Stockholders in Data Domain Inc. (DDUP) Monday said they had filed a class action lawsuit, accusing Data Domain's board of breaching its fiduciary duty by favoring one of two bidders for the company, and seeking to halt the process.

The suit comes amid a fierce battle over the Santa Clara, Calif.-based information management company between East Coast storage giant EMC Corp. (EMC) and smaller Silicon Valley peer NetApp Inc. (NTAP). Data Domain has recommended NetApp's bid over EMC's.

The lawsuit, on behalf of the Police & Fire Retirement System of the City of Detroit, accuses Data Domain of approving an offer for the business from Sunnyvale, Calif.-based NetApp, though it was aware of competing interest from EMC.

Both bidders are offering $1.9 billion, or $30 a share for Data Domain. EMC's bid is cash-only, NetApp's a mixture of cash and stock.

EMC offered $30 a share two weeks ago, several weeks after Data Domain agreed to an earlier $1.5 billion cash and stock offer from NetApp. When NetApp sweetened its offer to match EMC, Data Domain reiterated its support for NetApp's offer.

The lawsuit alleges Data Domain gave NetApp "an improper bidding advantage," through a termination fee, a "no shop/no talk provision," and matching rights, according to a statement from lawyers at Bernstein Litowitz Berger & Grossman, acting for the stockholders.

"The board granted each of these deal protections before any value maximizing process took place, in a blatant effort to ensure that their favored merger partner is Data Domain's ultimate acquirer," the statement continues.

The intense bidding war for Data Domain has underscored both the signs of life in the market for technology M&A and the attraction of tools which can help corporate customers manage their sprawling data needs. Data Domain specializes in "de-duplication," automating the process through which duplicate data is deleted.

Data Domain's stock price has more than tripled from a March 16 low, closing Monday down 1.9%, at $32.87, in a lower overall market.

The speed at which Data Domain has accepted NetApp's offer over EMC's has surprised some observers because an all-cash offer such as EMC's is generally preferred over a cash and stock one. Nearly eight in ten of Data Domain's stockholders are institutional.

But insiders in Data Domain may be more sensitive to the NetApp connections and disposed to owning shares in a merged company in which Data Domain would represent a bigger part. Some analysts have also emphasized the potential culture clash between Silicon Valley-based Data Domain and Hopkinton, Mass.-based EMC.

NetApp Chairman and Chief Executive Dan Warmenhoven said in an earlier statement the recommendation from Data Domain's board emphasized that a NetApp acquisition would pose a smaller regulatory risk.

The Federal Trade Commission said Monday it would review bids by both EMC and NetApp.

Neither EMC nor Data Domain could immediately be reached for comment Monday.

-By Jessica Hodgson, Dow Jones Newswires; 415-439-6455; jessica.hodgson@dowjones.com