Computer Automation Patent Has Two New Takers
Computer Automation said Monday that Canon Inc. of Japan and a Taiwanese computer company have taken licenses for a controversial Computer Automation patent, and it said discussions are continuing with other potential licensees.
Some investment analysts have predicted that Irvine-based Computer Automation will reap a large windfall from the patent, which covers technology used inside the most powerful models of IBM’s new personal computer line. But one analyst said Monday’s announcement is “a disappointment” because Computer Automation had been expected to announce more licensees.
Computer Automation had offered substantial financial incentives for any company that signed up for the licensing program before April 1.
Computer Automation has claimed that dozens of companies seeking to produce copies of IBM’s Personal System/2 line will need to follow IBM’s lead and obtain a license from the Irvine company. If Computer Automation is correct, it could stand to earn sizable profits because sales of the PS/2 models and compatible machines are expected to be in the millions of units.
But at least one computer company, Quadram Corp. of Georgia, has maintained that its PS/2 memory boards don’t violate the Computer Automation patent, and others could follow suit.
Analysts who follow Computer Automation have been waiting for the April deadline to pass to see if any major U.S. manufacturers of personal computers or add-on memory boards would seek a license.
“You have to look at (the announcement) as a disappointment from the standpoint that bigger names, such as AST (Research), Western Digital and Intel, which we were expecting to take a license, didn’t do so,” said Brian Swift, an analyst with Henry F. Swift & Co., a San Francisco investment firm. But Swift, who has predicted that Computer Automation could receive $3 million a year in royalties, said he expects the Irvine firm to announce more licensees during the next several weeks.
In heavy trading Monday on the over-the-counter market, Computer Automation’s stock closed at $12.50 per share, up 12.5 cents.
Computer Automation said talks with potential licensees are continuing but noted that “the outcome of these discussions cannot be predicted.”
Ira Robinson, Computer Automation’s general counsel, said Canon and the Taiwanese company have made an advance royalty payment of $25,000 to license the patent. He said the Taiwanese company asked not to be identified.
Speculation about the patent’s value began to grow last spring, when Computer Automation announced that it had received a $100,000 royalty payment from IBM. The Irvine manufacturer of test equipment and computers later revealed that the payment was for the patent involving technology inside the PS/2 machines.
David G. Schechter, a Boston investment consultant, said IBM’s actions may offer a clue to future licensing activity. Schechter, a vice president at Homans, McGraw, Trull, Valeo & Co., believes that if IBM continues to make royalty payments to Computer Automation, most PS/2 clone or accessory makers will follow suit.
“If IBM continues to pay a royalty,” Schechter said, “it would provide a more conclusive argument that people who want to clone the PS/2 will have to get a license. If IBM doesn’t pay royalties, none of the (clone makers) will.”
Computer Automation’s Robinson contends that IBM “is obligated to pay continuing royalties.” But he said future IBM royalty payments would not necessarily be disclosed in the company’s financial reports. Although a payment would be included in Computer Automation’s revenue and earnings figures, “whether it would be specifically reported (as a royalty paid by IBM) would be determined by the magnitude (of the payment),” he said.
