f you exclude sex and murder, this increasingly complex drama has a plotline that just about covers everything else involved with human avarice including suspect ethics, pride, jealousy, intrigue, conspiracy and betrayal. No it&rsquos not The Sting, but to many in the process and manufacturing industries it&rsquos beginning to feel like one. Actually it&rsquos the continuing saga of a patent infringement dispute over the ubiquitous way most companies manage control automation data.
To recap, in early 2001, Solaia LLC purchased the rights to the now controversial patent known as the &ldquo&rsquo318 patent&rdquo from Schneider Automation. Soon thereafter, it engaged the services of renowned Chicago patent enforcement law firm Niro, Scavone, Haller & Niro, to pursue its claims against users of the technology defined by the patent granted in 1991 to Square D (acquired by Schneider) and employee and inventor Brooke T. Roseman. Formally, it&rsquos Patent 5,038,318 covering the &ldquoDevice for Communicating Real Time Data Between a Programmable Logic Controller and a Program Operating in a Central Controller.&rdquo In a twist that is becoming a hallmark of contemporary, high-stakes patent enforcement litigation, instead of going after companies (at least initially) that make the technology that purportedly infringes on the &rsquo318 patent, namely Rockwell Automation, Siemens Energy & Automation, and GE Fanuc Solaia targeted companies that use computer controlled factory automation systems&mdashwhich just about covers everybody who makes something.
Regardless of the legal arguments of who is right or wrong in the Solaia case, most users of factory and process automation use the technologies covered by the &rsquo318 patent. The stakes are extremely high for vendors, but if Solaia prevails it&rsquos the users who may suffer in the long run.
Click the Download Now button at the end of this story for a pdf verion of the full text of the Summary Judgment Decision in the ArvinMeritor/Solaia Case.
The freedom to choose automation weighted towards technical merit could be the first victim. Users may not venture to purchase a certain technology because it might be vulnerable to a future patent infringement claim, even though its implementation might benefit the organization. As editor in chief Walt Boyes points out in his editorial in "The Death of Innovation?" (CONTROL, Feb. &rsquo04, p9) &ldquoIt is important to remember these cases are about what â¦ users will be permitted to use in hardware, software and networking technologies in the future.&rdquo Price is another aspect, because if suppliers are forced to pay newly minted royalties on firmly established automation technologies they are likely to eventually pass-along the costs to users. Similarly, users paying royalties on technologies they&rsquove banked their entire production line on will also have to pass on or redirect such costs as well. Such intrinsic costs are truly a hidden tax that create a damping effect on the healthy economic dynamics of industry in this country and put further pressure on the U.S. to remain competitive with countries that do not maintain similar legal labyrinths.
Boyes argues that the pace and volume of technological change and innovation has accelerated to the point were the patent office does not have the ability to correctly judge the true technical veracity of emerging technologies and has not served the automation community, nor U.S. commerce well at all by granting such broad patents (see &ldquoTechnocrats Take the â318 Patent to Task&rdquo). Boyes and patent-law pundits point out that far from protecting the IP rights of individuals and companies, overly broad patents actually stifle innovation, technical development and competition.
In the case of the &rsquo318 patent, Schneider ostensibly chose to sell the patent and leave it to Solaia to invest the resources, shoulder the risk (as well as bad PR) and reap the rewards as they pressed their claims of infringement against it. But their involvement didn&rsquot end with a simple sale. Although at the time Schneider was loath to discuss the actual terms of the sale, it was eventually revealed that a percentage of the revenue generated by the &rsquo318 patent&rsquos licenses return to Schneider as part of the patent purchase agreement.
This connection has become quite a source of rancor between Rockwell and Schneider who remain direct and fierce competitors in the automation industry. For one thing, it moves the competition out of the plant and into the courtroom. It also smacks of dirty pool, because rather than exploit technical advantage, better service and efficient business practice to win in the marketplace, it appears Schneider has chosen to exploit legal loopholes and employ legal mercenaries to hammer the competition.
By the summer of 2002 the number of companies being drawn into litigation began to mount. In July of that year Solaia and its law firm filed against 16 more companies that ostensibly use Rockwell's equipment. These included ArvinMeritor (a former Rockwell International company), Boeing, Borg Warner, Callaway Golf, Chevron Texaco, Conoco., Eastman Kodak Co., Eli Lilly, Enbridge, General Dynamics, Gillette, Kellogg, Lexmark, Shell Oil, Sun Chemical and Tyco.
