Gateway agrees to pay rival $47 million to settle patent infringement suit and set up cross-license agreement.

March 1, 2006

PC maker Gateway said Wednesday it’s agreed to pay Hewlett-Packard $47 million to settle claims of intellectual property infringement and to set up a cross-licensing agreement with its rival.

The companies will also enter into a seven-year pact in which they will share their patent portfolios. Gateway will pay HP $25 million seven days after the cross-license agreement is settled and $22 million within a year from that date.

Gateway said in a press release that $16.7 million resolves the patent infringement allegations against it and the remaining $30.3 million is part of the cross-licensing agreement.

The agreements were announced after the markets closed, but traders did not seem impressed. Hewlett-Packard shares fell $0.06 to $33.99 in after-hours trading while Gateway shares lost a penny to $2.27.

Gateway also said it will revise its results for the year that ended in December to reflect that $16.7 million charge. As a result of the charge, Gateway’s fiscal year 2005 net income will decrease to $32.8 million, or $0.09 per share, from $49.5 million.

The settlement and license agreement ends two years of litigation between both sides. In March 2004, HP sued Gateway for infringement on seven patents. Gateway reacted by countersuing.

The accusations grew and eventually HP claimed Gateway had infringed on 27 of its patents while Gateway claimed HP had infringed on 13 of its own. All patents disputed in the lawsuits involve parallel port technology, which allows data to be moved around on personal computers.

“HP has a long history of innovation in PC technology, and we will continue to protect our investment in our PC patent portfolio,” said Joe Beyers, HP’s vice president of intellectual property licensing.