Here it is:
Digital Equipment Corp., in a perilous courthouse gamble, filed a sweeping
lawsuit against Intel Corp., alleging that key elements of Intel's flagship
Pentium line were built on patented technology stolen from Digital.
The suit, filed late Monday in U.S. District Court in Worcester, Mass., was
unusual in style and substance, surprising the computer industry and jolting
both companies' share prices. Digital seeks monetary damages and
guarantees that Intel will stop producing the Pentium line, which is expected
to account for $20 billion of the semiconductor giant's projected $27 billion
in sales this year.
FROM THE ARCHIVE
Intel Shifts Its Focus to Original Research (8/26/96)
COMMENTS & OPINIONS
Did Intel use patented technology stolen from Digital to create its Pentium
microprocessors? Or are Digital's allegations without merit? Write us at
editors@interactive.wsj.com.
Though the amount of damages sought wasn't specified, Digital insiders
said they believe the claim is worth "billions" of dollars. Win or lose,
analysts say, Digital risks alienating Intel, the dominant chip supplier, which
must often allocate scarce products and whose chips are widely used in
Digital personal computers.
In heavy composite trading Tuesday on the New York Stock Exchange,
Digital shares rose $2.25 to $35.375. On the Nasdaq Stock Market, Intel
shares closed at $152.375, down $6.75.
Caught by Surprise
Howard High, spokesman for Intel, said the company was surprised by the
suit and that Digital didn't negotiate beforehand. He said Intel would
vigorously defend itself and that Digital was suing Intel for using design
techniques that have been widely used throughout the industry.
To some observers, Digital is acting out of weakness after years of
frustration in trying to shape a comeback built on its Alpha microprocessor,
the chip whose technology it alleges Intel misappropriated. Given the two
companies' relative positions in the high-tech pecking order, analysts
expressed surprise at how stridently Digital attacked Intel, especially
considering how Digital has stressed cordial relations between the two in
the past.
Digital Chairman Robert B. Palmer told analysts and reporters in a
telephone conference that Intel's control of the chip market amounts to a
monopoly and a "threat to competition in our industry... . The time has
come for these unlawful practices to stop, and Digital is determined to see
that they do."
Richard Belgard, a semiconductor industry consultant in Saratoga, Calif.,
has examined Digital's patents and said he believes the case has merit. He
said Intel's solution for dealing with one of the nastiest bottlenecks in
microprocessor design bears great resemblance to Digital's. The
technology involves guessing the answers to certain calculations rather than
waiting for actual commands, resulting in a huge boost in processing speed.
"These are real patents, not toys," Mr. Belgard said. "Intel has been
blindsided. But it's clear DEC is in survival mode."
In another twist late Tuesday, Cyrix Corp. also filed suit against Intel
alleging patent infringement. In that suit, filed in U.S. District Court in
Sherman, Texas, Cyrix claimed Intel's Pentium, Pentium II and Pentium
Pro chips infringed on two patents that Cyrix received Tuesday.
Mark Lipscomb, a spokesman for Cyrix, said the timing of the suit was
coincidental, since Cyrix received the patents after the Digital
announcement early in the morning. The patents involved power
management and a technique called register renaming in microprocessors.
Intel had no comment on the Cyrix suit.
Approach in 1990 Is Cited
Mr. Palmer said Digital approached Intel in 1990 to discuss the possibility
of Intel adopting Alpha as its next-generation architecture. Digital showed
Intel Alpha blueprints, as is common in the industry, but in late 1991 Intel
"rejected our offer," Mr. Palmer said.
Two years later, Intel unveiled its wildly successful Pentium. In 1995, when
Intel rolled out the faster Pentium Pro, Digital said it was surprised at how
well it performed. "It gradually became apparent that there were substantial
similarities between Pentium Pro and Alpha," Mr. Palmer said. Digital
began looking into possible patent infringements.
Digital's interest in pursuing the matter was heightened by an article in The
Wall Street Journal last August, Mr. Palmer said. The article, which laid
out Intel's plans to beef up its research team, quoted Intel's chief operating
officer, Craig Barrett, as saying, "There's nothing left to copy." The article
also quoted Intel Chief Executive Officer Andrew Grove as saying, "We
can't rely on others to do our research and development for us."
Mr. Palmer said the article helped confirm the filching Digital suspected
was going on.
Despite the comments Digital cites from Messrs. Barrett and Grove, Intel
has always said it never directly copied anyone's work in designing its chips
and that it copied no techniques from other companies. The company has
said it only borrowed broadly from other predecessor industries such as
supercomputers and mainframes and implemented those ideas in
independent designs that fit on a single chip.
Turf Wars Aren't Unusual
Microprocessor litigation has a long history. Intel fought its own eight-year
legal war with Advanced Micro Devices Inc. over AMD's cloning of Intel's
chips. The companies settled the suits in 1995 and negotiated a broad
cross-license in 1996. Such agreements are common among big chip
makers because there are often only so many ways to implement certain
techniques for improving the speed of a chip. Given these limitations,
designers must come up with novel ways to speed the flow of data into the
microprocessor. Digital alleges Intel copied three of these techniques.
One of these, the branch prediction cited by Mr. Belgard, anticipates
commands. Another, called "cache management," allows a chip to store a
snapshot of frequently used data, bypassing the computer's main memory
and saving time. The last, "high-speed instruction processing," lets a chip
process several commands simultaneously, rather than executing one
command before starting another.
Normal Way of Doing Things
Most patent-infringement disputes are hashed out between companies
before they make it to the courthouse. But Mr. Palmer said Digital feared
that any contact over its grievance might have prompted Intel legal
maneuvers that would have slowed a court action, such as a bid to change
the venue of the case. Asked why he hadn't alerted his counterpart at Intel,
Mr. Grove, before it announced the lawsuit, Mr. Palmer quipped that "it
seemed quite inappropriate to wake him."
Digital most likely knew the move would infuriate Intel. "I didn't expect it to
improve our relationship," Mr. Palmer said. Over the past month Digital's
board discussed how Intel would react to the legal salvo, but decided the
evidence was convincing enough to warrant moving ahead, according to
people familiar with the board's thinking.
Digital sold $2.2 billion of PCs based on Intel chips in fiscal year 1996,
more than a quarter of its total product sales, according to analysts.
'Dagger Aimed at Intel's Heart'
"Clearly this is a dagger aimed at Intel's heart," said Andrew Allison, a
consultant in Carmel, Calif., who called Digital's position "no-compromise."
Digital, in a well-choreographed media blitz, took out a full-page
advertisement in Wednesday's Wall Street Journal explaining its position
and reasoning behind the suit.
If the case isn't settled, a court fight could drag on for years. Laura
Conigliaro, an analyst with Goldman, Sachs & Co. in New York,
predicted Intel wouldn't settle because that would amount to an
acknowledgment that it didn't have technological superiority in chip design.
Intel could parry the Digital thrust in a host of ways. One option is to argue
that Digital infringes on Intel's own hefty patent portfolio. Intel could also
say Digital improperly received overly broad patents for its designs.
The lawsuit may also be a reaction to the shifting balance of power within
the U.S. computer industry. Digital was jolted in March when software
leader Microsoft Corp., its partner since 1995 in a broad alliance,
announced a cozier relationship with its longstanding rival,
Hewlett-Packard Co.
Interestingly, Digital threatened to sue Microsoft for patent-infringement
when Microsoft launched its Windows NT operating system. But the two
companies worked out the partnership instead, according to
computer-industry sources.
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