Silicon Graphics

"“We should go for it,” he said. “Pixar worked years to develop this technology. Why should they use it for free? We should shut down their infringing products.” “We’d be better off charging license fees than trying to shut them down,” I suggested. “Those products are not really threatening Pixar’s business.” “How much can we get from licensing?” Steve wondered. “These are huge companies and our patents are central to their graphics businesses. It’s worth fifty million at least.” “I don’t disagree,” I said. It was true; we might have been able to earn license fees of that magnitude. But my years as a lawyer told me that Microsoft and Silicon Graphics wouldn’t pay those kinds of numbers without a big court battle. That could take years and cost millions. “We’re better off making it easier for them to make a deal than to go to war for every penny that we think we’re entitled to,” I told Steve. “The biggest benefit to Pixar is to make this quick and to gain a cash infusion now, when we need it the most.” Steve didn’t like the idea of going for less than he thought we were entitled to earn. He felt this would be too much of a bargain for Microsoft and Silicon Graphics. Five million, or even $10 million, was nothing to them if they needed these patents. Steve wasn’t wrong; I just didn’t think going for too much was pragmatic. I was nervous about locking Pixar up in a protracted legal battle, even if we liked our chances of winning it. Patent licensing was not a business strategy for Pixar. It was a financing strategy, something we would do once or twice to bring in cash, but no more. It would buy Pixar time, not guarantee long-term success."

"The strategy ended up working. It took three months to conclude the Microsoft license and about a year to conclude the Silicon Graphics license. Microsoft paid $6.5 million and Silicon Graphics a bit more, plus it gave credits for Pixar to acquire the Silicon Graphics computers it needed to make films. Pixar got just the shot of cash it needed, and Steve was happy. It meant that, for the first time, he would not have to pay Pixar’s cash shortfalls out of his own pocket for a while. It wouldn’t last forever, but it gave us room to figure out our long-term strategy."

"Steve could easily have told me to ask Microsoft and Silicon Graphics for $25 million each, the amount he wanted. He didn’t. He wanted us to keep talking until we agreed. We ended up deciding to ask for an amount somewhere between what I thought and what Steve wanted."