Patent Litigation Weekly: At Injunction Time, Ricoh Gets the Troll Treatment

This week: Japanese office equipment manufacturer Ricoh tried to cash in on patent litigation in a market in which it no longer competes—and succeeded. But when it sought an injunction, the company didn't make out any better than your run-of-the-mill patent troll. 

Last November, Japan-based Ricoh Company and Taiwan's Quanta Computer faced off in a federal courtroom in Madison, Wisconsin. At issue was Ricoh's claim that Quanta optical drives infringed two Ricoh patents, Nos. 6,661,755 and 5,063,552. The jury ultimately agreed, and awarded Ricoh $14.5 million in damages.

Ricoh's lawyers, from Washington, D.C.-based Kellogg, Huber, Hansen, Todd, Evans & Figel, moved swiftly to claim to what they believed should be their real reward: an injunction shutting down Quanta's optical drive business until the Taiwanese company—which assembles disk drives for Sony, Apple, Hewlett-Packard, and Dell—agreed to license the Ricoh patents. And Ricoh's lawyers made it clear in court documents that a license was not going to come cheap.

On April 19, though, Judge Barbara Crabb of the Western District of Wisconsin issued an order sharply denying Ricoh's injunction request, and ordering the companies to negotiate an ongoing royalty payment instead. (The Prior Art was alerted to this decision by Docket Navigator.) Crabb wrote that because Ricoh hasn't produced its own optical drives since 2004, it should be treated like a patent-holding company when it comes time to assess the relief the company deserves.

Crabb's opinion shows how the U.S. Supreme Court's 2006 eBay v. MercExchange decision is affecting operating companies as well as holding companies, or "patent trolls." The Court's unanimous decision in that case has already made it virtually impossible for the trolls—holding companies whose only business is licensing and litigating patents—to secure court injunctions that can effectively kill product lines. Without that hammer, the holding companies (also known as "non-practicing entities") haven't been able to extract the kind of massive payoffs they once enjoyed, like the $612 million settlement won by patent-holding company NTP. (Although it looks like the International Trade Commission is doing its best to give the holding companies a second bite at that lucrative apple.)

But no one could consider Ricoh a "troll." It's an electronic goods manufacturer that employs 100,000 people worldwide, including 40,000 in the United States, where it's best known for its photocopiers. Ricoh also sells printers and digital cameras, and has annual revenue of about $20 billion.

In their request for injunctive relief, Ricoh's lawyers argued that the $14.5 million jury award was hardly sufficient compensation for Quanta's infringement. The patents at issue, the lawyers maintained,  were "crown jewels."

"If disc drive manufacturers are allowed to cherry-pick and use the most well-known and used patents in Ricoh’s portfolio—and forced, at most, to pay a compulsory royalty on those individual patents—then it would become much more difficult for Ricoh to license the rest of its portfolio," the company's lawyers wrote. And even though Ricoh no longer uses those patents in products, its lawyers pointed out that under post-eBay law, non-practicing entities can still theoretically get injunctions, though the lawyers failed to cite a single NPE that has actually won and enforced an injunction. (They also pointed out that Ricoh has spent more than $6 million litigating against Quanta.)

Judge Crabb was unmoved by Ricoh's arguments. "Plaintiff is not a researcher or a self-made inventor," she wrote, in a reference to the main eBay v. MercExchange opinion. "Rather, plaintiff may be more akin to an entity that four Justices concluded in their concurrence generally is not entitled to a permanent injunction." And then Crabb quoted that concurring option, which was authored by Justice Anthony Kennedy and signed by three other justices—Stephen Breyer, David Souter, and John Paul Stevens—who have shown skepticism toward wide-ranging patent rights:

"An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent... legal damages may well be sufficient to compensate for the infringement and an injunction may not serve the public interest."

Crabb went on to note that Ricoh has more or less struck deals with the entire optical drive industry, showing that they don't have a problem exchanging their patent rights for cash, rather than competitive advantage. She was equally unimpressed by Ricoh's argument that an injunction would serve the public interest, and wrote: "Plaintiff has not shown that an injunction would serve any purpose other than to increase its leverage in negotiations for a higher licensing fee." Instead, she ordered Ricoh to submit a motion asking for an ongoing royalty if it's unable to negotiate a deal with Quanta before May 14.

