the impact of the ruling, they should not be overly concerned that the jury decision or judge's monetary damages will cause a material disruption to their Emptoris deployment, planned deployments and ongoing product support and maintenance. Based on what I know at this point, I suspect that Emptoris will emerge from this ruling with a weaker balance sheet but still as a viable, long-term player with some of the most competitive products in the sector.

Stay tuned for further analysis.

- Jason Busch

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