Microsoft co-founder Paul Allen today is announcing plans to build the world's largest aircraft to start a new orbital cargo business, joining the ranks of billionaire investors blending their love of space and science fiction with the growing opportunity for private space ventures.

For Allen, the venture combines his lifelong interest in science fiction and technology with his entrepreneurial streak. The name of the company also hints at his love for rock music and guitars, such as the classic Stratocaster.

Building the largest aircraft of his generation will also draw comparisons to another mysterious tycoon - Howard Hughes, who spent heavily to build the world's largest flying boat in pursuit of a cargo business that never materialized. The Spruce Goose flew once, in 1947, and is now displayed in Oregon.

Allen's working with aircraft designer Bert Rutan, with whom Allen developed SpaceShipOne, the first privately built spacecraft to enter sub-orbital space in 2004.

For the new company, Stratolaunch Systems, Rutan (at left, with Allen) is building a giant cargo plane powered by six 747 engines and with a wingspan over 380 feet. It will be constructed in California at the Mojave Air and Space Port.

Work has already begun on the craft and it should be operating within a decade, Allen said at a press conference in his office near the Seahawks stadium south of downtown Seattle.

Allen said as a boy he built model rockets and he and his mother watched for the first astronaut's flight. Now he hopes to build something today's children will look for in the sky.

The craft will require a huge runway - 12,000 feet long - and will operate from a spaceport such as Kennedy Space Center.

Allen's team includes former NASA leaders and partner companies including aerospace engineering company Dynetics and PayPal veteran Elon Musk's Space Exploration Technologies, which will build a multi-stage booster for the aircraft.

The company hopes to fly people into low earth orbit eventually but it's going to start by delivering unmanned payloads.

A rendering of Allen's planned craft:

Seven years after it began pursuing a city broadband network, Seattle's trying again. Sort of.

Mayor Mike McGinn and other dignitaries will announce a new, smaller effort Monday morning in South Lake Union. The plan is to offer city infrastructure to lure phone or cable companies willing to build ultrafast broadband in one or two neighborhoods.

More and faster broadband is better, but I'm not sure this is going to result in much change. It's unlikely to help many homes or businesses truly suffering from a lack of fast service, especially since the targeted neighborhoods already have pretty good broadband.

Helping a small pocket of the city may be more realistic than pursuing top-notch broadband across the city, but it pushes the true goal farther back.

As it did in 2006 and 2007, the city's offering access to 500 miles of fiber-optic lines the public spent at least $50 million to install.

This time around, the city's hooked up with the University of Washington and an alliance of universities across the country that's trying to get companies to provide faster service to research schools and their surrounding communities.

The alliance, called Gig U, wants to foster new research and development of applications using ultrafast connections. Success in these areas could prod telecommunications companies to provide more ultrafast broadband. Project proposals from companies are due early next month.

Broadband companies negotiate for city right of way to deliver service in Seattle. But McGinn said the city doesn't have enough leverage over the companies to extract better pricing or service from them.

"This is why it's so important for the city to start looking at different models... to start driving some competition or create the competition ourselves, ultimately."

But the city has started off on this road before and never went anywhere.

A high-profile broadband task force formed in 2004 said the city should pursue a network that would provide affordable, fiber-optic connections to everyone in the city by 2015, with minimum speeds of 20 to 25 megabits per second.

That led to a request for proposals from telecommunications companies willing to partner with the city, and talks with 11 providers. In 2007, Mayor Greg Nickels wanted to pursue a fiber network but the effort fizzled before there were any firm proposals to build anything.

One possibility that was never pursued was to have City Light become a broadband provider, similar to the approach taken by the city of Tacoma and other public utilities.

McGinn said that could be an option someday. But first the city will try to encourage a pilot project, in neighborhoods adjacent to the UW or UW facilities -- meaning South Lake Union or the University District.

I asked McGinn and Bill Schrier, the city's chief technology officer, why this will fare better than the city's earlier, more ambitious broadband plans.

Schrier said there's higher interest, driven by the federal broadband plan issued in 2010 and Google's 2010 offer to wire a few cities with ultrafast, experimental networks.

"There's a much wider awareness for broadband and its value than there was in 2007," Schrier said.

I hate to be critical about this because the need for better and more affordable broadband in America is real. There's not enough competition to bring prices down and there's little incentive for companies to provide faster service outside of dense, prosperous areas. But the project being floated today doesn't address those problems.

Also, Gig U's concerns about universities having ultrafast broadband do not apply to the UW proper. The UW has one of the world's fastest Internet connections. It's part of the Internet2 research consortium that's operating a new 100 gigabit per second network. Seattle is one of 10 cities connected by this network, enabling the UW to do cutting-edge research in computing and sciences.

South Lake Union is also an odd location for Monday's news conference. It may be the last place you'd talk about a broadband crisis.

A mass of fiber runs through the neighborhood, alongside the new Terry Avenue headquarters of Amazon.com.

