Hearing Set : Computer Chip Battle Heating Up

The legal battle between small but fast-growing Brooktree Corp. of San Diego and giant Advanced Micro Devices of Sunnyvale over disputed semiconductor technology is fast approaching a day of reckoning.

Not only are tens of millions of dollars in sales hanging in the balance, but the case may become the first test of a 1984 law designed to protect proprietary chip technology. A hearing set for June 19 in U. S District Court in San Diego could mark a critical juncture in the case.

At issue are rights to so-called RAM-DAC chips, an acronym for random access memory-digital to analog conversion semiconductors. Also decribed as “color palettes,” the highly sophisticated semiconductors enable work-station computers, video monitors and personal computers to economically and rapidly process and display color images.

Closely Held Company

Brooktree, a closely held company founded in 1981, says its design innovations, which are based on “mask works,” a photolithographic process by which semiconductor circuits are printed onto silicon chips, have helped reduce the power and number of memory chips required by computers to produce the color images.

By reducing the computer space taken up by chip hardware, Brooktree says, it has become a leader in a niche market estimated by industry observers at about $70 million in annual sales.

And, with work stations an increasingly fast-growing segment of overall computer sales, the prospects for rapid growth in the RAM-DAC market are excellent, industry observers said.

Brooktree, whose customers include Sony, IBM, Silicon Graphics, Digital Equipment and Sun Microsystems, seems well positioned, to say the least.

Brooktree’s innovations have fueled its meteoric growth from $2 million in 1986 sales to $13 million in 1987 and $38 million in 1988. The company projects about $50 million in revenue for the 1989 fiscal year ending in September, president James Bixby said Monday.

But, in mid-1988, Advanced Micro Devices, a giant chip maker with more than $1.2 billion in 1988 sales, threw a wrench into Brooktree’s growth strategy. It was then that AMD introduced chips similar in function to Brooktree’s RAM-DAC, but at 40% lower prices, Bixby said.

The introduction caused an immediate dent in Brooktree sales, causing it to reduce its 1989 sales projections to $50 million from the $60 million to $65 million it expected before AMD introduced its competing chips.

Bixby said that Brooktree has since lowered its prices to be more competitive with AMD, but that it has had to scale back its plans to increase research and development expenditure because of lower than anticipated revenue. Brooktree reinvests 25% of its revenue in product development, Bixby said.

Brooktree also scratched plans to build a research facility in Oregon, but Bixby insisted Monday that the company did so because because of a soon-to-be announced joint venture that will be more economical. He refused to name Brooktree’s joint-venture partner.

In November, Brooktree filed suit in U. S. District Court in San Diego alleging that AMD infringed on its proprietary design of RAM-DACs, an action that has touched off an increasingly bitter legal battle. Apart from technology infringement, Brooktree also accused AMD of using its “manufacturing muscle” to drive Brooktree out of the market with unfair pricing.

AMD has described the Brooktree suit as frivolous and as an unfair effort to deprive customers of their right to choose lower-priced parts. AMD spokesman John Greenagel said that AMD has long been a leader in digital-to-analog chip design, and that Brooktree’s designs are “not unique” but have been in use “for some time by chip manufacturers.”

Although the palettes do not at present constitute a huge proportion of AMD’s overall sales, Greenagel said the market to which AMD sells the chips, the office automation market, “is really where our target focus is.”

In filing the suit, Brooktree invoked the 1984 Semiconductor Chip Protection Act, a law that works similarly to copyright laws in that it protects proprietary print designs used in chip makers’ photolithographic processes. The act was cited in the AMD suit in part because Brooktree had not yet been issued patents for the technology at issue and therefore could not sue for patent infringement.

No case based on the 1984 act has ever been decided in court, Brooktree attorney David Monahan said Monday. Whatever cases have arisen have been settled out of court, Brooktree officials have said.

Not long after filing the suit, Brooktree lost the next round in the action when the judge turned down its request for a preliminary injunction that would have prohibited AMD from making the chips.

Each company tried to put its own “spin” on the decision. AMD said the court’s refusal resulted from Brooktree’s insufficient evidence to support its claim. Brooktree’s Bixby said the reverse showed merely that Brooktree could not show that AMD’s chips were causing it “irreparable harm.”

Then, on May 16, Brooktree was granted patents covering part of the technology at issue in the 1988 suit. Soon after, Brooktree filed a motion with U. S. District Court, asking that it be allowed to amend its complaint against AMD to combine a patent infringement suit with the chip act complaint. U. S. District Judge William B. Enright has scheduled the June 19 court date to hear Brooktree’s motion.

Last week, AMD countered with a suit seeking a declaratory judgement to invalidate Brooktree’s patents, a move that Brooktree’s Monahan said is designed to thwart the combination of the two suits.

“We think they are anxious about the same jury hearing the chip protection act . . . (and) the patent infringement claims because we believe they will take inconsistent positions” in the two actions, Monahan said on Monday.

Greenagel said AMD filed the motion because it has been preparing its case under the assumption that it would be based on the chip protection act, not patent law.

“It had recently appeared to us that Brooktree was taking depositions to lay the foundation for a patent infringement case,” Greenagel said. “We have been trying a patent case without having it as at issue.”

Both sides vow to pursue the litigation to its conclusion, whether as separate patent and chip protection cases or combined in one case as Brooktree hopes.