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Intel action threatens Digital's PCs

The chip giant retaliates against Digital's recently filed patent lawsuit with a suit of its own.

Digital isn't the only one playing hardball. Now it's Intel's turn at bat.

In response to a high-profile lawsuit from Digital Equipment (DEC), Intel (INTC) may threaten its legal opponent's livelihood in personal computers. The chip giant has now published letters attesting to this objective.

Earlier this month, Digital announced that it had filed a lawsuit in U.S. District Court in Worcester, Massachusetts, charging Intel with "willful infringement" of ten patents related to Digital's microprocessors.

Today, Intel announced a countersuit charging Digital with violating intellectual property rights regarding its refusal to return certain documents as required by contract. The suit was filed in U.S. District Court in San Jose, California.

Intel said it has requested that Digital return confidential product information that it has provided over the past several years. As of yesterday, Digital had refused that request.

"We won't speculate in terms of what may or may not happen as we go into negotiations beyond the third quarter. There's no doubt that the fundamental business relationship changed significantly when they filed suit against us," an Intel representative said.

That "fundamental business relationship" extends to the supply of Intel processors to Digital, the company said. Specifically, the suit and Intel's countersuit could affect the supply that Digital gets from Intel in the fourth quarter of this year, the chipmaker confirmed.

"There is a lot of posturing going on here with the hope of settling this sooner rather than later. Possibly, this could cause a disruption for Digital's PC business," said Bruce Stephen, an analyst at International Data Corporation. "Digital is still very dependent on Intel for everything from notebook [PCs] through servers. Digital is a ranking PC supplier but not [one of the] top ten."

In other words, Intel is not as worried about taking action against Digital as it might be against a top-five manufacturer such as Compaq Computer or IBM.

Digital is a large user of Intel's Pentium, Pentium Pro, and Pentium II processors. The withholding of Intel processors and technology could severely damage Digital's competitive standing in the PC industry.

In a letter by Thomas C. Seikman, vice president and general counsel at Digital, sent to Thomas Dunlap, general counsel at Intel, Seikman expresses surprise that "since the filing of the lawsuit, Intel representatives have canceled several meetings with Digital personnel," including meetings concerning Intel's next-generation Pentium II processor due out next year. Seikman's letter also states that Intel representatives have requested the return of Intel hardware essential for Digital to maintain compatibility with Intel chips.

Dunlap, in response, stated that "Intel is amazed that DEC continues to state that it expects the relationship to remain the same." He goes on to say: "You apparently believe that Intel will continue to transfer its technology to DEC by continuing to provide Intel confidential technical information, technical resources, advance product samples and other data to DEC.

"These Intel assets are valuable Intel intellectual property, and we certainly do not intend to provide them to DEC while DEC is suing Intel on DEC's intellectual property and accusing Intel of stealing its technology," Dunlap wrote.

This reaction by Intel counters claims by Bruce Claflin, a vice president and general manager of Digital's personal computer business unit. In an interview with CNET's NEWS.COM earlier this month, Claflin stated emphatically that this suit would not affect Digital's purchase of Intel processors and that Intel would handle the suit separately from the business relationship between the two companies.

"Intel is good at compartmentalizing" its lawsuits, he said.

But Digital is clearly worried. The company responded today to the countersuit with an announcement of its own: "Intel executives have made public statements that they will not allow our lawsuit against them to interfere with the business relationship Digital and Intel have had for some time. This countersuit is nothing more than a thinly veiled attempt to cause concern among Digital customers.

"We expect to have timely access to Intel technology. There has been no disruption of supply of product from Intel, and we expect none in the future. We have product agreements with Intel that run until 1999," Digital said.

"Intel's lawsuit is without merit and unjustified...They are asking us to return to them materials they shared with Digital and other systems vendors who design Intel processors into their products. We also find it curious that they are asking for damages from a company that buys products from them."

Reporter Ben Heskett contributed to this report.

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