"There's fiber all over South Lake Union from like eight carriers -- the biggest fiber route in the Northwest goes right down Terry," said John Van Oppen, chief executive of Spectrum Networks.

Spectrum provides 100 megabit-per-second Internet service to dozens of office and apartment buildings in the region, charging people $60 per month for unlimited usage.

Next spring, Spectrum services will be upgraded to 1 gigabit per second, at the same price. That speed is already available at Van Oppen's condo -- in South Lake Union.

Van Oppen said the city's making a good effort to improve broadband offerings, but he doesn't expect there will be a lot of private-sector interest in using its fiber to serve a neighborhood or two.

One reason is that fiber isn't as scarce a resource anymore. The biggest cost to provide ultrafast broadband is in the "last mile" connection, hooking up the individual homes and buildings.

"The cost isn't in anything but that last little bit," Van Oppen said. "The reason it's so expensive isn't because you need to get fiber from one of the data centers, it's because you need to get fiber into the building."

It's nice to support the Gig U effort, which may have better luck advancing broadband nationally than the FCC's federal plan.

But Seattle needs to be sure that in its eagerness to join the movement it doesn't give up fiber-optic capacity that city agencies and schools may need in the future.

The city also needs to be sure the public gets a good return on its infrastructure investment -- and not just intangible benefits.

Still hanging out there is the question of whether we'll ever see a citywide, municipal broadband service. If that's at all possible, the city has to take care it's not giving up fiber capacity the whole city may need someday, just to enhance neighborhoods that are already doing well.

Smith & Tinker, a once high-flying Bellevue game startup, is resurfacing this week with a new Marvel superhero game for Apple's iPad, iPhone and iPod Touch.

"Marvel Kapow!" features characters such as Thor, Wolverine, Spider-Man and Captain America. Players uses touchscreen gestures such as flicks to slash enemies with Wolverine's claws or shoot them with Spidey's web.

Smith & Tinker was started in 2007 by Jordan Weisman, a former Microsoft creative director. The company raised more than $29 million from a-list backers including Paul Allen and a group of venture capitalists.

The money was mostly used to develop a line of handheld game players aimed at young boys and built around a sci-fi monster game called Nanovor that launched in 2009.

That project was dropped last year after a restructuring that eventually cut the number of employees from around 55 to under 10. A recent check found Nanovor gear for 99 cents at Amazon.com, although the game's no longer supported.

Weisman remains on the board and contributes to creative work but the company's now led by Disney veteran Joe Lawandus. The company also relocated from Bellevue to space near the downtown Seattle waterfront.

"We've had a pretty interesting ride over the past few years," Lawandus said.

Lawandus said the company still has enough cash to build at least one more game based on Marvel characters. The company last year reached a licensing deal with Disney, Marvel's owner, that enables it to build casual games based on all characters in the Marvel universe.

"We're super excited about what we think tablets can bring to the mobile gaming space," he said, adding that the company is trying to reach big audiences with the brands used in its games.

"Marvel Kapow!" is available through iTunes in free versions with seven levels and advertising, or ad-free versions with 26 levels and additional characters that cost $1.99 for iPhone and iPod or $3.99 for iPads. Later the company may develop versions for Android and perhaps Windows, he said.

Paul Allen's trying awfully hard to be sure he's remembered as a technology visionary and not just a quirky billionaire.

But perhaps Allen's trying too hard to shape his legacy.

Building edifices such as the Experimental Music Project was just the start -- though it's now looking like an apt symbol of Allen's melting relationship with Bill Gates, whose new foundation headquarters has risen across the street.

Allen's aggressive new approach began last year, after he fought back a recurrence of cancer. In July he publicly pledged to give most of his fortune to charity. Then in August he sued Apple, Google, Facebook and other tech companies, arguing that they copied ideas hatched long ago by his research ventures.

Now Allen's releasing an autobiography -- "Idea Man" -- to tell his remarkable story.

But the reception to excerpts of the tell-all suggests his re-branding effort may backfire.

The excerpts reiterate that Allen made key contributions to Microsoft's genesis and ended up with a smaller share of the company than Gates, a story that's been told before.

What's newly revealed is the depth of Allen's resentment over his dealings with Gates.

It's so catty, Allen risks going down in history as the world's richest disgruntled employee -- the guy who stomped out of the building with $20 billion, thinking he deserved $25 billion.

I've followed Allen for more than a decade and talked to him a number of times. He's always been polite, except for the time his security guard shoved me aside, the night Washington voters agreed to fund a stadium for his Seahawks.

Whenever I asked about Gates, Allen talked up their friendship. Here's what he told me in June 2008:

"We have dinners regularly. We love to see movies together. The thing I always tell people about Bill that they may not know is, he's really a lot of fun to hang out with."

Allen continued:

"We used to go to movies a lot together. We would predict what's going to happen in the movie. If something funny happened, then we would just crack up. We still to this day have a lot of fun just hanging out and talking and brainstorming about future things."

