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Compaq Accuses EMachines of Patent Violations

July 27, 1999|JONATHAN GAW | TIMES STAFF WRITER

Compaq Computer Corp. on Monday accused Irvine-based EMachines Inc. of infringing 13 patents related to the building of personal computers and involving functions ranging from video display systems to keyboard password functions.

Houston-based Compaq, the nation's largest computer manufacturer, said EMachines intentionally infringed the patents, and Compaq asked a court to award triple the normal damages associated with lost sales and royalties, which have yet to be determined.

"We have made substantial investments in research and development to improve the state of the technology, and EMachines is infringing on those patents," Compaq spokesman Alan Hodel said.

Officials at EMachines, which has been a leader in the trend toward ultra-low-cost personal computers, declined to comment on any aspect of the suit, which was filed in federal court in Houston.

EMachines, which sells all of its computers for less than $600, is a joint venture between two South Korean companies--Trigem Computer and Korea Data Systems. EMachines now builds nearly one out of every 10 personal computers sold in the U.S., making it the fifth-largest manufacturer, according to PC Data, a Reston, Va., research firm.

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The push toward inexpensive computers has forced PC manufacturers, including Compaq, to respond with sub-$1,000 computers of their own. Compaq, which introduced the first sub-$1,000 computer in 1997, now has a $499 computer. Consumers are increasingly seeing PCs as commodities. Compaq's lawsuit against EMachines sends the message that Compaq plans to protect the technological differentiation.

The 13 patents involved in the lawsuit cover things ranging from the construction of the access door for a portable computer docking station to highly technical processes that speed printing operations.

Compaq said three of EMachines' 16 models infringe 13 patents, some of which date back to 1986, though most were filed since 1996. Compaq said that two of the patents were also involved in an infringement suit it filed against Packard Bell NEC. That suit was settled in June 1996, with Packard Bell agreeing to pay an undisclosed amount in licensing fees over five years.

Compaq's suit against EMachines is likely to be settled too, as very few patent cases are concluded by jury verdict, said Nicky Espinosa, a patent attorney with Brobeck, Phleger & Harrison, a law firm that specializes in technology. "Unless EMachines has a patent portfolio of their own to assert against Compaq--which would be a David-and-Goliath battle to be sure--I doubt that it would go to trial," Espinosa said. "Thirteen patents are a lot to ask a jury to think about."

Privately held EMachines, which does not disclose sales or profit figures, moved to Irvine from Fremont, Calif., in March to be closer to the Port of Los Angeles, through which all of its computers pass as they arrive from South Korea.

The company sells computers through every major computer retail outlet. EMachines has about 45 employees, most of whom work to market and sell the computers, which are manufactured by the firm's parent companies.

Last month, EMachines signed a deal with America Online in which EMachines purchasers could get a $400 rebate from AOL, the nation's largest Internet-service provider, if they also signed a three-year agreement to get Internet access from CompuServe, an AOL subsidiary.

EMachines sells computers for as low as $399 and as high as $599; the AOL deal does not include the lowest-priced models. As part of the agreement, AOL also took a minority stake in EMachines.

In addition, EMachines last month signed a deal with Circuit City Stores, the country's largest consumer electronics chain, to offer $400 rebates on EMachines computers that sell for $475.

EMachines is not alone in pushing computer prices down. Microworkz.com in Lynwood, Wash., last month launched its iToaster, a $199 computer. And a number of start-up companies have offered computers in exchange either for commitments to buy Internet access or the ability to monitor how the computer is being used, information that would later be used to advertise to the computer user.

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