Nanotech’s David and Goliath tale


As Goliath Ltd. prepares to debut its nanotech-enabled product, the David Co. brandishes its slingshot full of patents

By Richard Acello

Each January, the Consumer Electronics Show in Las Vegas plays host to the latest in high-tech wizardry. This year, SED Inc., a joint venture of Canon Inc. and Toshiba Corp., was said to have its 55-inch television set ready for display. But the SED TV never made it to Vegas.

The IP factor

Toshiba issued a press statement that read, in part, “After many months of planning for CES 2007, it is with deep regret that we inform you that Toshiba is forced to cancel the 55-inch panel exhibition. The reason is neither [a] technical nor [a] business issue but we are not allowed to disclose details due to [a] confidentiality obligation.”

At the same time, Canon found itself involved in legal action with Nano Proprietary Inc., an Austin, Texas-based technology company. Nano Proprietary is not a rival electronics manufacturer, but describes itself as “first and foremost a research and development company.” The company explains, “We have an extensive portfolio of intellectual property that we have developed over the years and our goal is to develop a portfolio of recurring revenue streams by licensing our intellectual property to others.”

The advent of intellectual property (IP) litigation indicates maturity of the nanotech industry, says Jim Peterson, partner at the law firm Jones Day.
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Nano Proprietary has an agreement with Canon to license its technology; the agreement extends to Canon’s subsidiaries, but not, Nano Proprietary contends, to the Canon-Toshiba joint venture SED.

In April 2005, Nano Proprietary filed suit against Canon, and its wholly owned subsidiary Canon USA, in the U.S. District Court for the Western District of Texas, seeking a declaratory judgment that SED’s products were not covered by Nano Proprietary’s licensing agreement with Canon. “We allege that SED Inc. is not covered under a license we gave to Canon in 1999, a license that extended to Canon subsidiaries, but prohibited Canon from sub-licensing the patents to others,” says Tom Gilbertsen, a partner with New York firm Kelley, Drye and Warren. SED Inc., says Gilbertsen, is not covered under the 1999 license and Canon breached the license contract by sublicensing SED Inc., entitling Nano Proprietary to damages that may range into the hundreds of millions of dollars.

In November 2006, an Austin District Court judge denied Canon’s motion for summary judgment in the case. Canon argued that SED was a subsidiary of Canon, but Judge Sam Sparks disagreed. “To put it bluntly, Canon’s characterization of SED as a subsidiary simply can’t pass the smell test,” Sparks wrote. “Canon has bargained away its voting rights in SED. Dead fish don’t swim, dead dogs don’t hunt, and Canon’s dead voting rights don’t give it a majority of the shares entitled to vote in SED. This court declines to recognize a corporate fiction designed for the sole purpose of evading Canon’s contractual obligations.”

Patton Lochridge of the Austin firm of McGinnis, Lochridge and Kilgore, who responded in court to the Nano Proprietary complaint on behalf of Canon, referred questions about the case to New York attorney Nicholas Cannella of Fitzpatrick, Cella, Harper and Scinto, who did not return calls about the matter.

Gilbertsen said the case was headed to trial, but in the meantime, Nano Proprietary was open to a settlement. “We’ve had dialogue with them, so Canon knows what we want them to do,” he said. “We’re open to Canon and Toshiba obtaining a license with us.”

Then on January 12, Toshiba said it had reached an agreement to have Canon purchase from Toshiba all of its outstanding shares in SED, so that SED would become a wholly owned subsidiary of Canon.

Another battlefield

Nano Proprietary is not the only nanotech “David” to trot out its IP portfolio before a well-known manufacturer. In December 2006, DA Nanomaterials, a Tempe, Ariz.-based joint venture of chemical giant DuPont and Lehigh Valley-based Air Products, went to court in Arizona federal district court against Cabot Microelectronics, based in Aurora, Ill. DA Nanomaterials sought a judgment that it is not infringing on Cabot’s intellectual property.

Cabot says DA Nanomaterials is infringing the process Cabot uses to make and sell slurry polishing and pad products used in the manufacture of semiconductor chips. The chips go into electronics products from cell phones to servers.

Unlike Nano Proprietary, Cabot is a manufacturer of the products in dispute and does not necessarily want to negotiate a license with DA Nanomaterials. In fact, Cabot says the suit results from Cabot’s refusal to grant DA Nanomaterials a license to the disputed technology. “We don’t think it’s appropriate to ask or demand that they be given a license,” said H. Carol Bernstein, Cabot’s general counsel.

In June 2006, Cabot was successful in an action before the U.S. International Trade Commission against Korea-based Chiel Industries involving some of the same technology at issue in the DA Nanomaterials case, said Bernstein.

Natural progression

What the Nano Proprietary and Cabot cases have in common is the willingness of companies with extensive nanotech portfolios to assess their intellectual property rights as nanotechnology products move from drawing boards to reality.

“Nanotech intellectual property exists in thousands of patents that have been out there for a while,” says Jim Peterson who heads up the nanotechnology practice at the Bay Area law firm Jones Day. “It’s an indication of the maturation of the nanotech industry.”

Peterson says the trend of IP-rich firms using their portfolios to win licensing agreements is reminiscent of what happened in the development of biotechnology. “First comes the innovation, then comes the ‘so what’ component, or how you go from innovation to something that is useful, and that involves wrapping your arms around it and creating intellectual property, so you have something to license,” he adds.

Companies with extensive IP portfolios will set out to try and license their technologies, and while legal action may be part of the scenario, their main goal will be to get paid for their IP.

“You’ll see people trying to license their technology to larger companies, set out to be licensing companies, and developing strategies toward that,” Peterson says. “But I think litigation is an expensive proposition, and the substance behind it is the licensing because nobody makes money on litigation except the lawyers.”

Editor’s note: As this issue was going to press, Judge Samuel Sparks ruled in the Canon/Nano Proprietary case, saying that Nano Proprietary has the right to terminate its licensing agreement with Canon, keep its original licensing fee of $5.56 million, and seek damages for material breach of contract.