Something must have changed. Maybe he was frustrated at being overshadowed by Gates all these years, or just had to get things off his chest. Still, nobody expected Allen to vent so publicly.

Gates was a brutal boss and a crafty negotiator. He's a ruthless businessman who once aspired to be a lawyer like his wealthy father, who helped set things up. Allen's an eclectic, music-loving son of a University of Washington librarian. Given these backgrounds, it's impressive that Allen ended up with 36 percent of their startup.

Another sore point is the cut Gates gave to Steve Ballmer, to convince his Harvard pal to join the company in 1980.

Allen, who attended Washington State University, writes that he and Gates decided to give Ballmer 5 percent of Microsoft. But when he left on a business trip, Gates gave Ballmer 8.75 percent, "considerably more than what I'd agreed to."

Allen wasn't the only one miffed by Ballmer's hiring package. It caused a "personnel disaster," according to "Gates," a 1993 biography by Paul Andrews and Stephen Manes. They didn't say much about Allen's feelings at the time, but said there was widespread resentment after Ballmer's offer was tacked onto the office bulletin board.

The ones to feel sorry for are Microsoft's early clerical workers, with whom "Gates had been tightfisted beyond the bounds of the law," Andrews and Manes wrote.

While Allen was grousing about dilution, the clerks had to file a complaint with the state to extract back pay for overtime that Gates owed them.

We'll have to see what the rest of Allen's book says, and whether people are as interested in his life before and after Microsoft. There's some irony in the book getting its initial burst of attention because of its candid view of Gates.

Hopefully "Idea Man" is more than a vendetta. That would be a shame because Allen's otherwise providing fascinating new details from his front-row perspective on the birth of the PC industry and a company that dramatically changed the Seattle area and the world.

For better or worse, Microsoft is like a natural element. Much of the world runs on its software, and it may be the most profitable business ever created anywhere.

Allen left Microsoft when it was really just getting started, more than a decade before Windows 95.

Early employees who thought they knew the man don't know what to make of his book.

"I'm taken aback," said Jon Shirley, who became Microsoft's president the year Allen left and served with him on its board.

Shirley said he's been getting calls from very early employees, talking about the excerpts.

"I think everybody's sort of in the same situation I am -- it's very hard to understand," he said.

Shirley said the book probably won't alter the general perception of Microsoft, which was more affected by antitrust cases.

"Microsoft is no longer Bill and Paul," he noted.

Gates and Allen have also changed, presumably.

"How the world wants to view the interchange of these two very young men -- when they were young men -- I don't know," he said. "You'll have to decide whether you accept this story or not. It's shocking to me -- it doesn't sound like Paul."

Or maybe there's a lot more to Allen than everybody realized.

Mercer Island billionaire Paul Allen today renewed his effort to sue Apple, Google, Facebook, eBay, AOL and other companies for patent infringement.

Allen's case was rejected on Dec. 10 by a federal judge in Seattle who said it was too vague. U.S. District Court Judge Marsha Pechman told Allen he had until Dec. 28 to file an amended suit.

Just meeting the deadline, Allen filed an expanded version of the original suit with more details of how the companies allegedly infringed. The filing also includes 40 exhibits, many of which are screenshots of Web sites with modules highlighted.

Here's the filing: 2010-12-28 Interval First Amended Complaint for Patent Infringement (2).pdf

The companies being sued declined to comment on the allegations when the suit was first filed in late August.

Experts have said Allen's case is a longshot but the potential payoff is large - perhaps $500 million or more if he wins.

Defendants named in the suit are Apple, Google, Facebook, eBay, AOL, Netflix, Yahoo, Google's YouTube, OfficeMax, Office Depot and Staples.

Patents at issue in the case were generated by Interval Research, a Palo Alto, Calif.-based research venture that Allen, co-founder of Microsoft, and Xerox veteran David Liddle started in 1992. Allen closed it down in 2000.

Allen's suit alleges that his patents cover, among other things, systems that automatically call up and display related content. The approach is widely used by online retailers and other sites across the Web.

For instance, when viewing a product on Apple's iTunes store, the store automatically suggests related content that may be of interest. The suit filed today argues that this infringes on at least 20 claims made by a patent Allen holds.

Here's the exhibit submitted to illustrate the Apple violations:

Microsoft co-founder turned entrepreneur and Seahawks owner Paul Allen is getting a bit more public.

He has started Twittering, with a post on Sept. 22 that offers a glimpse into the secret life of the Mercer Island billionaire:

"In Kona working on the book .... and Adriana has killer rellenos..."

Allen was presumably referring to his memoir, which is being published by Penguin Group, and Adriana's Mexican Food.

Today he posted an item about a symposium at the Allen Institute for Brain Science, and gave kudos to Seahawks fans and coach Pete Carroll:

"We couldn't have done it Sunday without the crowd. Chargers saw what the 12th Man is all about. Congrats coach."

Among the people Allen's following on the service are his old pal Bill Gates, Richard Branson, Al Gore, Peter Gabriel, Rufus Wainwright, Carroll and players on his teams: the Seahawks' Matt Hasselbeck and the Blazers' Greg Oden and Brandon Roy.

