Digital Lifestyles Tries New Life with Protron
Digital Lifestyles’ merger with Protron Digital seems to pen another chapter in the saga of a firm that’s been written off before. Combining with Protron, tangled in a trademark infringement battle with Proton, Digital Lifestyles morphs from a supplier of Northgate and later hip-e brand PCs to one focused on selling CE gear.
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Digital Lifestyles last fall announced plans to merge with Protron, reaching a definitive agreement in March. The pact seemed to salvage a company that essentially has ceased operation last spring, after Microsoft pulled its license to use the Windows operating system, according to SEC documents. Microsoft’s move ended Digital’s brief run at marketing the hip-e brand of desktop PCs, according to SEC documents. The hip-e products represented an earlier stab at revival by Digital, which was seeking to regain the success it had enjoyed selling Northgate brand desktop and notebook PCs at retail, with Staples accounting for 37% of its peak sales of $77 million in 2003, SEC documents said. Digital posted a $4.7 million net loss in 2003, following it with a $13.8 million loss a year later on sales of $48.3 million.
Even the company name has varied. Incorporated in 1994, it became McGlen Internet Group after a 1999 reverse merger with that firm. “McGlen” gave way to Northgate Innovations after a 2002 merger with Lan Plus Corp. In 2004, Northgate became Digital Lifestyles and the hip-e products were born.
Its names and products have changed, but Digital’s fiscal woes have been a constant. In April 2005 it discontinued operations, estimating in recent filings with the SEC that it would need $800,000 to meeting operating and capital needs for the year ending Dec. 31, 2006. But As of March 31, Digital said it had $100,000 in cash and cash equivalents, a sum that will carry it only to June 30. Neither Protron nor Digital officials were available for comment.
Despite the murky financial picture, Digital Lifestyles seemed to be moving ahead. March 8 it signed a definitive agreement to merge with Protron Digital, with Andy Teng, McGlen Internet CEO March 1992-Jan. 2004, named Digital’s CFO a week later, Digital’s SEC filings state. Teng sued Digital in April 2004 to recover $1.2 million he'd advanced the firm, a year later agreeing to convert the outstanding unsecured debt owed him into one million shares of common stock, SEC documents said.
As Digital Lifestyles sought a suitor last year, Protron CEO Leo Chen joined its board in Aug., laying groundwork for the tentative agreement reached last Sept. to merge the firms. But even as the companies were merging, Protron, which had gained distribution for its branded LCD TVs, DVD players and other products through Sears and Long’s Drugs, faced a legal battle with Proton.
A federal court judge in March slapped a preliminary injunction on Protron, barring continued distribution of its products and establishing a $500,000 bond. In the decision, U.S. Dist. Judge Gary Klausner, L.A., noted a “likelihood of confusion” between the 2 brands, pointing out that Sears and Long’s ads mislabeled a Protron DVD player as “Proton.”
In its defense, Protron said the “doctrine of laches” barred Proton’s claim, saying it waited until Nov. 2005 before filing suit. Klausner dismissed the defense, saying it only applies when a trademark holder “knowingly allows” a mark to be infringed without objecting for a lengthy period. Proton wrote to Protron’s forerunner -- Prosonic Group -- objecting use of its brand in Dec. 2004. Four months earlier, Prosonic filed an application to trademark “Protron.” After getting the letter, Prosonic Group formed a 2nd corporation, Protron Digital, Proton said.