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Microsoft sued over Palm PC

Microsoft is being sued by Palm Computing, a maker of handheld devices, over alleged trademark violations in Europe.

Microsoft's (MSFT) renowned marketing prowess may have gone awry when the company decided to name new handheld organizers "Palm PCs."

The software giant now is being sued by Palm Computing, a maker of handheld devices, over alleged trademark violations in Europe.

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Palm Computing filed lawsuits in Germany and Italy against Microsoft, asserting that the Palm PC name can be too easily confused with its products, which bear names such as PalmPilot. Palm Computing, a subsidiary of 3Com (COMS), also has filed suit against Casio in Germany, and eventually may file suits in the United States as well, company officials said.

"We believe that their use of Palm PC to describe their product is an infringement of our trademarks...and we think it's going to cause our customers to be confused about what they are buying and what they want to buy," said Donna Dubinsky, president of Palm Computing.

New Palm PC devices are based on a version of the software giant's Windows CE operating system for handheld computers, and offer functions similar to the PalmPilot--such as a contact manager, scheduler, and expense tracker--in a similar form factor. The Palm PCs are scheduled to be released in March or April from Casio, Philips and others, but the rollouts could be delayed by the latest legal actions.

To date, PalmPilots have been the most popular device in the handheld computer market. Over 1.6 million PalmPilots have been sold, and their user base will be around 2.2 million by the end of 1998, according to analysts.

Microsoft's entry into the market for handheld computers has its competitors worried that it will begin to dominate in this space just as it has in the desktop operating system market. Last week, for example, Apple withdrew its entry in the handheld computer market, called the MessagePad 2100.

Other competitors in the handheld market already are feeling a financial pinch from the larger PC companion devices, distinguished mainly by the use of a small keypad for data input instead of a stylus. Psion, a British manufacturer of handheld computers, for example, has said that its financial results are slipping because of competition from Microsoft (See related story).

Palm Computing is fighting back, though, submitting evidence from none other than an assistant to Bill Gates. After addressing questions about the new products at a press conference held earlier this year, Gates left the meeting without his organizer, according to published reports. His assistant returned, asking for "Bill's PalmPilot," which is the name for Palm Computing's competing product.

"We found that to be a very interesting piece of evidence," chuckled Dubinsky. "Bill Gates thinks there could be no confusion, yet his assistant was confused about the name of product. Obviously, that's not the material focus of the suit, but I think it reflects the reality [that] people are going to be confused," she said.

A Microsoft spokersperson said that the terms "palm," "palm computer" and "palmtop" are generic terms that the industry has used for a number of years, and that, therefore, Palm Computing's claims aren't valid.

Additionally, Microsoft said that it "localizes" the name of the product for the local language. For instance, the company will offer the "Taschen PC" in Germany.

"For our English-language product, we use the term "palm" in Palm PC to describe the size of the device," the spokesperson said. "We don't see how the name Palm PC conflicts with the name PalmPilot."

One legal analyst thinks Palm Computing's argument would be a hard sell to U.S. judges.

"Use of the word 'palm' to describe a handheld device is a very weak trademark. The reason is that it is too descriptive," said Richard Gray, a partner with Bergeson, Eliopoulos, Grady & Gray who covers intellectual property issues. "For example, you would never guess from the word 'Kodak' that you were talking about film. That makes for a stong trademark. If the trademark were instead something like 'Photo Taker,' that is a very weak trademark, and one the U.S. courts would probably not protect."