Today's column is my take on why Paul Allen's suing some of the biggest names in tech. The top:

Something's up with Paul Allen.

His bombshell Friday -- a lawsuit against Apple, Google, Facebook and others for patent infringement -- was just the latest symptom.

Microsoft co-founder Paul Allen today filed a lawsuit against many of the biggest names in tech, alleging they're infringing on patents obtained by Interval Research, a venture Allen and Xerox veteran David Liddle started in 1992.

Interval's research generated about 300 patents, four of which are the basis of the suit. The group operated in Palo Alto, growing to more than 100 researchers, until it was shuttered in 2000.

Named as defendents are Apple, Google, Facebook, eBay, AOL, Netflix, Yahoo, Google's YouTube, OfficeMax, Office Depot and Staples.

Most of the companies declined to comment, but Facebook said the suit's without merit and a Google spokesperson said it's part of an "unfortunate trend of people trying to compete in the courtroom instead of the marketplace."

If Allen is successful, he could go after additional companies, seeking royalties for Interval patents that touch on much of the current Web experience.

One of the patents in the suit lays claim to the concept of automatically showing related information on a website, so people viewing a news story online could be presented with related stories, for instance.

"The invention enables some or all of a body of information to be skimmed quickly, enabling a quick overview of the content of the body of information to be obtained," states a 2001 patent for "browser for use in navigating body of information." "The invention also enables quick identification of information that pertains to a particular subject."

Allen has already tried to make money with that concept, starting a company called Evri, which developed a widget that media sites could embed into their sites and generate clusters of related stories.

It's unclear at this point how Allen sought to license the technology. Asked whether the lawsuit follows attempts to negotiate licensing deals with the named companies, Allen's spokesman David Postman said, "The defendants were informed that we had patents of interest."

The belated pursuit of compensation for research conducted more than a decade ago puts Allen at risk of being labeled a patent troll. Postman characterized the move as "part of an ongoing process for years to monetize that portfolio."

"Other patents were licensed to other people," Postman said. "Now we're to the point of reviewing that portfolio and seeing at the same time if technology in the marketplace has caught up to where Interval was. It's clear that these patents cover a variety of key processes in search and e-commerce. We're to the point where litigation is the next step on that."

Within Allen's circle of billionaire Microsoft veterans is Nathan Myhrvold, who started a Bellevue company called Intellectual Ventures that collects patents and makes money charging licensing fees. Bill Gates is invested in the group and helping with its research.

Intellectual Ventures' rise contributed to the debate over reforming the U.S. patent system and raised questions about how much the system encourages innovation vs. enriching license holders.

But Postman said Allen's situation with Interval is different, partly because Interval was formed to be a research organization developing new technologies for the "wired world" Allen envisioned. Postman also denied that Allen is enforcing his patents at the suggestion of Myhrvold or others.

"Ever since Interval was operating he's known there was value in those patents," Postman said. "That's why he was able to sell some, spin some off and license others. It is not at all a case of someone influencing him to do this. This was driven by Paul's interest in protecting his interest in innovation."

Facebook, at least, is going to fight back hard. The company's statement, provided by spokesman Andrew Noyes:

"We believe this suit is completely without merit and we will fight it vigorously."

A spokeswoman for eBay provided a similar statement, saying "we are reviewing the complaint filed today. We intend to defend ourselves vigorously."

An Office Depot spokesman said the company doesn't comment on pending litigation. AOL also declined to comment.

Google's statement said, "This lawsuit against some of America's most innovative companies reflects an unfortunate trend of people trying to compete in the courtroom instead of the marketplace. Innovation -- not litigation -- is the way to bring to market the kinds of products and services that benefit millions of people around the world."

Microsoft is not named in the suit. The company has not obtained licenses to use the technology, according to Postman.

Postman declined to say why the lawsuit went after particular companies, but said more companies could be pursued later.

"The companies that were named today all were informed of the patents that we hold," he said.

The patents at issue involve navigating with a browser for information, capturing a computer user's attention and alerting users to information. They were filed starting in 1996 but some weren't approved until as late as 2004.

Specifically, the patents cover:

-- "Browser for Use in Navigating a Body of Information, With Particular Application to Browsing Information Represented By Audiovisual Data."

-- "Attention Manager for Occupying the Peripheral Attention of a Person in the Vicinity of a Display Device."

-- "Alerting Users to Items of Current Interest."

The lawsuit, filed in federal court in Seattle, also mentions that Interval was an early supporter of Google's founders.

For example, Interval Research served as an outside collaborator to and provided research funding for Sergey Brin and Lawrence Page's research that resulted in Google. Indeed, a Google screenshot dated September 27, 1998 entitled "About Google!" identifies Interval Research in the "Credits" section as one of two "Outside Collaborators" and one of four sources of "Research Funding" for Google. See Sept. 27, 1998 Website "About Google!" attached as Exhibit 1.