Judge Crabb also denied Quanta's motions for a re-trial and for judgment as a matter of law. Quanta has filed a notice that it will appeal the case to the U.S. Court of Appeals for the Federal Circuit. Read Judge Crabb's order [PDF].

That Ricoh failed to win an injunction is unusual. Even in the post-eBay environment, operating companies often win injunctions. A study published at IP Today (subscription required) in November that analyzed 67 post-eBay injunction decisions shows that on the whole, injunctions were granted in nearly three out every four cases. In each one—with the exception of the East Texas CSIRO decision—the patent-holder was a competitor, at least indirectly. 

Reading transcripts of the Ricoh v. Quanta dispute, one is struck by how strange the world of modern patent litigation is. Two large Asian companies face off in Madison, Wisconsin, of all places—and put the future of a company's product line in the hands of a jury that includes a receptionist, a preschool cook, a former dairy farmer, a guy who makes race cars for a living, and a barista.

As for those Asian companies, the way that some of them—specifically, those based in Japan—view patent litigation appears to be evolving. Patent lawyers with Japanese clients say that in the past, those companies generally shied away from initiating litigation. But as their products began to flourish in the U.S. market, they begun to find themselves getting sued in U.S. courts by U.S. companies like Texas Instruments and IBM. Ultimately, the Japanese companies were forced to pay out billions in licensing as a result of that litigation.

Now some Japanese companies are hoping to replicate the strategy that was used against them. After years of losing market share to companies with lower operating costs that are based in Taiwan and Korea, the Japanese have begun to wield their patents and haul their rivals into court for infringement, saying they deserve to get paid for their research and development operations, no matter what.

During the Wisconsin trial, Ricoh executive Masanobu Nishimiya explained to the jury why his company stopped making optical drives in 2004 after making the devices for 20 years: it just wasn't profitable. "I believe that one of the causes had to do with the Korean and Taiwanese manufacturers who were able to enter the marketplace with cheaper drives without the R&D expenses and that resulted in their market prices being very low." How did Nishimiya know these companies had lower R&D expenses? Because, he said, they hadn't filed for as many patents as Ricoh had. Nishimiya also said that by speaking to his counterparts at Korean and Taiwanese competitors, he learned that their labor costs for development work were "probably about one third of Ricoh's expense level." (See Nishimiya's testimony on the decline of Ricoh's optical drive business, Transcript, Volume 1-C, p. 44-51, PDF.)

Photo: flickr / stuartajc

 

Comments

[Gena777]

Perhaps this judgment is actually a boon to NPEs (or so-called patent trolls), because it may be perceived to counterbalance their increasing heft. In my opinion, most NPEs are legitimate organizations that conduct business much like many other corporate entities -- for instance, most clothing retailers do not actually design or manufacture the products that they sell; they simply distribute them at a markup and make a profit. NPEs' activity may be viewed as roughly analogous. But the often-eye-popping settlements and judgments previously awarded to NPEs has caused many people to resent them. However, if fewer injunctions are forthcoming, then this could help create more of a sense of fairness, and NPEs might be viewed as less of a threat. Eventually, I believe that people will become accustomed to NPEs and recognize the validity of their business model. The Ricoh case may ultimately contribute to that result.
http://www.generalpatent.com/media/videos/patent-troll

[Ehud gavron]

Uh no.

NPEs are not "legtimate organizations..." but rather carefully crafted entities that have nothing to lose and everything to gain.

Good luck preaching your pro patent-troll piece. The world has woken up. SCOTUS has noticed. Appeals courts get it too.

You patent trolls are done. Feel free to jump in the grave. You've dug it all for yourselves. Don't worry, lots of us are happy to pile on the dirt.

You're finished, troll. Find your bridge, say goodbye, and jump in the grave.

E

[Chris]

The system works!

[nike dunks]

the often-eye-popping settlements and judgments previously awarded to NPEs has caused many people to resent them.