September 16, 1997 6:40 PM PDT

The Exponential-Apple fight

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Was it coincidence or conspiracy? That is the question which lay at the base of the claim Exponential Technologies has filed against Apple Computer.

In either event, if Exponential's 30-page complaint is any indication, papers subsequently filed in this case by both sides should provide an interesting insight into Apple's business dealings and the demise of cloning at the Cupertino, California-based manufacturer.

The gist of Exponential's complaint revolves around the alleged trust the upstart microprocessor placed in Apple. Apple was Exponential's largest investor, holding a $4 million stake in the company, and held a seat on the company's board. Purchase and product contracts also ensured that Apple had exclusive rights over any microprocessors that Exponential produced.

Exponential planned to make two generations of processors running at more than 500 MHz, giving the chips superior performance over PowerPC processors from IBM.

In October and December 1996, Apple agreed to let Exponential sell its chips to clone vendors such as Power Computing as long as Apple had the right of first refusal on Exponential's chip output.

Although Apple began to place orders for Exponential X704 microprocessors as early as November 1996, Exponential claims that the move was a ruse. The orders only tied up Exponential's supply to prevent the clone vendors from getting their hands on the supposedly more powerful processors.

Apple subsequently canceled its purchases of Exponential chips months later. In addition, Apple also refused to license ROM technology, which effectively killed any chance for the clone vendors to adopt Exponential's chip.

"Apple was concerned that the resulting Apple clones would use this superior technology to compete even more successfully with Apple's own products, leading to further erosion in Apple's share of the market for Power PC computers," the complaint alleges. "Apple clones with the 533-MHz X704 processor would be perceived by potential buyers to be more advanced and a superior product to the Apple computers with the 300-MHz IBM processor, a humiliating proposition for Apple."

To pour salt in the wound, Apple made disparaging remarks to investment bankers about Exponential at the same time Exponential was trying to obtain funding for its survival, the complaint alleges. Exponential further complains that it had to pay Apple $1 million for the right to sell chips to the clone vendors, a right that it says was flummoxed by Apple's machinations.

Apple has not commented on the suit. However, at the time it canceled the order, Apple executives said that the Exponential chips were not performing as promised.

The complaint also leaves some major questions unanswered. Namely, why would Apple go out of its way to deliberately hurt Exponential, a company it partially owned? If the chips worked, why didn't Apple dominate the supply by buying all or most of them under its right of first refusal?

Exponential's court papers also seem to put a damper on the rumor that Apple purchased the defunct company's patents in a recent auction. Clearly, if Apple had bought the patents, it would seemingly be circumstantial evidence of further double dealing.

The complaint, which seeks damages in excess of $500 million, has yet to served on Apple, said a spokeswoman at that company yesterday. Once served, Apple will have 30 days to respond to the allegations.

 

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