LAN-free backup is simply connecting the server that needs to be backed up to a SAN, so the data is transferred over Fibre Channel to a tape drive, VTL or disk.
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In server-free backup, the data does not flow through the server being backed up. The server being backed up is still involved, because it has to do things like quiesce the database or quiesce a file system. But, once the frozen image has been created, the data movement no longer involves the original server.
Check out the entire Server-free Backup FAQ.