ArcSight: HP Bets Long on the Collapse of the Patent System

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This week’s Patently Obvious report focuses on the patent holdings of ArcSight, Inc. On September 13, 2010, Hewlett-Packard entered into an agreement to buy ArcSight, a leading security and compliance management company, for $43.50 per share, for a total purchase price of $1.5 billion. ArcSight had been shopping itself around to several large technology companies, several of which reciprocated in their interest. In fact, a number of ArcSight shareholders are concerned that ArcSight and its board may have breached their fiduciary duties by entering into an agreement with HP before they has properly shopped for a deal, a process that would provide better value for the shareholders. In the rush to get a deal done, the agreed-upon purchase price of $43.40 a share may have been derived from an incomplete assessment of the assets of the company and the synergy value possible with other parties.

The clamor raised by ArcSight’s shareholders raises a valid question – is HP the best fit for ArcSight, or would another suitor be a better match? From a pure business operation standpoint, the value of a turn-key security management solution like ArcSight to HP or any of these aforementioned companies is readily evident with regard to potential enterprise product and service offerings. However, it is crucial to discern whether this is in the best interests of HP in the long run; HP is inserting itself into a high-traffic arena surrounded on all sides by companies that have a much stronger position in the space and may increase their litigation risk arising from third-party intellectual property. An analysis of ArcSight’s IP is in order to better address this question.

This report focuses on entities of interest with patents and innovations that predate or coexist with the holdings of ArcSight, as well as public-domain alternatives.