A judge today rejected Paul Allen's move to block payments that two former investment managers were to receive under a profit-sharing deal.

A spokesman for Allen immediately said there will be an appeal.

Allen's Vulcan holding company has tried for more than a year to block the payment of more than $20 million to David Capobianco and Navin Thukkaram, managers who were fired in October 2008.

An arbitration panel sided with the former employees, starting with an initial decision last July.

On March 8, Vulcan appealed, arguing that Allen was denied a fair process because one of the arbitrators contacted the employees' attorneys before the arbitration began.

Today, King County Superior Court Judge Paris Kallas denied that appeal and upheld the arbitration decision in favor of the employees. The ruling denied Vulcan's motion to vacate the arbitration awards and granted the employees' motion to confirm the award.

Kallas wrote that "there is no evidence before the court of inappropriate conduct during the pre-appointment contact." She said the contact was justified considering the complexity, dollars involved and high profile of the case.

Capobianco, a former co-founder and co-head of Vulcan Capital's private equity team, said in a statement via a spokesman that he and Thukkaram are "relieved and very happy with the court's ruling."

"We are extremely proud of the more than $1.5 billion in profits we made for Vulcan and Mr. Allen," he said. "With this chapter now behind us, we look forward to employing our successful strategies for new investors and enterprises."

Allen spokesman David Postman said Vulcan will now take its case to the state Court of Appeals. Vulcan considers the questions it raised about conduct during arbitration to be unanswered.

"There's a lot of that we still don't know about this," Postman said. "We're disappointed obviously that the judge didn't see it this way. From the start the attorneys were saying this could be the outcome at Superior Court and we would have to get a panel of judges. We hope that a panel of judges at the Court of Appeals will uphold what we believe are important standards in alternative dispute that were transgressed in this case."

The dispute involves profit made in Vulcan's investment in an energy company, Plains All American. A lawyer for Capobianco and Thukkaram said Allen made $1 billion on the venture and then dismissed the entire investment staff before they received their full share, cutting off their profit-sharing plan.

Vulcan argued that the two managers weren't eligible for the last 20 percent of their share because there hadn't been an exit event at the time they left. But the panel of three arbitrators unanimously granted the award.

Vulcan challenged the panel's decision, contending the process was compromised because the arbitrator chosen by the claimants had met with them in late 2008, before being named to the panel. In today's decision, Judge Kallas rejected that claim.

It's a big day for Seattle-based Evri. The Paul Allen-funded "semantic Web" media company relaunched today with new visual features, and it acquired San Francisco-based Radar Networks.

Evri was especially interested in Radar's Twine.com, another semantic Web company with more social and sharing features that complement Evri, which automatically compiles streams of Web material related to a broad set of topics. Media companies have added Evri's widget to their sites, where it presents links to related information about a story.

Twine's 10 employees will move into Evri's San Francisco offices. Terms of the deal weren't disclosed. A spokesman said Evri, which has about 30 employees, isn't planning to move its headquarters to San Francisco.

Evri Chief Executive Will Hunsinger's comment in the release:

"Evri's and Radar Network's combined talent and complementary technologies bring the industry closer to delivering on the promise of a truly intelligent, timely and intuitive way of finding the news and content that matters most to people. With this acquisition, Evri takes a significant leap forward toward delivering on the consumer promise of semantic search technologies - more meaningful, relevant results filtered from the ever-growing and increasingly cluttered fire hose of content on the web."

Radar Chief Executive Nova Spivack will remain with the company in an advisory role.

Microsoft co-founder Paul Allen is not only fighting cancer and the struggles of his biggest investment, Charter Communications, but he's also sparring with two former investment managers over their compensation.

Allen on Monday filed legal motions in King County Superior Court to dismiss an arbitration award granting at least $20 million to two investment managers he fired in October 2008.

David Capobianco and Navin Thukkarm were managers in the private equity group of Allen's Vulcan holding company.

Their compensation included a percentage of the profit they generated for Vulcan, which was paid out over time. A final 20 percent of the payout came when investments had an exit, such as a sale.

At issue in the case is their share of the profit made from Vulcan's investment in energy company Plains All American. Their lawyer said Allen made $1 billion on the venture and then dismissed the entire investment staff before they received their full share, cutting off their profit-sharing plan.

Vulcan is arguing, in part, that the two managers weren't eligible for the last 20 percent of their share because there hadn't been an exit at the time they left. But a panel of three arbitrators unanimously granted the award, starting with an initial decision last July.

Vulcan is challenging the panel's decision, arguing that the process was compromised because the arbitrator chosen by the claimants had met with them in late 2008, before being named to the panel.

"It's really inexplicable how those sorts of contacts with the claimants were not reported," Vulcan spokesman Dave Postman said.

The arbitrator in question, Art Harrigan, is a prominent Seattle lawyer who represented Craig McCaw in the formation of Nextel Partners, the Port of Seattle in airport noise battles, and King County when it sued to block the Seahawks from moving to California (before the team was owned by Allen).

