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  • Intergraph
  • Intel
  • Intergraph Inside?

    By BRIAN LAWSON, Times Business Writer - 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.

    COMMENTS... Post em Here!

    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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