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Pure Storage CEO: ‘Noncompete agreements are immoral’

Pure Storage (PSTG) is enjoying a respite from the legal battle it’s been fighting against EMC, which was acquired by Dell on Thursday.

Pure Storage, a data flash storage company which went public last year, had been dealing with an intellectual property lawsuit that EMC had filed in 2013. In March 2016, a federal court in Delaware found that Pure had infringed one of three patents brought in the case. Last week, however, US District Court Judge Richard Andrews overturned a verdict stating that Pure must pay $14 million for violating an EMC patent.

Pure Storage CEO Scott Dietzen told Yahoo Finance that he is relieved with this decision because it allows him to focus his full attention on the business.

EMC and Pure Storage first came to a head over a different matter in 2013, when 44 EMC employees joined Pure Storage even though they had signed noncompete agreements. EMC sued the workers, claiming that they had provided proprietary information to one of its fiercest rivals. The two companies are still embroiled in the lawsuit.

Dietzen says though Pure Storage takes intellectual property very seriously, he does not believe in noncompete agreements. “They are not enforceable in the state of California (the market where Pure is headquartered). But, in general, I don’t think they’re moral. I think people should be free to work where they see fit, so we would never ask our employees to sign a noncompete, They just have to guard our confidential information.”

Disruptive innovation

Though EMC does make its own flash-based products, Pure Storage is the only company that has completely replaced mechanical hard drives with all-flash chips.

“We set out to disrupt this $24 billion market for data center storage. We were convinced that the 25-year-old designs that are mostly in use today couldn’t meet the demands of business,” says Dietzen. “Businesses want to store a lot more data, they want to store it more cheaply, they want to store it more securely, and they want the performance to be able to mine the insights that are inside of that data.”

International Data Corporation estimates that Pure Storage has 2% of the worldwide market for data storage, but Dietzen believes that being the underdog actually gives them an immense opportunity to topple incumbent competitors, like EMC.

“We’re the growth story. The business is still growing at a 93% year-over-year rate off of a 3/4 of a billion dollar base — that’s growth the industry has never seen before,” says Dietzen.

The path to going public

Though the company has experienced healthy revenue, Pure Storage’s stock price has fallen to around $12 from its highs of around $20 per share.

Dietzen believes that the stock price does not accurately reflect Pure’s robust growth. “In general, the business has achieved all the goals we’ve set. We’ve outperformed against the metrics that we’ve published in each quarter to date. We just need to keep that winning streak going, and the score will take care of itself,” he says.

Particularly in the bone-dry IPO market, Dietzen says he feels fortunate to get out last October, though he cites the incredible challenges of transitioning from a private company reporting to a board of directors to shareholders.

“Some of our peer companies have been stuck in limbo for a period of time, and that’s really not a fun dance. But you’ve got to be ready in terms of being able to deliver predictable growth and predictable improving operating margins or the public markets … We’ve done that and yet our stock price has not performed up to expectations.”

Once a Silicon Valley darling, Pure Storage is managing to stay afloat in an ever-competitive market, but it remains to be seen whether it can take a bigger piece of the storage pie.

Melody Hahm is a writer & reporter at Yahoo Finance, covering entrepreneurship, innovation and technology. Follow her on Twitter.

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