Harrigan couldn't be reached for comment, but Richard Yarmuth, the lawyer for Capobianco and Thukkarm, said nothing untoward happened.

Vulcan's lawyers already tried and failed in making the same argument to an arbitration judge, Terry Lukens, Yarmuth said.

"Sometimes people don't accept losing very graciously," he said.

Lukens decided in January that Allen's motion to disqualify Harrigan "is based on an unproven supposition that something untoward must have happened during the pre-selection meetings with candidate Harrigan. There are no facts presented to support this supposition."

Lukens conclusion: "There is no evidence of bias or improper influence in the final, unanimous Award."

In Monday's filings, Vulcan's lawyers are asking the Superior Court to overrule Lukens and dismiss the award, arguing that their side was denied a fair process.

Yarmuth simultaneously filed a motion Monday asking the court to uphold the award, saying the arbitration panel concluded that Vulcan breached its profit-sharing agreement with the employees.

Vulcan's side is also challenging the arbitrators' decision that Vulcan improperly changed its compensation plan by firing the investment group staff and rehiring four of them.

It contends the employees were at-will workers who could be fired.

(Note: This post is updated to include the content of the story that ran in print)

Bellevue enterprise business-intelligence company Atigeo announced a few notable hires today, including Microsoft Windows VP Jawad Khaki, who is now Atigeo's chief technology officer and executive vice president of engineering.

The comapny also hired Nathaniel "Buster" Brown as its chief financial officer. Brown was previously CFO for Vulcan, Paul Allen's Seattle-based holding company.

Khaki, who worked on the Windows team since Windows 95 and most recently led its hardware ecosystem group, left Microsoft last summer. Here's his Microsoft press photo:

Bellevue game startup Smith & Tinker is laying off about 30 percent of its employees barely a month after stores began selling a handheld player for "Nanovor," its sci-fi trading card game aimed at preteen boys.

The company now employs about 40 people after laying off 10 to 15, according to Joe Lawandus, president and co-founder.

"Largely it was right-sizing the organization as we've gotten the game out,'' he said, explaining that the company's trying to "maintain as much of our cash as possible."

The company is still hiring for a few different positions on its development team. It's now working on improving the game, versions for the iPhone and iPod Touch and additional games on the platform, which blends online and offline play.

"We're still full steam ahead," he said.

The two-year-old company started initially by former Xbox creative director Jordan Weisman has $29 million in funding from Paul Allen and other investors.

A spokeswoman provided the following statement:

Smith & Tinker can confirm that unfortunately company layoffs were conducted this week. As many startups do, we staffed aggressively early on to meet deadlines for launching our product online and at retail this year. These layoffs are needed to bring our organization to a healthy operational size for the remainder of this year and 2010. Nanovor has been recognized by FunFare and Dr. Toy as a hot toy for 2009 and has seen strong consumer adoption to date; the company continues to receive solid support from our board. Employees leaving the company will receive severance packages.

Recently there's been discounting of the Nanovor device. It was originally going to sell for $50 but it's been available lately for $39.

The layoffs were initially reported by VentureBeat.

You can't say "some people have all the luck" when you see Paul Allen's mansion on the shore of Mercer Island, his airplanes, superyachts and vast land holdings in Seattle.

The son of a Seattle librarian became one of the richest people in the world when he and childhood pal Bill Gates struck it rich after starting Microsoft in 1975.

But today Allen's sister disclosed that he's been diagnosed with non-Hodgkin's lymphoma, a cancer similar to the one he battled 25 years ago, a life-changing experience that prompted him to retire early from Microsoft.

The cancer follows a tough bout with heart disease that sidelined Allen, 56, earlier this year and led to a heart valve replacement. Details were largely secret until he confided in an Oregonian sports columnist who had seen Allen accompanied by a doctor to Blazers games.

"I'm fine, finally," Allen told John Canzano in September. "I'm much, much better. I hit a few bumps in the road."

Now he's hit another bump.

Allen's sister, Jody Allen, notified employees of his Seattle holding company that the cancer returned earlier this month.

"He received the diagnosis early this month and has begun chemotherapy. Doctors say he has diffuse large B-cell lymphoma, a relatively common form of lymphoma," she said in the e-mail, which was disclosed by Allen's spokesman.

"This is tough news for Paul and the family. But for those who know Paul's story, you know he beat Hodgkin's a little more than 25 years ago and he is optimistic he can beat this, too," she wrote.

"Paul is feeling OK and remains upbeat. He continues to work and he has no plans to change his role at Vulcan. His health comes first, though, and we'll be sure that nothing intrudes on that."

Allen and Patton were not available for interviews. Their spokesman, David Postman, said Allen's still active at Vulcan.

"He remains just as involved as always," he said.

Gates issued a statement of support.

"Melinda and I have Paul and his family in our thoughts and prayers," he said. "Paul is among my closest friends, and I know to him be a strong and resilient individual."

