Palm Must Put Down $50 Mil. Bond in Xerox Case

Posted By: Ed Tuesday, February 26, 2002 8:48:44 AM

In late December, a judge ruled against Palm and 3Com, saying that Graffiti does infringe on a patent Xerox holds on a handwriting recognition method, called Unistrokes. Though the case is being appealed, the two companies have been required to put down a $50 million bond. Should Xerox win that appeal, the bond "will ensure that Xerox is able to collect at least some, if not all, of the damages it will suffer as a result of 3Com's infringement during the appeal period," wrote Judge Michael Telesca, U.S. District Court for the Western District of New York.

The bond will be returned if Palm wins its appeal.

The judge denied Xerox's motion for an injunction that would have prevented Palm from selling its handhelds during the appeal period, saying Xerox would not be irreparably harmed if sales continue.

The judge also rejected Xerox' effort to set a trial date to determine damages Xerox claims it is owed. Calling the latter motion "premature," the court noted that Palm's appeal of the decision is still pending.

There isn't much info on what the total of damages could be, because, as mentioned above, the portion of the case that would determine that hasn't been held yet. The comment from Judge Telesca that $50 million will cover "some, if not all, of the damages" is the best indication available of what the ruling might be.

Though $50 isn't chump change, having to put this money aside won't empty Palm's cash reserves. According to a Securities and Exchange Commission (SEC) filing at the end of its last fiscal quarter, the company's cash and cash equivalents equaled $242 million.

Palm is trying to downplay the importance of Graffiti. Eric Benhamou, chairman and CEO of Palm, said, "Numerous handwriting-recognition technologies have long been available, some costing pennies per unit. Graffiti is only a tiny fraction of the software experience that drives the existing 21 million Palm Powered products."

According to 3Com, though it is named in the suit, Palm is entirely responsible for paying any damages. It said in a recent filing with the SEC, "In connection with Palm's separation from 3Com, Palm agreed to indemnify and hold 3Com harmless for any damages or losses, which might arise out of the Xerox litigation."

In April 1997, Xerox sued U.S. Robotics, later acquired by 3Com, on the grounds that the Graffiti handwriting recognition technology infringed a Xerox patent received on Jan. 21, 1997, U.S. Patent No. 5,596,656. The technology in question, known as Unistrokes, was invented at Xerox's Palo Alto Research Center.

Palm maintains that it does not infringe the Xerox patent and that the patent is invalid. "We intend to pursue our appeal vigorously and have excellent arguments to support our view," said Mr. Benhamou. "For thousands of years, people have been creating writing symbols. Xerox doesn't own the alphabet.

Thanks to montyburns for the tip. -Ed

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A bond?

jayhawk88 @ 2/26/2002 9:19:35 AM #
Am I missing something here? Wouldn't Xerox be better served by simply asking for a license fee on each Palm (or Palm OS license) sold? I realize Palm's in financial trouble lately, but there are still a fat-lot of Palm's being sold.

RE: A bond?
I.M. Anonymous @ 2/26/2002 9:39:42 AM #
A bird in hand is worth two in the bush. Xerox is looking back at all the Palm units sold and they probably want a retroactive payment. They want to get their money while Palm is still around. Why take the chance on just FUTURE licensing fees when Palm might be bye-bye in the not too distant future. That $50M will definitely sting.

RE: A bond?
Token @ 2/26/2002 9:42:00 AM #
A bond is just "money in the bank". If Xerox's case is upheld, then future sales might include a licence fee, but this bond is for past damages.

Still, it has been said before, Grafitti has been around since 94 when it was used on the Newton ... which predates the Xerox Patent. However, I seem to recall that patent protection is somehow valid from the date the patent is submitted (eg "Patent Pending").

When it comes down to it, this type of technology for input could probably be traced back even further to a University PhD disertation topic in the CHI (Computer Human Interaction) area.

At what point do you stop? Cave paintings in the south of France??

