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Intergraph CEO details Intel charges

Jim Meadlock says the chipmaking giant was trying to steer customers away from Intergraph.

Intergraph CEO Jim Meadlock knew he was in a tough spot: His company was trying to sell Intel-based workstations even as the chipmaking giant was trying to persuade customers to reject Intergraph, he says.

"They went in and said, 'You can buy that from anyone but Intergraph. If you buy it from Intergraph we won't fund it [through subsidies]," Meadlock said in an interview today with CNET NEWS.COM. "They went to one of our customers we introduced them to and took one of our competitors in."

While rumors of Intel strong-arming have circulated for years, Meadlock is one of the first major executives to come forward with names and dates to allege specific incidents. His assertions, if proven true in a lawsuit filed against the chip giant, would constitute some of the more striking tactics Intel is accused of using to get its way in the computing world.

Intel spokesman Chuck Mulloy declined to address most of Meadlock's statements but did counter some of his assertions regarding the chipmaker's licensing programs. The company has also refuted a number of allegations in its defense against the Intergraph suit, as well as in response to an antitrust action filed Monday by the Federal Trade Commission. (Intel is an investor in CNET: The Computer Network.)

According to Intergraph, Intel's hardball tactics began when the PC maker refused to license its processor technology to Intel and other computer manufacturers in early 1997. Intergraph claims that its patents entitle it to royalties on the sale of all Pentium and Pentium II processors, a claim Intel flatly denies. Accordingly, its suit seeks damages and royalties from Intel.

In one example of Intel's business practices, Meadlock said, computer graphic specialist Xentropolis wanted a series of workstations and a "rendering farm"--a group of graphics computers strung together for greater processing power--to complete animation for the movie Godzilla. Although Centropolis was an established customer of Silicon Graphics, Intergraph had initially won the company's business, in a transaction that was to be funded in part by Intel.

"This is a program where they say, 'I'll help you [the customer] purchase this...because you're taking Intel products into a whole new area.' The amount, Meadlock said, typically reaches the "X-thousand-dollar" range.

However, because Intergraph had refused to license its intellectual property to Intel, the company became a "target," Meadlock charged. Although Intergraph had a signed delivery order with Xentropolis, Intel began to introduce the client to workstation representatives from Compaq Computer, Netpower, and other manufacturers. Intel also offered a subsidy, which Meadlock characterized as large, to Xentropolis as long as the company picked another manufacturer.

Xentropolis wound up buying its rendering farm from Intergraph but kept SGI on as its workstation manufacturer. Intergraph would have gotten the entire contract, Meadlock believes, but the conflicts surrounding the issue caused them to retreat.

In addition to offering customers money to go another company, Intergraph alleges that the chipmaker stopped a third party from shipping testing equipment to Intergraph.

Intel also cut Intergraph off from critical information about a future processor, Meadlock said. Until a U.S. District Court judge ordered Intel to share information, the only details that Intergraph could learn about the Xeon Pentium II processor was what the company read in the press, he charged.

Intel's contractual prowess explains why other companies have refrained from making a Pentium II chip, Meadlock said. IBM has the legal right to make one, but for a customer to be able to use such a chip, it would have to enter into a three-way nondisclosure contract with Intel, he asserted.

Mulloy categorically denied that "three-way" licenses are required. "They are free to do what they want with their licenses," he said.

Intel has also denied a number of the other claims by Intergraph. Contrary to the trial court judge's preliminary injunction, the chipmaker said it does not have a monopoly in either high-end or in Intel-branded processors. And even if it were a monopolist, Intel maintains that antitrust laws do not require it to license its intellectual property to its customers.

Moreover, the chipmaker says, Intergraph and the court failed to define the market in which it and Intel compete, as required by antitrust law. Intel also says the evidence in the case does not support the finding that Intel controls an "essential facility," one basis of the judge's preliminary injunction.

Essentially, Intergraph's suit seeks three remedies, Meadlock said. First, Intergraph wants damages to compensate the company for lost workstation sales. By withholding technical information, Intergraph has been forced to delay products, which has resulted in lost ground in the marketplace.

Second, the company wants royalties for its processor patents. Third, Intergraph will seek injunctions that will prevent Intel from withdrawing information or taking other retaliatory acts in the future.

Interestingly, Meadlock admitted that the company first sought damages for patent infringement from other computer makers. Intergraph has sent demand letters to a number of manufacturers claiming that their motherboard designs violated Intergraph's patents. These companies have in turn sought indemnity from Intel on the theory that the patent issues really revolved around processor technology.

"We tried not to pick a fight with Intel," the Intergraph chief executive said.

While the antitrust aspect of the case has received most of the attention, Intergraph's suit against Intel is grounded in more basic legal doctrine. The case mostly revolves around claims for breach of contract and patent infringement.

Workstation makers have no choice but to work with Intel, Meadlock said. Corporate customers mostly demand chips based on its x86 architecture, and Intel remains the only company that makes high-end chips of this design. Alpha and other chip platforms do not have the same level of software support.

"There is no viable alternative," Meadlock said.

Reporter Dan Goodin contributed to this story.