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Intergraph Inside?
By BRIAN LAWSON, Times Business Writer brianl@htimes.com - August 09, 2001
Rather than in a courtroom, the unfolding case of
Intergraph Corp. vs. Intel Corp. might be better suited to a
green baize-covered poker table.
The game has two experienced players, one slightly
battered from some lean days, the other flush with cash
and a string of victories.
The table is covered with money as the two sides up the
stakes, neither blinking.
After an uncertain draw, Intergraph is now holding what
some think could be a winning hand. Intel has had to put
its most valuable chips on the table and Intergraph has
warmed to the game.
High stakes
Observers are newly optimistic about the Huntsville
company's chances in its 4-year-old lawsuit against Intel,
which seeks royalties from Intel's hugely successful
Pentium line of processor chips. Intergraph contends the
Pentium line was developed using technology from
Intergraph's patented Clipper chip, and is seeking a share
of an estimated $100 billion in Pentium sales, between 1
and 3 percent.
Intergraph is also pursuing a claim that Intel used
anticompetitive business practices in attempting to force
Intergraph to give up rights to the Clipper chip technology.
Intergraph had been widely criticized for pursuing the
lawsuit against Intel and estimated its related legal bills
were about $1 million a month. Much of that criticism
stopped abruptly in March, when a federal appeals court
endorsed Intergraph's position that Intel did not have the
right to use its patents for the Clipper chip.
Intergraph stock has climbed since that decision, and
stock analysts have touted the company for the potential
windfall that a victory or a settlement with Intel could bring.
A recent Business Week online article reported that
analysts are speculating that Intel could decide on an
out-of-court settlement, though Intel won't comment on that
speculation.
The two sides have been ordered by U.S. District Judge
Edwin Nelson to be ready for trial by January 2003.
Intergraph, which sued in November 1997, wanted the case
to be tried sooner. Intel sought even more time to prepare.
Nelson split the difference in ordering a trial after Jan. 1,
2003.
Intel argues that Intergraph's claims are without merit and it
intends a vigorous defense. Intergraph has argued that
Intel's behavior resulted in millions in losses for the
company and mortal damage to its hardware business.
The company no longer develops computers, and blames
Intel for the failure of that side of its business.
Intergraph broadened its claims against Intel last Monday,
filing a patent infringement claim in Texas concerning
another Intel product, the recently released Itanium
processor, which Intergraph says also uses Intergraph
technology. Chuck Mulloy, an Intel spokesman, said Intel
believes the Texas case is also without merit.
The technology in the two cases is not related, but the
filing of the second lawsuit may dampen the prospects of a
settlement in the first case.
David Lucas, Intergraph's general counsel and vice
president, said the new lawsuit wasn't intended to slam the
door on settlement discussions.
''We did not file it with the intent of sending a message,''
Lucas said.
Lucas said settlement discussions are generally initiated
by the defendant in a lawsuit, Intel in this case. He said
early in the case Nelson had encouraged the leaders of the
two companies to try to resolve the matter, but they were
too far apart on the question of whether Intel had a license
to use the Clipper technology. The appeals court has now
ruled that Intel did not have license to do so.
''Obviously we're open to discussion,'' Lucas said.
The case at hand
There are two matters before the court in the 1997 case:
Intergraph's claim of patent violations by Intel and a state
court claim by Intergraph that Intel used anticompetitive
business practices.
Nelson throw out a third claim, that Intel violated federal
antitrust law by withholding information from its dependent
customer, Intergraph. An appeals court in June also sided
with Intel. Intergraph did not file another appeal, so the
antitrust leg of the case is dead.
The anticompetitive behavior case stems from Intergraph's
claims that Intel, which began supplying computer chips to
Intergraph in 1993, tried to pressure it into signing over
license grants to Intel for its Local company newly
optimistic in billion-dollar patent suit against giant Intel
Intergraph Continued from page C1 Clipper chip
technology.
