U.S. Firm Takes Rival to Arbitration : IBM, Fujitsu in Software Dispute

International Business Machines’ chief executive in Asia lashed out Wednesday at what he called the theft of intellectual property by competitors and confirmed that the company has taken Fujitsu, its chief rival in Japan, to arbitration in an effort to settle a dispute about the Japanese firm’s use of IBM software.

George Conrades, group executive of IBM’s Tokyo-based Asia-Pacific Group, told foreign reporters that he was speaking in general terms and not about the Fujitsu case in particular. He said some of IBM’s competitors are gaining an unfair advantage in pricing by misappropriating other companies’ software.

“If you are not making the investment (in software), no wonder your prices seem so competitive,” he said.

Conrades refused to go into detail about IBM’s problems with Fujitsu but said that, in 1983, IBM “had significant disagreement with Fujitsu over the use of IBM software and other matters.” He added that IBM and Fujitsu at that time entered a secret agreement, the existence of which later leaked out.

Conrades said IBM decided to take the matter to the American Arbitration Assn. in New York after “we determined that certain Fujitsu practices have continued.”

Japan is the only country in the world where IBM is not the market leader. Fujitsu, which makes IBM-compatible products, has about 40% of the market, compared to IBM’s 30%.

Claim Invalid, Fujitsu Says

A Fujitsu spokesman acknowledged that “IBM has unilaterally filed an arbitration claim” and that Fujitsu considers it to be invalid. The spokesman refused to comment further.

Securities analysts who asked not to be quoted by name said IBM originally shared its software with a number of Japanese makers, including Fujitsu, for token royalties in return for being allowed into the Japanese market.

When IBM became more reluctant to part with its software, Hitachi, another maker of IBM-compatible computers, attempted in 1982 to obtain IBM know-how through other means. It was after Hitachi employees were arrested for industrial espionage in California that Fujitsu entered into the secret agreement in order to assure itself of continued access to IBM software, according to one analyst.

“Since 1983, IBM introduced new software, and the present dispute between the two firms concerns whether the 1983 secret agreement covers the new technology,” said a securities analyst working for a firm of British stockbrokers.

Another industry source here speculated that IBM was using its dispute with Fujitsu to cast doubt on the capabilities of a competitor that is beginning to cause some anxiety for the U.S. computer giant.

The IBM-Fujitsu case is part of a larger picture of U.S.-Japanese friction in the computer field. American makers of computer chips have filed an anti-dumping suit against their Japanese competitors, while Intel, which makes microprocessors, has taken Nippon Electric to court over what Intel alleges is an infringement of its copyright.

NEC has maintained that it developed the technology on its own.

70% of Cost for Software

Conrades said misappropriation of intellectual property is a concern of many companies, and he warned that theft “doesn’t keep the economic balance in the business game because software requires tremendous investment.”

He said software accounts for 70% of the basic cost of a computer.

“If you found a book in the marketplace where the words and the sentences and even some of your typos were the same, you’d be doggone suspicious that it was not an original work,” he said.