Gateway Sues HP as Patent Tiff Expands

Gateway has filed suit against rival Hewlett-Packard, broadening a patent dispute that first arose nearly two months ago.

In the claim, the company alleges HP violated five separate patents held by Gateway and related to computer manufacturing. The patents Gateway claims were violated deal primarily with hardware that enables multimedia functions, such as routing of audio and video signals.

Gateway is seeking unspecified damages and asking that all of the claims HP filed in its own mid-March suit against Gateway be dismissed. In that lawsuit, HP alleged Gateway had violated 10 HP patents. Additionally, HP last week asked the International Trade Commission to investigate whether Gateway had violated seven more of its PC patents.

Specifically, HP claimed Gateway and eMachines, which Gateway purchased earlier this year, had violated HP patents on notebook computer hinges, locking keyboards that require passwords to operate and desktop cursors.

Back and Forth

Gartner analyst Martin Reynolds told the E-Commerce Times that the disputes are likely to end in a quiet settlement. Gateway’s countersuit may help it gain more leverage at the bargaining table, because HP was first to file a claim and has made pursuing such intellectual-property matters a priority.

For its part, HP alleges that licensing agreements inked with eMachines do not extend to Gateway now that it has purchased that bargain PC maker. However, Reynolds said that by moving quickly after the acquisition, HP may have made it easier for Gateway to strike a licensing deal.

“At least on that side of the claims, you’re not looking at years of past infringement, which can really drive up the cost of such claims,” he said.

Neither Gateway nor HP was immediately available for comment.

Potential for Patent Wars

Steve Frank, a partner in the patent and intellectual-property group of law firm Testa Hurwitz & Thibeault, told the E-Commerce Times that with thousands of patented items in every PC, the potential for disputes is enormous. Moreover, companies now recognize the importance of protecting their intellectual property more than ever.

“The products they sell bring in the revenue, but they’re nothing without their IP,” Frank said. “The creative ideas and solutions the patents represent are increasingly what distinguish one computer company from another.”

Patent skirmishes clearly are having an effect on companies’ bottom lines. For example, Gateway said its first-quarter loss was even larger than it originally reported. The company said it lost $171.5 million in the first three months of 2004, up some $6 million from its initial quarterly report.

Gateway attributed the additional shortfall to money set aside for expenses stemming from another patent-infringement case that the company said could be settled shortly.

Extreme Makeover

Gateway is in the midst of a complete makeover, having shuttered all of its retail stores across the United States and laid off thousands of workers in recent months. The acquisition of eMachines is widely viewed by industry observers as the basis for a revamped consumer strategy for the onetime leading PC maker.

On Tuesday, Gateway picked an executive to help shape its new public image, naming former Good Guys executive Cathy Stauffer to the position of senior vice president of marketing.

Stauffer will report to Gateway president and CEO Wayne Inouye, the former CEO of eMachines, who said in a statement that the new hire will have “an immediate impact on our marketing efforts as we continue to hone our channel strategy and bolster our already impressive product lineup.”

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