WD told to pay half a billion in patent damages before biz splits

With drivemaker poised to become 2 publicly traded companies, judge says he has 'concerns' over restructuring

Western Digital has less than a week to file a bond or stump up the $553 million it owes in a patent infringement case, after a federal judge on Tuesday denied the company a stay of execution while it tries to get the ruling overturned.

The US storage biz was found by a jury in California to have infringed on data encryption patents owned by SPEX Technologies in October of last year, and told to pay $316 million in damages. Last month, District Judge James Selna ruled that WD owed a further $237 million in interest charges on top, bringing the grand total to more than half a billion dollars.

Which brings us to the current situation. On Friday February 6, WD asked the judge [PDF] to delay ordering it to cough up the damages, pending further court decisions on the drive maker's applications for a new trial and for a ruling to overturn last year's verdict in the patent judgement. Both are still making their way through the legal system.

It was ruled in the 2024 trial that WD storage devices, including some of its Ultrastar and My Book products, infringed on Patent No. 6,088,802 held by SPEX (the '802 patent). Entitled "Peripheral Device With Integrated Security Functionality," this describes a device such as a portable hard drive, designed to perform security operations on data sent to or from a host computing device.

According to legal news service Law360, WD argued SPEX did not establish that its storage devices perform "the identical function specified in the claim" of the patent, which dates to 1997.

But Judge Selna did not see it WD's way, and on February 11 [PDF] ordered that WD had just seven days to allow for further discussions and/or the filing of a bond before the half a billion dollars comes due.

In the order, the judge stated that: "The court has concerns about potential corporate restructuring, particularly given the fact the judgment is against only Western Digital Technologies, Inc."

This likely refers to the pending split of WD into two publicly traded companies, one formed from its NAND flash memory division and the other from its hard drive biz. This de-merger, announced in October 2023, will effectively see the flash storage operation spun out under the Sandisk brand, while the other continues as Western Digital.

According to WD's website, this planned separation of the company's flash business is due for completion on February 21.

It would appear there is concern over how the split would affect the enforcement of damages. In its own February 7 court filing [PDF] opposing WD's application for a stay of judgement, SPEX states that:

"WD is seeking to split the company into two separate companies (one for 'HDD' products and one for 'Flash' products)," and that "SPEX has no visibility into WD's reorganization, including when it will actually occur, which new company will be responsible for satisfying the judgment or whether it will be split between the new companies, or whether the new company (or companies) would be sufficiently capitalized to cover the judgment."

SPEX also noted in its filing that WD also has another storage patent infringement judgement hanging over it. In August last year, the same court awarded German firm MR Technologies $262 million in damages, later upped to about $380 million with the addition of prejudgment interest.

We asked Western Digital for comment. However, it is understood the company is likely to appeal both judgements. ®

The case is SPEX Technologies Inc versus Western Digital Corp, US District Court for the Central District of California, No. 8:16-cv-01799.