Intergraph refused, and contends that Intel retaliated by
cutting Intergraph out of product development programs
that Intergraph said were critical to its ability to build
upgraded, competitive computers. Intel also cut marketing
and technical support services, Intergraph claims, and
harmed Intergraph's ability to serve its customers.
On the patent issue, Intergraph has been riding a see-saw.
Nelson ruled in June 1999, that, "After careful
consideration," Intel did not have the right to use Intergraph
patents. In October, he reversed himself, saying he
"initially gave too little weight" to Intel's arguments.
Intergraph appealed the decision to the U.S. Court of
Appeals for the Federal Circuit, and in March, that court
sided with Intergraph.
Intel did not appeal that decision, opening the door for the
most financially significant aspect of the case to move
forward in Alabama.
The work ahead
The case will be heard at the federal courthouse in
Birmingham, but the jury will be selected from a pool of
residents in the Northern District of Alabama, which
includes Huntsville, said Lucas, the lead attorney in the
case for Intergraph.
The case was originally to be heard in Decatur, but court
officials determined that because so much of the testimony
and evidence would require electronic support, including
video capabilities, a Birmingham court would be better
equipped to handle it, Lucas said.
Patent law is complex and the details to be argued in this
case involve the inner workings of a computer that most
people don't see or think about.
Despite that, Lucas believes it will be a "very easy case to
try."
"My biggest job is to assure that this case is not
complicated," Lucas said. "Everyone understands the
schoolyard bully, the John Ford western where somebody
is trying to take over the ranch.
"But, instead of a bunch of bandoliers, we've got a bunch of
e-mails."
The case will be tried chronologically, Lucas said, starting
with the state claim describing Intel's efforts to coerce the
Clipper licenses from Intergraph. The patent claim will
follow, detailing how the Intergraph technology was
allegedly employed in the Intel products.
The complexity question has also been anticipated by
Nelson, who ordered a special master to be selected for
the case. The special master's job will be to assess the
arguments in the case - it involves five separate patents
and 66 individual claims - and develop a kind of
"translation" of the facts at issue, so a jury can follow it.
Lucas said the two sides in the case are in the process of
drawing up a list of proposed experts to serve as the
special master. If they cannot reach agreement on the
special master, one person from each list will be selected
and those two experts will jointly select a third person to
serve as special master.
That process is to be completed by September.
Intergraph also plans to update the financial details of its
argument, including the impact of Pentium sales and the
royalties sought. Its expert reviews are mostly completed,
though it is still waiting for copies of Intel's expert reports.
Lucas said Intergraph has been prepared for more than a
year and is ready is move forward.
Jim Taylor, Intergraph's chairman and chief executive
officer, told analysts last week that a schedule is now in
place, but he's not sure what it will mean.
"To date, we haven't lived with any schedule," Taylor said.
"I don't know if this schedule will remain or not."
Intergraph's future
Intergraph was a multibillion computer hardware maker, but
not anymore. Today, it has gotten out of the hardware
business and is concentrated on a range of high-end
software products.
Financially, the 1990s were not kind to Intergraph. It
reported consistent losses from 1992 until just recently.
The company's fortunes have changed as it reinvented
itself, and Intergraph has reported two consecutive quarters
of operating profits and three straight profitable quarters.
Intergraph expects that trend to continue and it has
managed to remain in the black despite a slow economy
and delayed order schedules from its customers.
The steadying of its finances has helped push Intergraph
stock forward. The company has a dominant market share
for several of its products and it looks forward to increased
sales as the economy improves.
But the lure for many stock analysts continues to be the
prospect of what once seemed an unimaginable victory
against Intel.
Lucas sounds as if he likes the cards in his hand.
''I think people will be able to understand the facts in this
case very easily,'' Lucas said.
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Entire article © 2001, The Huntsville Times. Used with permission. Thanks to Brian Lawson and The Huntsville Times
for providing the GeoCommunity with this interesting article.
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