RE: A bond?
jayhawk88 @ 2/26/2002 9:49:49 AM #
Well, it seems that's pretty much a moot point now, as a judge has ruled that Xerox's patent is valid. Isn't it now just about the money, or does Palm still have some opportunity to prove their Grafitti doesn't infringe?

RE: A bond?
sir_tez @ 2/26/2002 10:37:00 AM #
It's not a moot point as Palm is appealing the decision. If Palm wins, they get their $50 mil back and Xerox can go find something resembling a business to run instead of suing people for cash. Chumps.
---

Sir Tez
IT is a rough life
RE: A bond?
Altema @ 2/27/2002 10:38:40 PM #
Perhaps there are some hidden undercurrents? Like MS "suggesting" to their Xerox partner ways to damage Palm sales? Having the sales of all U.S. Palms stopped cold turkey would surely give the PPC a much needed boost in sales. Not as obvious or desperate as intentionally breaking Palm OS/Windows compatibility to favor PPC, but the possibility does come to mind...

Concerns about Palm and the OS

dkmoody @ 2/26/2002 9:20:18 AM #
Given their cash reserves and current performance, is there any short term conerns about the company and it's licensees?

Is there nothing to be concerned about until this all comes to pass?

Thanks Ed.

RE: Concerns about Palm and the OS
Ed @ 2/26/2002 10:56:12 AM #
Though $50 isn't chump change, having to put this money aside won't empty Palm's cash reserves. According to a Securities and Exchange Commission (SEC) filing at the end of its last fiscal quarter, the company's cash and cash equivalents equaled $242 million.

Industry analysts, who hopefully know what they are talking about, seem to see Palm coming out of its difficulties. Last quarter the company lost 6 cents per share. The consensus estimate for the current quarter is that it will lose 4 cents per share and the following quarter just 2 cents.

Even if worse comes to worst and Palm Inc. closes, one of the goals behind the spin-off of PalmSource is to allow the OS to go on.Though not yet a separate company, Palm intends to make it one at some point in the future.

---
News Editor

Grafitii to go away

I.M. Anonymous @ 2/26/2002 9:27:11 AM #
If find it intresting that the Palm CEO implies they might change to another handwriting recognition system... 21 million users used to grafitii won't be pleased. Why not cut a deal and pay a licence fee now rather then alienate Palm users?

RE: Grafitii to go away
I.M. Anonymous @ 2/26/2002 9:38:45 AM #
It took me all of ten minutes to learn Grafitti. Maybe fifteen to become proficient. I'm not all that concerned about learning some other recognition method. I'm fairly intelligent and flexible. While I prefer Grafitti to Jot, I could live with Jot if I had to.

RE: Grafitii to go away
sub_tex @ 2/26/2002 9:58:03 AM #
Well, if they had software like Tealscript tried to do where you tell your pda what stroke is "A" and what is "B" etc. then we wouldn't realy have to worry about this.

You could just teach the software to be Graffiti.

I still think this is lame...

I.M. Anonymous @ 2/26/2002 9:32:27 AM #
"For thousands of years, people have been creating writing symbols. Xerox doesn't own the alphabet."

Perhaps Xerox will sue me... I've been using Graffiti like writing system since I was in grade school (I wonder if they developed it in the late 60's).

I'm sorry, but IMHO, this whole thing is lame. Why did Xerox wait so long to bring this up? Did they start this process just recently, after allowing Palm to fatten up a bit?

An American tradition... When you don't get your way... sue, sue, sue!

You can thank the MSFT-Bashers
I.M. Anonymous @ 2/26/2002 9:48:01 AM #
They opened up this who LITIGATION-FEST in Big Technology. Everybody wants to sue everybody rather than just compete in a free marketplace.

What goes around comes around. There's always a "Day of Reckoning". "First they went after my neighbor and I said noithing. Then they went after me."

