May 10, 2004 3:32 PM PDT

Gateway countersues HP over patents

Gateway on Monday upped the ante in a legal dispute with rival Hewlett-Packard and reported a quarterly loss slightly larger than it had estimated two weeks ago.

The computer maker said the greater loss was due to an increase in a reserve fund related to a separate patent infringement case and recent developments in final settlement negotiations, which should be made public soon.

Separately, Gateway said Monday that it is countersuing rival HP in response to a patent infringement suit that HP filed in March. HP has since added new infringement claims and last week filed a claim with the International Trade Commission, according to Gateway's SEC filing.

In the countersuit, filed Monday afternoon in U.S. District Court in San Diego, Gateway claims HP violated five Gateway patents related to hardware for multimedia functions, such as audio and video signal routing. Gateway also asks the court to dismiss HP's suit and alleges that HP's patents are invalid.

"We strongly believe that we did not infringe on HP's patents," a Gateway representative said. "We're going to match HP step for step in this dispute."

Joe Beyers, HP's vice president of intellectual property licensing, said that the 10 patents HP asserted in its claim against Gateway are just a sample of the 6,000 patents it has in the PC arena, noting that it asserted seven separate infringement claims in its ITC claim.

"We have a broad set of patents with a broad set of claims against their patents," Beyers said, adding that both eMachines and Gateway have previously licensed HP patents. As for Gateway's counter-claims, Beyers said, "We're not aware of infringing on these patents and we're not concerned."

It has been a busy time for Gateway, which in March completed its acquisition of eMachines. The company has since closed all of its retail stores and announced plans for an additional 1,500 job cuts in addition to those from the store closings.

All told, Gateway said it lost $172 million, or 51 cents per share, on revenue of $868.4 million for the three months ended March 31, according to documents filed Monday with the Securities and Exchange Commission. That compares with a loss of $197.7 million, or 62 cents per share, on revenue of $844.5 million for the same quarter a year ago. The company had set expectations for a loss of $166 million, or 49 cents per share, when it announced preliminary results on April 29.

 

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