OpenText Wants to Shut the Box

Talk about a roller coaster. The last two weeks have been full of highs and lows for Box co-founder and CEO Aaron Levie.

Last Monday, Box filed its S-1 on its way to an IPO.  Instead of elation, most market watchers reacted with shock — and not the good kind. The Enterprise File Sync and Share (EFSS) company revealed losses of $168 million on revenue of $124 million. Even those who adore Levie called those stats “horrific”.

On Wednesday, Box held its first developers conference boxdev — Levie’s big shot supporters, like former Microsoft Windows’ chief Steven Sinofsky, were there, as well as VC’s  like Jerry Chen of Greylock Partners, Ben Horowitz of Andreessen Horowitz, Mamoon Hamid General Partner — The Social+Capital Partnership, and several others. And the developers building solutions on top of Box’s platform were there for the lovefest as well. Levie was clearly king for a day.

But then Friday Box rival, Dropbox, revealed it had just purchased Readmill, a German company whose collaborative and social features could provide Dropbox with the same functionalities as Box’s Box View, which it announced at boxdev.

And then late last night OpenText, one of the top companies in the Enterprise Information Management space, announced it was seeking preliminary and permanent injunctions halting the sale of Box's products in connection with an ongoing patent infringement lawsuit.

Infringing on a Dozen Patents?

OpenText filed a patent infringement suit against Box last summer in in the US District Court for the Eastern District of Virginia. The case, later transferred to the US District Court for the Northern District of California, claims Box infringes on 12 patents in three patent families.

According to an Open Text statement, "The asserted patents cover the core functionality of Box’s products, including additional functionality attractive to large company customers. The complaint seeks preliminary and permanent injunctions as to Box products, as well as past and future damages."

The Court heard argument on OpenText’s preliminary injunction motion on Jan. 24 and the parties are waiting for a ruling. "In Box’s Opposition to the Motion for Preliminary Injunction, Box offered no defense to infringement of OpenText’s patents," the Open Text statement noted.

A case management conference is scheduled for April 10. But now — coincidentally on the heels of Box's headline making week — Open Text notified the company that it is  seeking preliminary and permanent injunctions halting the sale of Box’s products, as well as damages exceeding $268 million.

Open Text v. Box et. al.

What Timing

This can’t be music to Box’s ears as it tries to woo investors for its IPO.

It's a good thing for Box that Levie recently recruited a rather impressive board, which should be able to offer (or have connections to those who can offer) some world class advice. Ditto for Box’s VC’s who are obviously invested in what Box’s opening stock price will look like.

It will be up to the courts to decide if Box infringed on OpenText’s patent. But some damage has already been done. What Enterprise wants to adopt a service that may be in legal trouble?

Most CIO’s and corporate legal counsels are risk averse.

Other companies that stand to benefit from OpenText’s accusations are EMC Syncplicity, IBM and Microsoft, all of whom Enterprises already trust.

And then, of course, there’s Dropbox with its 200 million users, most of whom would love to use the service at work. This potentially gives the company time to get its Enterprise offering together while some corporate buyers will likely put their potential Box relationships on pause.

Box has not returned our calls for comment.