With such a clear threat presenting itself to its customers and its primary market, Rockwell&rsquos next legal move was as brash as it was unusual. In December, 2002 Rockwell filed a lawsuit alleging Solaia, Niro, Scavone, Haller & Niro and Schneider of conspiring to ruin Rockwell&rsquos reputation with its customers (Rockwell Automation, Inc. et al, v. Schneider Automation, Inc. et al,. (02-C-1195, E.D. Wis.). This pending case asserts claims of tortious interference and civil conspiracy, and violations of federal antitrust and unfair competition laws.
What makes it unusual is the fact that it names Solaia&rsquos legal counsel as a defendant in the suit. &ldquoThis is an extremely curious strategy,&rdquo says Thomas J. Donovan technology patent litigation expert and partner in the Chicago office of Barnes & Thornburg LLP. &ldquoIt certainly is a bold move, and I&rsquom sure they considered it very carefully, but it&rsquos risky. Suing the law firm makes it personal between the lawyers. It also, at least so far, seems to be counter productive. I would expect that this move has resulted in legal fees that are very substantial and not at all related to whether the Solaia patent is valid and infringed. Not to mention that judges don&rsquot tend to be fans of this type of litigation between law firms.&rdquo
Responding, Niro, Scavone, Haller & Niro returned the favor and filed a countersuit against Rockwell and its law firms Howrey, Simon, Arnold & White and Fish and Richardson for similar transgressions; essentially accusing Rockwell and its legal representation of inducing companies not to license Solaia&rsquos patent in violation of antitrust law.
A Cozy Arrangement
While it may be a stretch to prove civil conspiracy per se, there is evidence that Solaia and Schneider are acting in concert to generate both a competitive advantage and a profitable return on what industry sources maintain is a very weak and overly broad patent. According to court order 03 L 794 from the Circuit Court of Cook County (dismissing a defamation and libel suit brought by Solaia and Niro, Scavone, Haller & Niro against Start, a manufacturing industry magazine that has reported extensively on the case) &ldquoSolaia purchased the patent (known as the &rsquo318 Patent) from Schneider for $1.00 plus a percentage of any monies recovered through enforcement of the patent.&rdquo Start Magazine&rsquos coverage of the story also offered information from court memoranda that the agreement between Schneider and Solaia details a list of 136 key customers with grant-back non-exclusive licenses.
So, in spite of Schneider&rsquos early attempts to remain aloof regarding their involvement, the terms of the patent&rsquos sale to Solaia, and the relationship between the two does seem to have at least have enough redolence for many across the automation industry and the process and manufacturing landscape to say it stinks.
No Really, It&rsquos the Money
In his Nov. &rsquo04 Wall Street Journal story &ldquoPatent Dispute Embroils Host of Industries,&rdquo Timothy Aeppel reports Ray Niro, Solaia&rsquos attorney as saying the firm has secured more than $24 million in license fees from some 60 U.S. companies. Initially, Solaia&rsquos demand letters asked for 1/2 of 1% of the recipient&rsquos output for two years, and originally capped at $600,000. Industry sources say that figure has now been halved to $300,000. &ldquoConsidering it may cost anywhere from $12 million to sustain a protracted legal defense against an infringement claim,&rdquo says Barnes & Thornburg&rsquos Donovan, &ldquoit&rsquos easy to recognize the strategy at play here.&rdquo
Yep, it sure is. Press an infringement claim that&rsquos hard and expensive to disprove and set the settlement price at a point where prudent council recommends settling, because when the dust settles you might not only be paying the license fee, but stuck with a couple of million in legal fees to pay for your attorney&rsquos efforts.
&ldquoFor an accused infringer in cases like this, it is a lot like a high-stakes game of poker&mdasheven if you think you might have an invalidity defense,&rdquo remarks Donovan, whose engineering and law degrees and almost 20 years of intellectual property litigation experience gives his opinion some weight. &ldquoUntil you get to court, you don&rsquot know all the cards the opposition might have to play against you. And, under the patent laws, patents are presumed valid. What that means is that if the validity of a patent is challenged, the patent owner does not need to prove its patent is valid, rather it is the accused infringer that has the burden to prove the patent is invalid. Compounding that is the fact that the more settlement licenses Solaia obtains, the more credence it lends to the validity of the patent in question.&rdquo
What was troubling many observing the case two years ago was that, as it gained early momentum, the tactic of demanding licensing fees via threat of lawsuit, but setting them at a point well below what it would cost to mount a realistic defense was starting to pick off companies one-by-one. And although Rockwell tried to get in the game early, no one had yet to step up to fight the good fight and get the central question of the patent&rsquos validity adjudicated once and for all.
