Patent lawsuits always seem to be one of two things: Little more than a slight annoyance, or a business-ending death blow. Rarely does the tech world see companies who resemble Timex watches in their ability to take a patent lickin’ and keep on tickin’. But the U.S. headquarters of Buffalo Inc. is one such entity.
In Japan, the company reports sales of about $1.3 billion a year. Yet it generates a mere $100 million of revenue out of the U.S., where it offers four types of products, two of which (Wi-Fi routers and flash memory devices) it currently can’t sell because of court injunctions. Another line — multimedia — is new, with the first product due to hit the shelves in June. Its best-performing line is storage, which is profitable despite the fact that the company buys the basic drives from its competitors. All in all, it reads like a prime candidate for business failure. But so far, Buffalo is making it work.
Let’s start with wireless, since the story there is pretty simple. Four years ago, Buffalo started selling 802.11n routers in the U.S., going up against Linksys, D-Link and Netgear. As the smallest player in the market it was first hit with a patent infringement lawsuit from Australia’s Commonwealth Scientific and Industrial Research Organisation. Last year, a court sided with the Australian firm and ordered an injunction against Buffalo’s routers, despite protest (and amicus briefs) from Netgear, 3Com, Atheros, Dell, Intel and others. The case is being appealed, but in the meantime Buffalo can’t sell Wi-Fi devices in the U.S. and the 802.11n IP is still up in the air.
Patent cases have stymied Buffalo in its flash memory business as well. Last month Buffalo stopped selling USB drives and memory cards (its first line of business in the U.S., which it acquired over a decade ago), due to a patent infringement lawsuit filed by SanDisk against it and several other industry players.
Legal fun aside, Buffalo has established itself as a well-regarded provider of storage for the small- to medium-sized business market and, to a lesser extent, consumers. Buffalo has a pretty loyal following for its network-attached storage products, but the company has to purchase the hard drives from rival firms Seagate and Western Digital since, like other smaller storage vendors, Buffalo doesn’t manufacture its own. Making hard drives is a competitive business where economies of scale are important.
Buffalo adds applications and other features to its storage products to make them more compelling at what is generally a higher price point than those offered by Seagate and Western Digital, but storage is a commodity product, one in which cost-per-gigabyte is a customer’s primary consideration. Regardless, Buffalo makes money on each of its storage devices, so while the fact that its success in storage puts money into the pockets of its competitors pocket is galling, it doesn’t signal the end of that business for the firm.
Storage and its single product for multimedia streaming (wired, because it can’t sell wireless in the U.S. right now) are the cards Buffalo currently has to play, and the Austin, Texas-based Buffalo USA intends to play them for all it’s worth. Patent fights or no.