Lymphoma is a cancer that starts in cells called lymphocytes in the body's immune system, according to the American Cancer Society.

Non-Hodgkin's "is a fast growing lymphoma, but it often responds well to treatment with chemotherapy," the society's Web site says. "Overall, about 3 out of 4 people will have no signs of disease after initial treatment, and about half of all people with this lymphoma are cured with therapy."

Risk factors include a weakened immune system, which can result from drugs taken during a transplant procedure.

Allen's also been under considerable stress over the past year as his biggest investment, St. Louis-based Charter Communications, filed for bankruptcy with $21.7 billion in debt.

Maybe Digeo's Moxi DVR has a chance after all.

The Kirkland company on Tuesday is cutting the price of its high-end digital video recorder from $799 to $499 and adding a new model with three tuners.

A price cut was desperately needed for Moxi more competitive with TiVo and Windows Media Center PCs, but it only happened after Microsoft co-founder Paul Allen sold assets of the struggling company to industry giant Arris in September.

The dual-tuner model's cost is now less than most Media Center PCs and comparable to the cost of a $300 high-def TiVo when the TiVo's monthly fees are factored in (Moxi and Media Centers don't have a service fee).

The three-tuner model will cost $799, including one "Moxi Mate" device that streams content from the DVR to additional TVs in the home. Mates are now $299 instead of $499, and a software upgrade is enabling them to stream live video as well as recorded content.

Additionally, the company announced a new bundle with a three-tuner Moxi DVR and two Mates for $999.

Moxi systems are intended for cable subscribers with digital service. They use CableCard tuner devices, which are provided by cable companies in lieu of set-top boxes.

Mercer Island billionaire Paul Allen is asking for federal bankruptcy protection as he liquidates the remains of Digeo, a Kirkland set-top box company that was mostly sold off this fall.

Allen filed for Chapter 11 protection Monday for a holding company that encompasses the remains of Digeo. It has assets of less than $50,000 and debts of $10 million to $50 million, according to the filing.

Among the nine unsecured creditors include Comcast - owed $632.42 - and Datec Inc., a Tukwila IT vendor owed $48,206.27.

A spokesman for Allen said the filing does not indicate the Microsoft co-founder is in financial straits and unable to pay the debts of his startup.

"No, not at all, it's not about Paul's personal wealth,'' said David Postman, spokesman for Allen's investment company, Vulcan.

"That is the prudent forum for winding down a remaining business," Postman said. "That's not unusual and it's the method to do that, to take the last piece of this company and liquidate."

Allen sold Digeo's key assets - including its brands and technology for its "Moxi" advanced set-top box systems - in September to Arris, a Suwanee, Ga.-based company that's a major player in the cable hardware business.

Arris paid $20 million for the assets. Allen had invested more than $110 million in Digeo since it was started in 1999.

Digeo had reorganized several times before Allen, his sister and others on the Digeo board decided last spring that it was time to sell or find a strategic partner for the company.

That was around the time Allen's biggest investment, St Louis-based cable company Charter Communications, filed for bankruptcy with $21.7 billion in debt.

The sale of Digeo to cable hardware provider Arris looks like a mixed bag for everyone except perhaps cable customers.

Paul Allen is taking a big loss selling the company for $20 million, after investing more than $110 million in Digeo since he started it in 1999.

Arris investors saw their stock fall 8.5 percent to $12.53 today on the news. Apparently they're not as enthused as Arris management about the Suwanee, Ga., company adding Digeo's set-top box technology to its portfolio of broadband modems and technology widely used in cable company networks.

There are also the approximately 10 employees -- including Chief Executive Greg Gudorf, a former Sony TV executive -- who are losing their jobs (we broke the layoff news here).

About 245 other people lost jobs as Digeo shrank from a high of about 320 employees in 2002 -- when Allen acquired Silicon Valley startup Moxi and merged it with Digeo -- to its current 75 positions.

Winners may turn out to be cable customers, who are now more likely to get Digeo's excellent Moxi software on their set-top boxes. The software includes a slick program guide and interface for Moxi-brand set-top boxes that function as both digital video recorders and gateways for digital content coming into a home via broadband.

Moxi is designed for cable subscribers, who connect the boxes via cable cards. It's a nice alternative to high-def cable boxes, especially since there's no rental fee.

The downside to Moxi has been the price -- $799 for the box, plus $399 for smaller units to wirelessly connect additional TVs. There's also a $999 bundle that includes one box and one extender, and the stuff is sold only via Moxi.com and Amazon.com. Below are the box and a screenshot of the Moxi interface from January.

But Arris has more leverage with component manufacturers, because of its scale, so should be able to quickly bring down the retail price of Moxi gear.

"I think they'll be able to bring the price down,'' said Gudorf, who is staying with the company until after the sale closes in October.

Gudorf wouldn't talk about the haircut Allen took on Digeo, but he did clarify the timeline of the Kirkland company's recent transformations and sale.

