[A2k] Financial Times: Dispute on patent adds to Toyota's problems

Tue Feb 16 03:00:09 2010

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The Texas court that found in Paice's favour in 2005 ordered Toyota to
pay a $25 royalty per vehicle on sales of the Prius, as well as its
Highlander and Lexus RX400h sport utility vehicles. The court raised
the royalty to $98 last year, noting that "as a result of using
Paice's technology, Toyota has been able to capture about 80 per cent
of new hybrid customers". The judge added: "The fact that Toyota is an
adjudged infringer who chooses to continue infringing simply cannot be
ignored."

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http://www.ft.com/cms/s/0/8c483bb8-1519-11df-ad58-00144feab49a.html

Dispute on patent adds to Toyota's problems

By Bernard Simon in Toronto

Published: February 9 2010 02:00 | Last updated: February 9 2010 02:00

As if Toyota did not have enough on its plate with a series of
damaging recalls, the Japanese carmaker is embroiled in a long-running
patent-infringement dispute in the US involving a key part of the
technology that drives its hybrid petrol-electric vehicles.

The dispute will come to a head on April 19 when the US International
Trade Commission hears an application by Paice, a small Florida
company, to bar the import of Toyota hybrid models built in Japan,
including the popular Prius hatchback.

Eric Lane, a San Diego patent attorney who writes a blog on green
technology patents, says the dispute is "among the most important
green-technology patent cases we've seen so far".

The patent dispute is separate from the quality issues that have
plagued Toyota in recent moths.

The company has recalled millions of vehicles over sticky accelerator
pedals and out of position floor mats that can jam the accelerator. It
is expected to issue another recall within the next day or two
involving software that controls the brakes of 2010 Prius hybrid
hatchbacks, mostly in Japan and the US.

Senior Toyota executives and government officials have been summoned
to appear before the US

oversight and government reform committee on Wednesday to respond to
questions about the safety of Toyota vehicles.

The patent dispute centres on a micro-processor that determines when a
hybrid vehicle's battery or its internal-combustion engine drives the
wheels.

Paice has asked the trade commission to intervene in the hope of
achieving a quicker outcome than another court battle. A 2005 court
ruling, under which Toyota was ordered to pay a sizeable royalty to
Paice, is still under appeal.

Paice claims that Toyota's processor is based on technology patented
by its founder, Alex Severinsky, a Russian scientist who emigrated to
the US in the late 1970s.

Mr Severinsky sought to license the technology to various carmakers,
including Toyota, but the talks came to nothing.

Noting that the patent at the centre of the dispute expires in 2012,
Robert Oswald, Paice's chief executive, says "we're all getting older.
The patent portfolio is wasting and there has to be a faster way of
getting this to a conclusion."

Paice's shareholders include the Baltimore-based Abell Foundation and
the University of Maryland.

Mr Oswald is a former chairman of the US subsidiary of Robert Bosch,
the world's biggest automotive parts supplier

The Texas court that found in Paice's favour in 2005 ordered Toyota to
pay a $25 royalty per vehicle on sales of the Prius, as well as its
Highlander and Lexus RX400h sport utility vehicles. The court raised
the royalty to $98 last year, noting that "as a result of using
Paice's technology, Toyota has been able to capture about 80 per cent
of new hybrid customers". The judge added: "The fact that Toyota is an
adjudged infringer who chooses to continue infringing simply cannot be
ignored."

Pending Toyota's appeal, Mr Oswald said the carmaker had made a
"goodwill payment" to Paice in lieu of posting a bond. He declined to
disclose the amount, but estimated that Toyota would be liable for a
total of about $60m over the remaining life of the patent.

Paice has since begun a second case, trying to enforce its patents on
several new Toyota models, such as the Camry hybrid. Mr Oswald said:
"We see the ITC as a shorter path to get us to a resolution."

Toyota did not reply to a request for comment. The carmaker has
responded to Paice's ITC filing by accusing it of trying to bypass the
courts. Toyota expressed confidence that it "has strong defences
against all of Paice's claims and that it will prevail in the ITC
proceeding".

Under US trade rules, Paice must prove not only that Toyota infringed
its patent, but also that the carmaker's actions have harmed a
domestic industry and are contrary to the public interest.

Mr Lane takes the view that Paice has "pretty much" proved
infringement of its patents in the courts.

Michael Murphy, partner at Coats and Bennett, a North Carolina law
firm that specialises in intellectual property, says Toyota has a
strong case. The carmaker contends that changes in the law since the
first court ruling raise doubts about the continued validity of
Paice's patents.

Mr Murphy notes that a ban on Toyota hybrid imports could arguably do
more damage to a domestic industry - Toyota dealerships, for instance
- than the harm that would be done to Paice if the imports were
allowed to continue.

Even if Paice wins, it is unlikely that Americans will no longer be
able to buy a Prius. Mr Lane describes Paice's ITC application as a
bargaining chip, aimed at giving it extra leverage at the negotiating
table.

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Thiru Balasubramaniam
Geneva Representative
Knowledge Ecology International (KEI)
thiru@keionline.org

Tel: +41 22 791 6727
Mobile: +41 76 508 0997