Hi Barry and All, "Digital's motives unclear in suit against Intel" [PC Week 5-13-97 6:15PM EST]
www8.zdnet.com
[I don't know if this has already been posted.]
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Digital Equipment Corp. CEO Robert Palmer may have a clear idea of what he's doing by giving the company's lawyers the green light to sue Intel Corp. for patent infringement.
But the move has analysts and investors asking one question: Why?
"I'm really not sure what to think," said Kelly Henry, an analyst at International Data Corp. in Framingham, Mass. "I don't think Digital would be doing this unless they thought that they had a strong case. Going up against Intel in a legal battle is not fun."
The suit, filed in Federal District Court in Worcester, Mass., late Monday, asks for unspecified damages, and demands that Intel stop using what Digital claims are 10 of its patented technologies in the Pentium, Pentium Pro and Pentium II processors.
During an hour-long press conference earlier Tuesday, Palmer said the suit was not "frivolous" and was "about more than just patent law."
"It's about our ability to deliver our products without unlawful impediments," he said. "We do not underestimate the challenge of taking legal action against a company with the resources of Intel."
Some analysts questioned whether Digital's interest in pressing a high-profile lawsuit might have less to do with patent infringement and more to do with Digital's desire to expand the market for its RISC-based line of Alpha processors. After a slow start, Intel's chips have begun making broad inroads into the workstation market, an area dominated by RISC processors.
Though it has won raves from technical reviewers, the Alpha so far has failed to win more than a small part of the chip marketplace. Digital now alleges the Alpha has had to unfairly compete "against Digital's own architecture," as Palmer put it.
However, several analysts suggested that the Alpha's limited success is due more to lapses in Digital's marketing efforts. At the same time, they noted the timing of the lawsuit, which was filed almost one week after Intel's launch of the Pentium II.
Digital executives say they don't want to put Intel out of business; they just want Intel to stop shipping chips that use Digital's patents. In fact, Digital buys chips from Intel and resells them in its own computers. A Digital executive said on Tuesday that the company will continue to do so, and does not expect Intel to tighten its allocations as retribution for the lawsuit.
"They clearly will not be pleased [but] it makes no business sense for Intel to antagonize a customer,'' said Bruce Claflin, vice president and general manager of Digital's Personal Computer Business Unit in Maynard, Mass.
To hedge its bets, Digital has signed on to use Advanced Micro Devices Inc.'s K6 processor in its Venturis and Celebris PC lines. Claflin said the AMD deal is not related to today's actions against Intel.
If the patent complaint holds up in court, it could take years for Intel to develop workarounds.
"I think Digital is in it for whatever they can get out of it," said Norm Bogen, senior analyst at In-Stat, a research firm based in Scottsdale, Ariz. "I think they're in it for the money. They won't end up stopping production, so they'll fall back to 'we'll take a royalty on every chip you produce and everyone you have produced.' "
Palmer, who rejected suggestions that Digital has any ulterior motive, said he first became suspicious about Intel following the release of the Pentium Pro. His doubts grew after reading published reports quoting Intel CEO Andrew Grove as saying that the giant chip maker "can't rely on others to do our research anymore."
Palmer repeatedly referred to the article in a conference call today, saying he only "got really energized about this lawsuit" after that quote appeared in The Wall Street Journal.
The courts will ultimately decide whether Digital's claims are valid -- a process that could take years.
"Proving that you have a patent that [another company ] intentionally infringed upon is hard,'' said Linley Gwennap, editor in chief of the Microprocessor Report in Sebastopol, Calif. "Intel has tried to sue a number of companies and has never won a case on the strength of their patents."
But if Digital is ultimately successful in forcing Intel to remove what it believes to be its own technology, Intel will have to rework its processor design and manufacturing to maintain acceptable performance levels. That could throw a huge wrench into Intel's aggressive processor rollout schedule through the end of the decade.
Intel's stock fell about $7 toward the end of the day, knocking its market capitalization down by $6.3 billion. Some analysts attributed the drop to Intel's failure to respond immediately to the charges, but comments from Digital that it was seeking "huge" compensation from Intel also played a part.
"Digital is saying it will be an enormous financial benefit. That assume they will prevail," said Gary Helmig, vice president of research at the Soundview Financial Group in Stamford, Conn. He said there is speculation that Intel would file a counterclaim and allege that Digital had infringed on Intel's patents.
"If it comes down to 'my patent portfolio is bigger than your patent portfolio,' it's not huge dollars," Helmig said. "If there's gross infringement and Digital is clean, then Digital can reap reasonably big awards."
How big?
If the courts find against Intel, the size of the damages award would be determined by calculating how much money Digital would have made if the infringement had never taken place.
"One of the questions is, 'could they have made the sales [that Intel did]?' " said Russell J. Barron, senior trial lawyer in the Intellectual Property department of Foley & Lardner, a Milwaukee law firm. "Did they have the capacity, the marketing, the distribution?"
Intel declined to provide any executives to comment on the suit, saying it needs time to investigate the specific claims. The Santa Clara, Calif., company first learned of the lawsuit Tuesday morning, after Palmer sent an E-mail to Intel President and CEO Andrew Grove.
Claflin said the company did not notify Intel earlier because it was already absolutely sure of the soundness of its patent infringement claims.
"Why should you be polite to people who are stealing from you?" he said. "This is not an accident. It's clear they're using our patents and have been for an extended period of time.'' |