Patent Lessons Provided by PayPal and Palm

DougIsenberg @ 2/26/2002 9:49:25 AM #
I recently wrote about this lawsuit (and another patent suit against PayPal) in a column on GigaLaw.com titled "Patent Lessons Provided by PayPal and Palm," http://www.gigalaw.com/articles/2002/isenberg-2002-02.html


Doug Isenberg
Attorney at Law
Editor & Publisher, GigaLaw.com (http://www.GigaLaw.com)

RE: Patent Lessons Provided by PayPal and Palm
I.M. Anonymous @ 2/26/2002 10:44:00 AM #
That's one of the most unresearched, biased articles I've read all month...not worth scrolling down the screen to read.

RE: Patent Lessons Provided by PayPal and Palm
kaosfury @ 2/26/2002 11:57:52 AM #
I agree, it is very biased and unresearched. This segment:

"And licensees of the Palm operating system (including Handspring, HandEra, Sony, Kyocera and Samsung) would be damaged by the fallout, either by having to drop Graffiti from their devices altogether or by paying to license the Xerox patent, too."

Is totally off since you cannot charge a license fee to licensees. It would all be incurred by Palm.

--
Karl Browning
kaosfury@yahoo.com

RE: Patent Lessons Provided by PayPal and Palm
I.M. Anonymous @ 2/26/2002 12:04:47 PM #
What?? A lawyer writes something he didn't research?!?!? Why, that's almost as unbelievable as a judge that doesn't know his a** from Graffiti.

What do you call 50,000 lawyers at the bottom of the ocean?

A good start.

RE: Patent Lessons Provided by PayPal and Palm
I.M. Anonymous @ 2/26/2002 2:09:45 PM #
kaosfury wrote:

Is totally off since you cannot charge a license fee to licensees. It would all be incurred by Palm.

Where did you get that idea? Any manufacturer who incorporates patented technology into its product is liable to the patentee for damages. It is not a defense to say that "Palm licensed the technology to me." If Palm didn't own the technology, the license isn't worth the paper it's printed on. Caveat: Palm's license agreements with manufacturers are not available to the public. They may contain a provision whereby Palm agrees to pay any damages arising from patent litigation that challeneges Palm's rights in the PalmOS, including Graffiti.

Also, concerning the bond: If Palm is required to post a bond of $50 million, they will probably only have to put up 10% of that amount, or $5 million. This is comparable to a criminal bail bond.

RE: Patent Lessons Provided by PayPal and Palm
I.M. Anonymous @ 2/28/2002 1:33:46 AM #
"That's one of the most unresearched, biased articles I've read all month...not worth scrolling down the screen to read."

You missed the point. This is not intended to be an informative (or entertaining) piece of journalism. It is nothing more than a marketing device. The subtext is: hey, there is this legal issue which might affect your business - pay me to tell you about it. Most lawyers do this sort of thing.



Now is the time to buy

I.M. Anonymous @ 2/26/2002 12:24:03 PM #
This news has driven Palm's stock down below $3. Now's the time to buy. Think about it, for $100 you can get about 33 shares. When PalmSource splits off, you'll probably get some of that stock for being a Palm investor. In 5 years these will either be worth thousands or nothing. Yeah, its so high-risk its basically gambling but the stock is so cheap you don't have to risk very much to have a high potential return.

If you want to think short term, the day the m515 and m130 get announced Palm's stock will probably take a temporary 15% to 20% bounce. Buy cheap now, sell then.

I'm not a financial consultant, nor do I play one on TV.

RE: Now is the time to buy
I.M. Anonymous @ 2/26/2002 12:46:53 PM #
> I'm not a financial consultant, nor do I play one on TV.

Let me guess, buckwheat? You are an armchair ANALyst.
No thanks on the PALM stock. Sold it in 2000 for a nice hefty profit. Wouldn't touch the mound of **** with a 10-foot pole.

