This week: A Honeywell subsidiary created to assert patents gets stung in East Texas, plus: the Electronic Frontier Foundation knocks out another of its "most wanted" patents, but its "patent busting project" is mighty slow going.
Small Firm’s Sweet Win Over Honeywell
The phenomenon of "mutually assured destruction" generally creates a sharp check on the extent of patent battles between operating companies. In high-technology fields especially, companies possess—or can quickly acquire—some type of patent that would read on their competitors. So if they get sued, they can sue back to gain leverage.
But the rise of the patent-holding company has changed that calculus. Noting how effective a streamlined patent-enforcement operation can be, some corporations are creating licensing arms to enforce their patents against rivals or, in some cases, against companies that operate in industries they’ve left behind. One example is General Electric, whose licensing unit has filed at least three patent lawsuits three times since 2006. (Other companies do this without a separate licensing arm, a la Encyclopedia Brittanica.)
Honeywell International Inc. also employs this strategy. It sued eight LCD-panel manufacturers in 2006, alleging that the companies infringe its 5,041,823 patent, which covers a method of reducing flicker on such displays. The defendants argued that the patent, which Honeywell applied for in 1991, covers an older type of LCD technology not used anymore.
Seven of the eight defendants settled over the course of the litigation. The only one to hang on: a relatively small Taiwanese company called Novatek. And Novatek’s gambit paid off earlier this month when it won summary judgment of non-infringement in the case.
The most interesting facet of the case is Honeywell’s decision to embrace a business model that has been complained about loudly in some corners of corporate America. The New Jersey-based company created a licensing operation, Honeywell Intellectual Property International (HIPI), to monetize its IP. The Arizona-based subsidiary is kept quite separate from Honeywell’s operating divisions.
"They're trying to have their cake and eat it too," says Ted Herhold, a Townsend and Townsend and Crew partner and the lead defense attorney for Novatek. "They want to be large well-respected corporate citizen, and at the same time, they're acting like the patent troll holding up corporate America. They're on both sides of the toll bridge."
Herhold says that during the litigation he interacted only with HIPI representatives and their lawyers. HIPI, which is appealing, did not return calls seeking comment.
Honeywell, Herhold says, first approached Novatek in 2004, but after initial licensing discussions, the larger company backed off. Novatek was surprised when Honeywell filed suit in the Eastern District of Texas in 2006, says Herhold. It was the first major patent claim the company had ever faced.
"Being a Taiwanese semiconductor manufacturer up against an American household name, in Texas, was very disconcerting to them," Herhold says. Nonetheless, Novatek opted to fight. "They just felt mistreated by Honeywell," says Herhold, adding that Honeywell was demanded between $15-20 million in licensing fees. The other companies' settlements are confidential, and Herhold will say only that the amounts were "substantial."
The settling parties were Quanta Display, Renesas Technology, Denmos Technology, Chunghwa Picture Tubes Ltd., Benq USA, Acer America, and AU Optronics. The case is Honeywell International Inc et al. v. Acer America Corporation et al., 07-cv-00125 E.D. Texas (Tyler). Honeywell has two other pending lawsuits against dozens of panel display manufacturers alleging infringement of another LCD patent, No. 5,280,371.
EFF Patent Bust a Slow Train Coming
The Electronic Frontier Foundation has won another victory against one of ten patents it has targeted for PTO reexamination for committing "crimes against the public domain." The patent, owned by a company called Ideaflood but now transferred to another holding company called Hoshiko, covered a system for creating personally named subdomains. (The TPA blog, at thepriorart.typepad.com, like all TypePad blogs, would be a good example of an infringer.)
"It's an easy example to show why the system is kind of broken," says EFF's legal director, Cindy Cohn. "The prior art we relied on is in open source forums. This was a very obvious kind of thing."
But while this is a success story for EFF, which was assisted in this case by Klarquist Sparkman partner Richard McLeod, it also demonstrates how PTO reexamination proceedings are at best a limited tool for pushing back against patents. Patents like the one targeted in this instance, 6,687,746, cost around $15,000 to acquire, according to 2007 statistics from the American Intellectual Property Law Association. By comparison, a reexam can cost hundreds of thousands of dollars—and that's a bargain compared with litigation.
EFF’s victory comes some five years after Ideaflood first asserted the patent in the marketplace. Initially, the company merely threatened to sue. At the time, technology news services ran skeptical stories about the company’s claims.
Ideaflood went on to file suit against Google and a few other companies that year, but mysteriously dropped its claims several months after filing suit. While Ideaflood may have seemed a dangerous target when EFF created the project in 2004, there is no public record shows any assertions for at least three years—about the time the patent was transferred to Hoshiko. The entire EFF list looks dated at this point, and given its slow rate of success, you can see why nobody's in a hurry to create a new list—although PubPat is one public interest group that has continued to identify and challenge patents in reexam.
Still, Cohn believes that picking off the most egregious patents "helps the broader cause" of patent reform. So far, the PTO has granted reexaminations for six of the ten "most wanted" patents. Two—including Ideaflood’s—have been "busted," meaning all their claims have been canceled. A couple of the “most wanted” patents, such as the Firepond patent (yes, that Firepond),and one owned by Acacia Research, have corporate defendants fighting them hard, so there's less need for action by a public interest group.
Speaking of the broader cause, EFF will also be working with other groups to file an amicus brief in the landmark Bilski case now pending before the Supreme Court.
Hoshiko may not be using its patent, but it did hire lawyers to contest the reexam, and can appeal this ruling. But Cohn believes they don't have much of a shot. "There was a lot of prior art on it,” she says. “The road doesn't look good for them."
Photo: flickr / mariusm