Gradco Patent Lawsuit Against Xerox Settled : Manufacturing: Maker of paper sorters will receive $2.5 million, become a supplier for new Xerox machines to be introduced at midyear.

By DEAN TAKAHASHI

Feb. 12, 1992 12 AM PT

TIMES STAFF WRITER

IRVINE — Gradco Systems Inc. said Tuesday that it has settled a 19-month-old patent lawsuit against Xerox Corp. and reached a separate agreement to supply a paper sorter for Xerox’s next line of office copiers.

The settlement calls for Xerox to pay Gradco $2.5 million over 2 1/2 years. Gradco’s suit alleged that shortly after reducing its purchases of paper sorters from Gradco in 1990, the giant Connecticut-based office-equipment company began manufacturing sorters that violated Gradco patents.

Gradco’s suit, filed in June, 1990, sought damages “in excess of $100 million.”

Gradco’s Tokyo subsidiary manufactures paper sorters for copier machines. Xerox was Gradco’s biggest customer until 1990, when Xerox began making its own sorters.

Kenneth Benbassat, a Los Angeles lawyer who represented Gradco, said the production agreement was not part of the settlement. But he noted that over the long run, “there is no question that re-establishing a relationship with Xerox will mean a great deal more potentially to Gradco than $2.5 million.”

Gradco stock closed Tuesday at $4 a share, up 87 cents--or 28%--in over-the-counter trading.

Thomas Abbott, a Xerox spokesman, declined to comment on the settlement. He said Xerox plans to use Gradco sorters in a new office copier that will be introduced in mid-1992.

Martin E. Tash, a New York publisher, took control of Gradco from founder Keith B. Stewart in a stormy proxy fight in 1990. Lawsuits between Tash and Stewart are still pending in Orange County Superior Court.

During 1991 Gradco Systems transferred most of its assets to Gradco Japan and reduced its work force in Irvine to about 10 employees, down from more than 100 before the proxy contest.

For tax reasons, Gradco Systems also said it plans to move its headquarters from Irvine to Nevada in the near future. Gradco Japan will maintain a marketing office in Irvine, Bressler said.