December 17, 2002 1:37 PM PST

Intergraph sues PC giants over Pentium

Intergraph has filed suit against Dell Computer, Gateway and Hewlett-Packard, alleging that the PC companies violated its patents by incorporating Pentium-family processors into their computers.

The lawsuit--which could be worth hundreds of millions of dollars and eventually have an impact on every PC maker that used Intel chips in the last seven years--is based on a similar intellectual-property suit launched by Intergraph against Intel that was settled in April this year.

In that case, filed in 1997, Intergraph claimed that Intel's Pentium, Pentium Pro, Pentium II, Pentium III and other processors infringed on patents embodied in its Clipper chip.

Under the settlement, Intel agreed to pay Intergraph $300 million. The deal, however, did not insulate companies that incorporated Intel processors into their computers from suits based on the same patents. The chipmaker is obliged to send a letter to PC makers notifying them of that circumstance, said an Intergraph spokeswoman.

If Intergraph's legal arguments hold water, HP and the other PC makers may have to compensate the company for any gain they may have received from selling Intel-based PCs since 1995--through the biggest boom in the history of the computer industry.

However, as the case with Intel was settled, no court has ruled on the ultimate validity of Intergraph's Pentium-related patents. Intergraph did not state the amount it was seeking in the current suit.

Settlement discussions are under way with PC companies, said an Intergraph spokeswoman. "We are looking at each vendor individually," she said. "We continue to negotiate with people."

When asked why IBM was not named as a defendant in the current case, the spokeswoman replied, "We have a close relationship with IBM."

In many ways, Intergraph's legal activity underscores the massive changes the Huntsville, Ala.-based company has undergone in the past five years. In the 1980s, the company came to prominence as a workstation manufacturer, competing directly against Sun Microsystems and SGI.

Intergraph's workstations were based around its own Clipper microprocessor and graphics technologies. But in late 1993, the company made an abrupt shift, announcing that it would use cheaper Intel chips in its workstations.

Subsequently, the first ripples of what would become a massive dispute between Intergraph and Intel appeared. Intergraph accused Intel of violating antitrust laws and of infringing its processor patents. Around the same time, Intergraph exited the hardware market to concentrate on software and services.


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While the courts threw out Intergraph's antitrust claims, the company's patent infringement claims have fared better. In addition to the Pentium suit, Intergraph won a separate case against Intel that alleged its Itanium chip violated other Intergraph patents. The trial court awarded Intergraph $150 million in that case in July. The suit took place in the U.S. District Court for the Eastern District of Texas, the same court that will hear the current dispute.

Intel is appealing the Itanium-related case, but will not be allowed to recover the $150 million in any event and may have to pay $100 million more in damages if it loses the appeal.

Legal gains
Intergraph's revenue from legal activity now rivals its services and software business. In the first nine months of 2002, Intergraph's revenue from services and software came to $379.2 million, with a total of $532 million expected for the year, according to the company. By comparison, its court-mandated payments from Intel alone this year come to $450 million and could rise to $550 million.

Earlier this year, Intergraph formed a unit to protect its intellectual property and pursue licensing deals. Recently, Fujitsu entered into a licensing deal with Intergraph connected to the patents underlying the Itanium suit.

Obtaining a settlement or a verdict against PC makers, though, will take work. Intergraph's tussle with Intel took years to resolve, for instance. In 1998, a trial court in Alabama ruled that the chipmaker infringed on Intergraph's patents. Subsequently, another court reversed that decision, stating that Intergraph's claims were not valid. Then an appeals court reversed that decision, but did not reinstate the original court's conclusions.

Although Intergraph has filed the suit, the spokeswoman was unclear whether it had been filed on the defendants as yet. Representatives from both Dell and HP said they have not seen the suit and could not comment. Gateway did not immediately repsond to requests for comment.

 

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