Intel to shell out $225 m for patent suit

Daniel Sorid

SAN FRANCISCO: Intel Corp. said it agreed to pay $225 million to settle claims that its Itanium chips for business computers infringed on the patents of Intergraph Corp., whose shares rose 16 percent after the news.

The agreement brings to $675 million the amount that Intel, the world's largest chip maker, has paid or agreed to pay to Intergraph to conclude the six-year-old dispute, which involved lawsuits filed in Alabama and Texas.

Once a developer of computer chips, Intergraph now focuses on software and its array of patent lawsuits against technology companies. Income derived from intellectual property claims accounted for 90 percent of its $487 million gross profit in the last two years.

For Intel, the cost of settling with Intergraph is a "non-issue," said Marshall Front, the chairman of Chicago-based Front Barnett Associates LLC, which owns about 2 million Intel shares.

"There is no issue of liquidity or anything of that kind, and I think investors will eventually focus on the prospects for their products," Front said.

As part of the latest deal, Intergraph agreed to drop its claims against Dell Inc., which is named in a separate lawsuit against PC makers that use Intel chips. Intergraph said it will continue to pursue cases against Hewlett-Packard Co. and Gateway Inc.

Dell has argued that it has an indemnification agreement with Intel that protects it from patent infringement suits. Intel has disagreed with Dell on the issue and now says it will "resolve the disagreement privately."

The settlement also includes an agreement by Intergraph not to sue any PC makers for using Intel's microprocessors in combination with Intel's supporting chip sets and motherboards. PC makers that use Intel's microprocessors with non-Intel motherboards and chip sets could still face litigation.

Intel in 2002 agreed to pay $300 million to settle the first of two Intergraph lawsuits. Intel also paid $150 million to Intergraph after a U.S. district court ruled against it in the second suit filed in Texas.

In February, a U.S. appeals court overturned the Texas court's ruling and sent the case back to trial. The latest settlement ends that case, as well as Intel's claim to a refund on the $150 million, and effectively eliminates Intergraph's direct dispute with Intel.

Intel, whose chips power about 80 percent of personal computers, will pay Intergraph $125 million by April 5, and make additional payments of $25 million in each of the following four quarters, the companies said.

The chip maker said it had not yet determined the accounting treatment for the payments, but it did say the settlement would hurt first-quarter earnings.

The case against the top three U.S. PC makers was filed in Dec. 2002 in the U.S. district court in Texas. The suits asserted that Dell, Hewlett-Packard and Gateway infringed on three company patents related to memory management.

Intergraph is seeking unspecified damages and an injunction against the remaining companies. All three of the companies disputed the allegations. Trial in the case is scheduled for August 2.

Intergraph shares closed up $3.28 to $23.67 on Nasdaq after rising as high as $25.40 earlier in the session. It was the stock's biggest daily point gain since 1986. Intel shares declined 26 cents, or nearly 1 percent, to $27.43.

© Reuters