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Intel may sue Digital, Cyrix

Intel intends to vigorously defend itself against the patent lawsuits brought by Digital and Cyrix and may even countersue its chip rivals.

The computer industry's reaction to Digital Equipment's (DEC) suit against Intel (INTC) underscores the challenges Intel faces as a result of its overwhelming dominance in microprocessors.

As Intel sits atop mountains of cash and appears poised to vanquish all of its rivals--including Digital, the only remaining chipmaker to maintain a significant performance advantage over Intel--competitors are seeking other means to thwart the chip giant.

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Intel CEO Andy Grove on the Internet's future (September 1996)
Cyrix (CYRX) has also joined Digital's assault against Intel. Both companies charge that Intel is using technology in its Pentium Pro and Pentium II processors that infringe on their patents.

Intel said today it intends to vigorously defend itself against both suits and that it does not believe any of its products infringe on patents, as asserted by Digital and Cyrix.

More specifically, Intel may countersue, according to sources familiar with Intel's plans. "[Intel has] over 1,000 patents itself. What do you think the chances are they [Digital and Cyrix] stumbled over one of these?" asked a source close to the company.

Digital's chances of winning against Intel do not appear to be that good anyway, say attorneys, and it's not off to a good start. "[Some] attorneys are expressing shock about the suit, and particularly about Digital's complete lack of notice to Intel of Digital's claims of infringement. This kind of notice is usually very important in proving willful infringement, which has been alleged by Digital," said Annette L. Hurst, a lawyer specializing in intellectual property and antitrust litigation and counseling at Howard, Rice, Nemerovski, Canady, Falk, & Rabkin in San Francisco.

There appears to be an ulterior motive in the suit for Digital, although analysts concede that the computer and chip manufacturer may have some valid claims. "This is probably a bargaining ploy to extract a license, perhaps get some cash, and gain a lot of publicity," said Michael Slater, publisher of the Microprocessor Report.

Other analysts agree that Digital may be seeking other rewards than monetary compensation. Since its Alpha processor has had limited success in the marketplace and stands to lose even more ground as Intel revs up its campaign for the Pentium II processor, Digital has to fight back. "The Pentium Pro and Pentium II are encroaching on Digital's Alpha [processor] market space. By [filing suit], this throws doubt on the Pentium Pro and Pentium II and could slow penetration of these products down," said Dean McCarron, an analyst at Mercury Research, a marketing research firm.

"It appears that Digital has opted to improve its bottom line by litigation, which is never a wise business strategy," added Hurst.

The suit by Digital, which stunned the PC industry, is ominous for Intel if only because of the huge sums Digital is seeking, easily in the multiple billions of dollars. Digital is claiming that Intel is violating ten patents, many of which are absolutely critical technologies for the Pentium Pro and Pentium II chips.

In an interview with CNET's NEWS.COM, Bruce Claflin, a vice president and general manager of Digital's personal computer business unit, said, "We want Intel to stop using our technology at the earliest possible date. We are not inclined to license the technology. [Intel] can design around it."

The task of designing around the technologies that Digital is specifying would be awesome for any chipmaker. Moreover, Claflin added, "damages will accrue to the total [of the profits Intel has generated because of the patents]," hinting at the huge sums Digital seeks in the suit.

Cyrix is also presumably seeking lots of money from Intel, but it has yet to clearly state its intentions.

The suit also highlights fundamental problems with the patent system, according to Slater. "This doesn't necessarily mean that Intel stole Digital's ideas, just that the two companies [and probably several others] came up with similar techniques in the same time period. This is indicative of the fundamental weakness of the patent system and the need for all companies working in an area to have cross-licenses."

To be sure, Digital and Cyrix could also face massive countersuits. "Intel didn't invent a lot of this stuff, but neither did Digital," said Nathan Brookwood, an analyst at Dataquest. Brookwood said that Digital and others could be infringing on many patents that Intel holds in their products.

Intel is an investor in CNET: The Computer Network.