RE: Now is the time to buy
I.M. Anonymous @ 2/26/2002 5:55:03 PM #
Just because it's "Cheap" now don"t mean it can't get a lot cheaper. Don't try to catch a falling knife. There's little/no earnings........m515 aint no breakthrough product to move the stock a la Treo.

RE: Now is the time to buy
I.M. Anonymous @ 2/26/2002 7:48:44 PM #
Yes, but what is better, fixing a problem, or leaving it hanging?

Help me understand

I.M. Anonymous @ 2/26/2002 1:21:27 PM #
If I remember correctly, Graffiti (or something like it) was available for the Apple Newton as a piece of software you could install. Later, when the original Pilot came out, somewhere before or during 1996, it used Graffiti as it method of data input. Then Xerox comes along in 1997 and gets a patent and now says Palm owes them. Am I missing something. Maybe someone can point me to more info on the case or patent because I haven't found much yet.

RE: Help me understand
I.M. Anonymous @ 2/26/2002 2:25:27 PM #

Yep, Graffiti came out for the Newton. Interestingly, it was made by a tiny little software company called Palm.

from humble beginnings.....

RE: Help me understand
I.M. Anonymous @ 2/26/2002 7:09:10 PM #
BTW... I've owner a HP OmniGo 100 (a GEOS handheld which could be folded to be like a tablet), which used Graffiti too... Way back 1996. Why didn't Xerox sued HP too???

Eduardo Akira Watanabe
Bauru - SP - Brazil

RE: Help me understand
cpwoo @ 2/27/2002 3:20:53 AM #
Yup... I also owned OmniGo 100 as well -- only major differences of old Graffiti (version 1) and the current Graffiti (version 2) is handling of "X"... two stroke X wasn't allowed then. Loved that little machine, until it broke a few months later due to a bumpy plane ride.

Here's an interesting tidbit...

I.M. Anonymous @ 2/26/2002 1:51:21 PM #
... about Micro$oft's partnership with Xerox. It's a CNet story from April 2000, headlined " Microsoft, Xerox team to protect copyrighted works"

http://news.com.com/2100-1001-239789.html?legacy=cnet

ContentGuard's major partners are listed at http://www.contentguard.com/partners.asp

Xerox has always sucked

I.M. Anonymous @ 2/27/2002 12:20:04 AM #
Everyone frowns on domain name squatting right? That's what Xerox is doing basically...holding a patent and not doing anything about it! I'd say Xerox is being a sore loser. BTW this wouldn't be the first time they've done this either. Can we all say MOUSE and WINDOWS? Sure they've made great things in the past, but too dam* stupid to know how to execute it. To me that's like coming up with the equation <something> = mc(squared).
Almost there but not all the way.
Like my dad used to say to me..."Almost chicken, doesn't make any soup".

What damages?

jonr @ 2/27/2002 8:05:27 AM #
"..will ensure that Xerox is able to collect at least some, if not all, of the damages it will suffer as a result of 3Com's infringement during the appeal period.."

I didn't know Xerox made pda's. The damages as I see them, are probably the research cost, and I don't think those are 50M. I do have sympathy with Xerox, but why didn't they act 10 years ago when the first Palm's hit the market? It's not like Palm has been very secretive about this product.
This will probably end in some kind of settlement I think...

????????

I.M. Anonymous @ 2/27/2002 11:12:49 AM #
why isnt xerxo going aginst handspring, sony, etc...?
i think somebody really doesnt like palm...

regards,
SaxonMan

Xerox sucks

PIC mobile user @ 3/20/2002 6:11:17 PM #
Everyone frowns on domain name squatting right? That's what Xerox is doing basically...holding a patent and not doing anything about it! I'd say Xerox is being a sore loser. BTW this wouldn't be the first time they've done this either. Can we all say MOUSE and WINDOWS? Sure they've made great things in the past, but too dam* stupid to know how to execute it. To me that's like coming up with the equation = mc(squared).
Almost there but not all the way.
Like my dad used to say to me..."Almost chicken, doesn't make any soup".
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