How, and why, have these two companies managed to fall out so badly? The tale of how the two largest PC suppliers in the United States came to court shows how high feelings are running as prices continue to fall in the PC industry, putting the squeeze on all PC manufacturers.
Rivalry between Compaq and Packard Bell has always been intense, but has stepped up as the latter has moved out of its stronghold in the retail sector to take on Compaq across the entire PC market. Compaq remained the PC market leader in the US, with 12.4 per cent, but the announcement this month that Packard Bell is to take over Zenith Data Systems from the French manufacturer Groupe Bull, and will receive a pounds 184m cash injection from the Japanese manufacturer NEC, has enabled Packard Bell to leapfrog into first place with a 13 per cent share.
This latest move is likely to fan the flames of what is already a bitter fight between Compaq and Packard Bell. In November 1994, a private discussion between the two companies about three separate technical details of their PC machines broke down. Compaq had accused Packard Bell of infringing patents it had filed between 1983 and 1986. They failed to settle out of court, and Compaq filed the first writ in what has since become a bitter battle through the processes of law right across America. Packard Bell said it would defend itself vigorously against what it described as "groundless claims".
By May 1995, Compaq had not only pursued its patents allegations against Packard Bell, demanding $450m (pounds 300m) from the company, but had also launched a separate case, accusing Packard Bell of unfair competition by putting used equipment into new products without telling potential buyers. This case is being pursued by Compaq in 50 states, and has resulted in a 12- state investigation, led by Florida and Illinois.
This time, Packard Bell's response was furious. Its president and chief executive, Beny Alagem, said Compaq's action was "totally without merit and specifically designed to stall Packard Bell's momentum in the market".
Matters went from bad to worse in June when Compaq's senior vice-president Ross Cooley said the privately held Packard Bell would be unable to sell shares, because investors feared the company's executives would sell out, leaving the company, he said, with nothing but "some Mexican factories and four Chinese engineers".
Packard Bell was by now incandescent. Mr Alagem described the remark as racist, ignorant, irresponsible and insensitive, and demanded an apology. With no apology forthcoming, Packard Bell filed, in October, a lawsuit against Compaq for unfair competition and defamation, and followed this up a month later with further charges, alleging that Compaq falsely labelled shipping cartons on some of its notebook machines as "made in the US" when they were produced outside America.
Packard Bell is seeking what it describes as "punitive damages" from its rival, as well as reimbursement for loss of income as a result of what it alleges is Compaq's sustained attack against itself and its products. It also wants a court order forcing Compaq to run corrective advertising.
The most personal aspect of this bitter row, the allegation that Compaq has made racist statements against Packard Bell, will be one of the first to be tested in court, when the lawsuits filed in October and November reach the Delaware court on 26 February. Among other charges over Compaq's behaviour in the market, are allegations that Compaq has made "misleading statements" in press releases, in letters to government agencies, and in public comments by Compaq officials, charging that the statement made by Mr Cooley was "racist, un-American and morally reprehensible".
The ferocity of the fight has taken aback even an industry used to settling its disputes in court. Neither company will comment on how much they have already spent fighting one another, nor put any figure on the estimated damage of such action.
Instead, both companies appear to be staking their claim to the moral high ground, Packard Bell on the racism charge, and Compaq on the issue of reusing components, and each claims to be acting in the wider interests of PC buyers in general. Which will emerge as the victor - whether in court, or, more important, in the PC market - remains to be seen.Reuse content