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February 4th

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[2:07 PM]
Judge Rules Against Apple In Exponential Lawsuit
Chancellor William Chandler has ruled against Apple in a lawsuit Apple has against its erstwhile partner. To remind Observers on what this is about, Exponential was developing an alternative PowerPC chip to be used in PowerMacs and Mac clones. Apple is a 25% partner in Exponential and helped fund the company during development of Exponential's technology. On May 13th, 1997 Apple decided not to use Exponential chips in any PowerMacs and also refused to release a ROM that Mac cloners would have needed to use the technology themselves effectively eliminating Exponential's market. According to Phil Schiller, V.P. of desktop and server product marketing for Apple at that time:

"'We didn't see a significant performance advantage vs. what we were getting from the G3 processor from IBM and Motorola. We will not ship an Exponential processor in our product line in the next year. We just didn't see any benefit to our customers,' he said, noting that if Exponential could ship a faster processor, Apple might rethink its plans."

Exponential then sued Apple on September 18th, 1997 seeking US$500 Million in damages for breaking supply contracts and "interfering with sales to Apple clone vendors." According to News.com.

"The suit arises out of a series of development and purchase agreements between Exponential and Apple, Power Computing, and Umax Computing, the two most successful clone makers. Among other claims, Exponential alleges that Apple refused to license ROM code to the clone makers, which then made it impossible for the clone makers to adopt the Exponential chips."

When Exponential announced it would be selling its patents to the highest bidder (a company called S3), Apple filed suit against Exponential seeking to have a custodian placed in charge of Exponential and its assets and charged that Exponential was in breach of fiduciary responsibility. The ruling from Chancellor Chandler denied that request but did agree that a trial was in order for the rest of Apple's lawsuit. Specifically the trial would decide "whether the sale of Exponential's patent portfolio to S3 Inc. for $10 million would be unlawful after a pending California lawsuit between the two companies was resolved."

The Mac Observer Spin: There are generally two schools of thought on the Exponential situation. One school says that Exponential was hopelessly behind in delivering what they promised and the other school says that Exponential was another in a long string of partners that Apple has pulled the rug out from under. We are inclined to say that there is a happy medium here. This lawsuit is likely to be ugly and drag out for at least another 18 to 24 months.

Apple



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