IBM Will Pursue Back Fees for ‘Clones’ of PCs

Times Staff Writer

International Business Machines, stung in the past by makers of inexpensive imitations of its personal computers, is taking steps to ensure that history does not repeat itself with its new line of PCs.

The computer giant confirmed Tuesday that it will seek back royalty fees from manufacturers of unauthorized “clones” of its original line of personal computers before giving them permission to use patents for IBM’s new PC models. Analysts and industry executives said the move could sharply cut the supply of inexpensive, IBM-compatible machines on the market.

After introducing its first PCs in 1981, IBM quickly became the leader in the personal computer business. But its sales lead eventually narrowed as a flock of companies--most of which paid no royalties--came on the market with compatible machines.

IBM said its retroactive fees on such companies would range from 1% to 5% of sales, depending on how quickly the imitators agree to settle outstanding licensing disputes. In addition, as IBM announced previously, imitators are subject to a fee of up to 5% of sales for licensing patents on the new personal computer line, the PS/2.


Analysts said the move would hurt makers of cheap IBM clones by forcing them to raise prices, thereby reducing the price advantage they might have over IBM.

IBM is “not going to give away the market this time,” said William Lempesis, a personal computer analyst at Dataquest, a San Jose market research firm. Lempesis said IBM clone makers sold 14.4 million personal computers through the end of 1987, translating into worldwide sales of $33 billion.

So far only two companies--Tandy Corp. and Dell Computer--have said they will make clones of the PS/2, which was announced by IBM in April, 1987.

An IBM spokesman said the retroactive fee policy is consistent with its overall philosophy of protecting its property.


“We are not going to enter into new patent-licensing agreements with companies that refuse to recognize their liability to IBM for the use of IBM patents in their existing products,” the spokesman said.

The spokesman said IBM also would pursue retroactive payments from companies that do not want to produce PS/2 clones.

IBM’s failure to demand licensing fees from some companies earlier prompted competitors to argue that the company no longer has legal grounds to collect them now. But analysts said that IBM’s legal maneuvers could delay competitors’ introduction of new products and work to IBM’s advantage.

“The intent clearly is to make life difficult for the attempted clone makers,” said John Rutledge, an analyst with the Dillon, Read & Co. brokerage firm in New York.


Analysts said that IBM’s move is likely to put the greatest burden on small companies that make low-priced clones of IBM’s PC, XT and AT models. These companies, many based in Korea and Taiwan, are able to offer inexpensive products both because they use low-paid labor and operate on wafer-thin profit margins.

“It appears that they are being a little overbearing,” said Michael Shane, chairman of Leading Edge Hardware Products of Canton, Mass., which imports Korean-made personal computers. “This latest move certainly can’t help the American consumer.”

Shane, who said Leading Edge has no interest in selling a PS/2 compatible computer, predicted IBM’s policy would lead to increased prices and confusion.

Analysts said Tandy Corp. and Compaq Computer, two leading computer makers that sell popular clones of IBM’s original PC line, probably would not be hurt badly by the latest policy because they have cross-licensing agreements with IBM. Under such agreements, companies allow each other to use certain patents without charge.


A Compaq spokesman declined to comment on the company’s relationship with IBM.