Atari's Suit Against Amiga Over Chips May Delay Commodore's Computer Plans

The Wall Street Journal

August 22, 1984

Sunnyvale, Calif. -- A $100 million lawsuit filed by Jack Tramiel's Atari Corp. against Amiga Corp., a small Silicon Valley company that is to be acquired by Commodore International Ltd., may delay Commodore's plans for introducing Amiga's coveted new computer.

The suit appears to be Mr. Tramiel's latest move in the looming battle between Atari, which he bought in July, and Commodore, which he founded 25 years ago and ran until his abrupt resignation in January.

In the suit, Atari charged closely held Amiga with breaking its contract to supply Atari with three semiconductors. Atari charged Amiga with fraudulently negotiating to sell the semiconductors to other companies. The suit does not name Commodore, which last week announced plans to acquire Amiga.

In a complaint filed in Santa Clara Superior Court, Atari contends that it advanced Amiga $500,000 in March to finance the smaller company's development of the chips, which "represent a significant technological advance for use in computers." At the same time Atari agreed to buy one million Amiga preferred shares for $3 a share, according to an exhibit in the suit.

Amiga returned the $500,000 in June and canceled the stock plan in July, saying it wouldn't be able to develop the chips, the suit says. The suit accuses Amiga of using the advance money to work on the circuits and to negotiate with unnamed "third parties" for their sale.

In Santa Clara, Don Reisinger, Amiga's director of marketing, called the suit "totally without merit." He added, "We're going to turn around and fight it as vigorously as possible." Mr. Reisinger refused to comment on the suit's specific charges, saying that Amiga's lawyers were still examining the complaint and had asked the company not to comment.

Mr. Reisinger wouldn't say whether the three chips at issue in the suit were inside Amiga's planned personal computer, which was demonstrated earlier this year.

The chips are said to be the key to the Amiga computer's most attractive feature: its graphics capability. An attachment to the Atari suit says Atari had planned to use the chips in its video games and home computers.

Atari's suit asks the court to "transfer the technology" of the chips to Atari and to enjoin Amiga from delivering the semiconductors to anyone else. Atari contended that if the chips referred to in the suit are the same as those in Amiga's new machine, an injunction could delay Commodore in bringing out the Amiga product.

Amiga entered the Atari agreement last March -- when Warner Communications Inc. owned Atari -- and backed out by June 29, according to the suit.

The Atari-Amiga agreement appears to have given Atari exclusive rights to the semiconductors only for the video-game market. A copy of the agreement in court documents states that Atari had "the nonexclusive right to sell products in the home-computer field." But the agreement also states that "Amiga shall not grant any other party a license to make, use or sell chips or products," unless they are used outside the video game and home-computer field, and unless Atari shares in the proceeds.

Though it was not named as a defendant in the suit, Commodore contended that under terms of the agreement, Amiga wasn't prohibited from using the chips itself. Therefore, Commodore said, Commodore, as Amiga's parent, couldn't be barred.

An Atari lawyer dismissed the notion that Commodore, and not Amiga or the Amiga chips, might be the real target of the lawsuit, which was filed a few days before Commodore announced plans to acquire Amiga.

"We aren't conducting a vendetta," said Leonard Schreiber, who resigned as Commodore's general counsel to join Mr. Tramiel at Atari. "We had a deal to get three chips and we want them. Whether it was Commodore, IBM, or anybody else, the case would have been brought in the same format."

Mr. Schreiber said he didn't know whether Mr. Tramiel knew of Commodore's plans to acquire Amiga at the time he planned the suit.

Mr. Tramiel refused, through a secretary, to answer the question. But Commodore executives were known to delight in the Amiga acquisition, in part because of rumors that their former president was planning to sell the Amiga product under the Atari name.

David Morse, Amiga's president, said last week, "I have absolutely nothing to say about Jack Tramiel," when he was asked about the industry rumors.

Atari's lawsuit asks for $50 million in punitive damages, contending that Amiga "did not intend to work diligently to develop" the chips for Atari. The suit asks another $50 million for damages related to Amiga's alleged use of Atari funds to develop technology "to (Amiga's) own use and benefit, to the exclusion of Atari." According to an attachment to the suit, the outgoing Atari management transferred the Amiga contract to Mr. Tramiel. The transfer document is signed Aug. 9, just four days before the lawsuit was filed, and little more than a month after Mr. Tramiel took over Atari.

The lawsuit is the second indirect legal clash between Mr. Tramiel and the company he founded. Last month, Commodore sued four departing engineers, charging they stole computer-design secrets that they intended to use at their new jobs with Mr. Tramiel and Atari.

The Commodore litigation didn't name Mr. Tramiel or Atari as defendants. But Atari officials have contended that the engineering-related lawsuit by Commodore was motivated by a desire to delay Atari's plans for introducing new products to compete with Mr.Tramiel's former company. Commodore controls more than half the home-computer market.

"That's as good an explanation as any," Atari's Mr. Schreiber said of that contention. "We can't see any sense in that engineers' suit altogether."

Since Commodore filed that lawsuit, Commodore has moved to prohibit Mr. Schreiber, its former general counsel, from advising the Atari-employed engineers because it contended he possesses proprietary Commodore information. Mr. Schreiber and Atari, which is believed to be paying for the engineers' defense, are opposing the motion and a ruling hasn't been made.

Also in the engineers' case, Commodore has sealed some papers and technological documents that were seized, under court order, from a moving van carrying the engineers' belongings from West Chester, Pa., where Commodore is based, to Sunnyvale. The papers could be used as evidence in the case; no new legal action has yet taken place.