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Imation Files $450 Million Antitrust Lawsuit: Alleges Price Fixing Cartel

Tuesday, October 02, 2001

Press release from the issuing company

OAKDALE, Minn.--Oct. 1, 2001-- Imation Corp. announced today that it has filed a lawsuit in the Federal District Court in St. Paul, Minn., charging Quantum Corporation, a Milpitas, Calif.-based company, with violations of Sections 1 and 2 of the Sherman Antitrust Act, including price fixing and conspiracy to monopolize the production and sale of data storage tape compatible with Quantum's DLT tape drives. The complaint seeks an injunction barring Quantum from further violations of antitrust law in this market and recovery of damages of at least $150 million, which would be trebled under antitrust law to a minimum of $450 million. "We have taken legal action to protect Imation and users of digital linear tape products who have been subjected to the illegal and unfair trade practices of Quantum. These monopolistic practices hurt the market with higher, fixed prices, and limited supply, '' said Frank Russomanno, vice president and general manager of Data Storage Media and Services for Imation. "Quantum's promise to DLT tape drive buyers has been that the market for DLT-compatible tape is open and competitive. The purpose of our suit is to bring them back to thatpromise of an open and fair market. Imation has met with, and remains willing to meet with Quantum to try to resolve our differences and reach a negotiated settlement.'' The lawsuit specifically charges that Quantum has fixed prices on DLT- compatible tape, invited Imation to join an illegal tape cartel, inappropriately extended patents on licensed DLT tape drives to tape media as a way to enforce its monopoly hold on the tape market, and misrepresented DLT- compatible tape as an open standard with competitive pricing. The full complaint can be found on Imation's website at www.imation.com. More detail about the DLT market and the antitrust charges are contained in separate background documents that can also be found on Imation's website. A key document attached to the complaint in the lawsuit is an e-mail from an executive at Quantum, which essentially lays out a "special arrangement'' inviting Imation to join a Quantum-led cartel (Complaint page 11). In return for a limited supply of lower cost tape it could resell under its own name, Imation would have had to agree not to manufacture DLT-compatible data storage tape, suspend its efforts to seek qualification, and limit its sale of DLT-compatible tape to its current levels. The complaint also asserts that the two licensed manufacturers of DLT compatible tape - Fuji and Maxell - subject to pressure from Quantum, have agreed to maintain prices at artificially high levels (Complaint page 12). Since at least 1999, Quantum has been the worldwide revenue leader for tape drives used for data storage and backup. In calendar year 1999, DLT tape drives sold by Quantum accounted for approximately 30 percent of total tape drive market revenue, up from 24 percent in calendar year 1998. The installed base totals in excess of 1.6 million DLT tape drives for which approximately 17 million tape cartridges are sold per year. One DLT IV tape cartridge can hold up to 40 gigabytes (GB) of data uncompressed or 80GB compressed. Currently, Quantum receives an unusually high royalty on the sale price of all DLT- compatible tape media sold. Fuji and Maxell manufacture this tape under licensing arrangements with Quantum. For the most recent quarter ended July 1, 2001, Quantum reported royalty revenue of $54.5 million or approximately 19 percent of total revenue, which was more than twice reported income from operations of $25.4 million for total company operations. Qualification of Imation Tape Imation, as a leading global developer, supplier and manufacturer of removable data storage media products, has invested significant time, effort and assets to become qualified by Quantum as a manufacturer of tape compatible with DLT drives. In the interim, Imation has resold DLT- compatible tape under the Imation brand, purchased at noncompetitive prices fixed by Quantum, resulting in substantial losses for Imation. The complaint refers to a statement from a Quantum employee responsible for qualifying DLT- compatible tape licensees stating that Quantum officials had instructed him never to qualify and approve Imation as a manufacturer of DLT tape (Complaint page 9). When Imation refused Quantum's demand, Quantum introduced a new qualification process for tape manufacture, requiring Imation to restart the lengthy process under new and different standards that have yet to be defined.

 

 

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