The big shifts began in late 2007 when Digeo began restructuring, leading to a move in January 2008 to cut its hardware and chip development efforts and focus on building (higher margin) software for industry-standard hardware.

That shift cut employment in half, to about 90 people, who were able to finally release a new version of the Moxi box for cable companies in late 2008 and a retail version in January 2009. Last month, the company released the extender device, and additional features are expected to be released later this year, Gudorf said.

Meanwhile Digeo's board -- which includes Gudorf, Allen and Allen's sister, Jody Patton -- met last spring and decided it was time to sell or find a strategic partner to get the software into more homes, Gudorf said.

This also came amid Allen's growing troubles with Charter, the bankrupt cable company in which he invested $8 billion as the centerpiece of his vision for a "wired world" of broadband services, a vision that also included Digeo.

The board's decision eventually led to the deal with Arris announced Tuesday afternoon.

Ever wonder which billionaire lives in which mansion, as you cruise around Lake Washington?

Mercer Islander David Dykstra wondered so much he published a book last month mapping more than 100 lakefront mansions, describing their owners and presenting photos of the homes taken from the water.

Many of the places featured in "Lake Washington: 130 Homes" are owned by tech veterans, including, of course, Bill Gates, Paul Allen and Charles Simonyi.

I asked Dykstra if he'd had any blowback from the property owners.

"So far the blowback has been those who did not make the cut and were not in it!" he replied via e-mail.

Bellevue toy and game startup Smith & Tinker is disclosing its venture funding today: a cool $29 million from a batch of big name tech and game investors.

They include Paul Allen's Vulcan Capital, Alsop Louie Partners, Foundry Group, Leo Capital Holdings and DCM, which led the round.

Alsop Louie provided the seed investment. Founding partner Gilman Louie is a former Wizards of the Coast board member and chairman of game company Spectrum Holobyte. He helped Smith & Tinker founder Jordan Weisman - a former Microsoft creative director - brainstorm ideas for the business that launched in 2007.

"It became evident very early on that the type of connected play pattern we wanted to create simply wasn't viable at any existing company," Louie said in the news release. "So we set out with Jordan and co-founder Joe Lawandus to create it ourselves."

Smith & Tinker disclosed plans for its Nanovor online-offline trading game a few weeks ago but it wasn't ready to talk about its money situation until today. It closed on the venture round in July and will begin selling handheld game players in October.

Evri's getting a new chief executive, the Paul Allen-backed Web media startup announced in a press release today.

Neil Roseman is being replaced by Will Hunsiger, an entrepreneur-in-residence at venture firm Maveron and former chief executive of ad venture Adeze.

Roseman, a former Amazon.com exec who joined Evri in 2007, "will remain actively involved with the company's advisory board and will be working closely with Vulcan Capital as an entrepreneur-in-residence where he plans to pursue new early-stage consumer Web opportunities," the release said.

Billionaire Paul Allen has changed investment managers, his holding company, Vulcan, announced today.

Chris Temple, vice president of Vulcan Capital, is now president "responsible for overall management of Vulcan Capital's investment activities, which include direct investing in public and private securities as well as indirect investments in traditional and alternative asset classes,'' the release said.

Lance Conn, the former president, is stepping down after five years with Vulcan and moving to be closer to family in California.

Allen's spokesman said the changes have nothing to do with the $21 billion bankruptcy of Allen's biggest investment, Charter Communications. He noted that Conn will continue to serve on Charter's board.

Conn had been planning for some time to relocate and it was his decision to leave, spokesman David Postman said.

Temple joined Vulcan last September. He was formerly managing director of Tailwind Capital, a New York-based private equity firm.

Here's Allen's quote in the press release:

"I am very pleased with Chris' appointment as president of Vulcan Capital. Chris is an exceptional talent and has proven a valuable member of our team since joining us last summer. I appreciate Lance's significant contributions to Vulcan and respect his desire to relocate with his family and step back from his current role."

The Crescent City is fascinated by a ginormous yacht that Paul Allen docked at a downtown slip usually filled by cruise ships, according to a fun story in The New Orleans Times-Picayune.

Allen's 301-foot "Tatoosh" -- complete with helicopter -- parked Sunday near the Riverwalk shopping center where it's expected to remain for a few weeks, the article said.

The Mercer Island billionaire didn't comment, but the paper noted that he's a frequent visitor to the New Orleans Jazz and Heritage Festival that begins Friday. Or maybe he just wanted a beignet.

An except from the story, which has a great online photo gallery:

Steven Bowen, who works at the New Orleans Visitors Center in the Riverwalk mall, has made himself something of an expert, not only on swamp tours and streetcars, but also on the Tatoosh.

He dutifully recites statistics about the craft for the many mall patrons who inquire.

"It's unusual for a private yacht to dock here, " he said. "Usually, you just have the Carnival Fantasy dock here, or a Norwegian cruise ship."

Imagine what they'd think if Allen brought his big yacht to town.

His 414-foot "Octopus" was last spotted in Puerto Rico in early March, according to yachtspotter.com.