Business Tech

The corporate soap opera between Data Domain and potential suitors NetApp and EMC has a new episode.

Two law firms have launched class action suits against the board of Data Domain, alleging that the process used to accept NetApp's offer may not have been fair and open.

Attorneys at Bernstein Litowitz Berger & Grossmann filed suit in Delaware on June 12 on behalf of the Police and Fire Retirement System of the city of Detroit and "similarly situated shareholders of Data Domain," according to the firm's press release.

The suit contends that Data Domain's board breached its responsibility to shareholders by refusing to negotiate with EMC and for agreeing to sell Data Domain to NetApp without taking steps to maximize the price paid to Data Domain's shareholders.

"Data Domain's board of directors violated their fiduciary duties by approving the original and the restructured deals with NetApp, both of which give NetApp an improper bidding advantage in the form of a termination fee, a no-shop/no-talk provision and matching rights," said the Bernstein Litowitz Berger & Grossmann law firm in a statement. "The board granted each of these deal protections before any value-maximizing process took place, in a blatant effort to ensure that their favored merger partner is Data Domain's ultimate acquirer."

The firm has asked the court to issue an injunction preventing Data Domain and NetApp from consummating their merger.

Separately, law firm Levi & Korsinsky filed its own suit in California last week against Data Domain's board, with similar allegations.

"Under the terms of the proposal, Data Domain's shareholders would receive $30 to be paid in a combination of cash and NetApp stock," said Levi & Korsinsky in a statement. "In addition, NetApp offered positions on its board to certain Data Domain officers and there are rumors that the Data Domain CEO Slootman could be the next CEO of NetApp. This raises questions as to whether the sales process conducted by the board was fair and open."

A spokesperson at Data Domain contacted by CNET News said the company had no comment on the lawsuits.

The battle for Data Domain started on May 20 when NetApp offered $25 a share to acquire the company. On June 1, EMC jumped in with a $30-per-share bid. NetApp then countered with a similar offer. Since then, the market has speculated on why Data Domain is in such hot demand, causing these financial fireworks.

This was originally posted on ZDNet's Between the Lines.

EMC swooped in Monday with a $1.8 billion, or $30 a share, offer for Data Domain.

The rub: rival NetApp already had a plan to buy the Santa Clara, Calif.-based company for $1.5 billion, or $25 a share.

EMC said its all-cash offer is a 20 percent premium over NetApp's stock-and-cash offer on May 20.

Simply put, EMC wants to acquire Data Domain in order to thwart NetApp's offer--or at the very least make the acquisition more expensive. Joe Tucci, EMC's chief executive, said his company's offer is a "superior proposal" and a "win-win."

He added that the acquisition will strengthen EMC's position in the "next-generation disk-based backup and archive market."

Data Domain offers "deduplication storage appliances for disk-based backup, archiving, and network-based disaster recovery," according to its profile on Yahoo Finance.

On a conference call, Tucci said the Data Domain offer is about driving growth. "We had our eye on Data Domain, but obviously someone got there first," he said. He added that the growth profile of the combined companies makes the higher price worth it and that the combination of three products--EMC's DL4000 and Avamar and Data Domain--will be a $1 billion business.

Certainly, Data Domain shareholders were happy about the EMC offer:

Customers who lost data after it had failed to be backed up properly by service provider Carbonite in 2007 may have few legal remedies, a lawyer said on Monday. Meanwhile, Carbonite is suing the hardware manufacturer and reseller for charges including breach of warranty, breach of contract, fraud, and unfair and deceptive practices.

Carbonite filed a lawsuit last week against hardware maker Promise Technology and reseller Interactive Digital Systems, alleging it was sold $3 million worth of defective equipment, which affected backups of 7,500 customers.

In its lawsuit, filed in Massachusetts' Suffolk County Superior Court, Carbonite claims it lost business and that its reputation was damaged as a result of the problems.

Carbonite alleges that the Promise VTrak Raid equipment in several instances failed to recognize defects in the hard drives and transfer the data to another hard drive before the data was lost, said Thomas I. Elkind, attorney for Carbonite.

Most of the customers were able to recover their data but some were not, he said. In the meantime, he said, Carbonite has been replacing the defective hardware with systems that work properly so service is operating normally.

Joe Messina, a lawyer who represents Interactive Digital Systems, said he had not seen the lawsuit.

A Promise spokesman provided this comment: "We have looked into Carbonite's allegations and believe that they have no merit. Our investigation indicates that our products were neither implemented nor managed using industry best practices."

"I think this is more of a public relations campaign than an actual lawsuit," Messina said. "We'll respond if and when they decide to serve us the papers."

Several outside lawyers said the case will revolve around what the terms were of Carbonite's contract with Interactive Digital Systems and its warranty with Promise, details of which were scarce in the five-page lawsuit.

"Often the manufacturer says you put in a tray that was too hot or was situated magnetically in an inappropriate place. They could also say it was the (plaintiff's) environment that caused the problem or another piece of hardware and not our product," said David Steuer, of Wilson Sonsini Goodrich & Rosati. "Normally they settle because there are risks on both sides."

Jeff Lederman, of Winston & Strawn, took a look at the terms of use on Carbonite's Web site and said it looks like the company had attempted to shift the risk of damages from data loss to its customers, which limits the customers' ability to recover damages.

"In no event will Carbonite .... be liable ... for any lost profits, lost data, interruption of business, or other special, indirect, incidental, or consequential damages of any kind... even if Carbonite has been advised of the possibility of such loss or damages," the Web site's terms of use says.

In a statement, Carbonite Chief Executive David Friend had this to say about the lawsuit: "All of the affected customers had their backups restarted immediately and automatically. A small number of these customers had their PCs crash before their restarted backups were complete. These customers were unable to restore all of their files from Carbonite. We took full responsibility for what happened, and I did my best to apologize personally to each of these customers. We addressed the technical issues that caused the above problems, and in the nearly two years since the incident, we have not encountered further problems. That said, our lawsuit seeks a refund for the defective products we were sold."