Intellectual Property Rights
Considering the highly developed nature of patent law, most of the patents granted are likely to be truly legitimate. But with so many patents being granted for things not envisioned when the laws were devised (internet commerce to cite one example) it&rsquos equally likely that there will be some that truly aren&rsquot, and that shouldn&rsquot have been granted in the first place. Many agree that this is true for Solaia&rsquos &rsquo318 patent.
&ldquoRegardless, in almost all instances, a defendant accused of patent infringement contends that the patent is invalid,&rdquo says Donovan. &ldquoCompanies certainly have the right to protect their patents and secure compensation from infringers and those who wish to use patented technology. On the other hand, a defendant who believes a patent should not have been granted certainly has the right to try to invalidate the patent. But, until that happens, and until a court holds the patent invalid, the patent will be presumed valid.&rdquo
Time to Go All-in
As the new suits and counter suits began to fly in 2002, many individual companies were settling out of court. Those getting to court, such as Clorox, were settling pretty quickly once they got a good look at what they were up against. According to industry reports Lilly, Chevron, General Dynamics, Lexmark, Shell and Kellogg settled between September and November 2002.
Up until that time, it appeared companies weren&rsquot aligning themselves with others to support a real challenge to the patent. However, throughout 2003, companies began to band together and it finally started to look like there would be enough legal resources to bring this thing to a head and decide, once and for all, if &rsquo318&rsquos broad claims are truly valid.
But Solaia&rsquos legal campaign to support its legal rights continued and in June 2004, Solaia Tech LLC v. GE Fanuc Automation, was filed in U.S. District Court for the Northern District of Illinois. This suit was one of the first infringement claims against a deep-pockets automation vendor. But instead of fighting it, GE Fanuc and Solaia settled early in 2005 (see GE Fanuc Settles With Solaia). However, in spite of what some might consider as GE Fanuc&rsquos capitulation, more than 16 individual companies united their legal effort and now have patent infringement cases pending with Solaia LLC in Illinois and Minnesota courts.
Furthermore, according to Rockwell Automation&rsquos 10-K in its 2004 Annual Report &ldquoIn a suit filed by Solaia on July 2, 2002 in Chicago, Solaia Technology LLC v. ArvinMeritor, Inc., et al, (02-C-4704, N.D. Ill.) (Chicago patent suit), Solaia accused sixteen companies of infringing the &rsquo318 patent. We made arrangements with ArvinMeritor, which now owns and operates our former automotive business, to undertake ArvinMeritor&rsquos defense of Solaia&rsquos patent claims to seek to assure that Solaia&rsquos infringement claim against ArvinMeritor could be finally and actually adjudicated in the Chicago patent suit. In that case, Solaia responded on May 12, 2003 by suing us directly for patent infringement, demanding material monetary damages.&rdquo
In the Minnesota case, which seeks a declaratory judgment against Solaia, the judge recently ruled against Solaia&rsquos motion to dismiss. Essentially that means the judge found that the 16-company group (accused of infringement by Solaia) have a strong enough case against Solaia to continue its litigation and prove baseless the infringement claims and invalidate the &rsquo318 patent.
According to Rockwell&rsquos in-house intellectual property counsel John Miller, discovery is complete and dispositive summary judgment motions are pending on the key, critical elements of the suit, among them, primarily, that ArvinMeritor, Rockwell and its customers do not infringe on the &rsquo318 patent. According to Miller all appropriate and germane documentation supporting the motions has been filed and summary judgement is imminent. In fact, as you read this, judgments may already have been handed down, finally bringing the curtain down on this sordid tale of industrial intrigue and legal slight-of-hand.
GE Fanuc Settles With Solaia
On March 9, GE Fanuc Automation Americas, Inc., a unit of GE Infrastructure, announced it had signed an agreement with Chicago-based Solaia Technology LLC, &ldquowhich provides broad rights to GE Fanuc Automation, GE, FANUC Ltd of Japan, and their customers under the Solaia 5,038,318 patent.&rdquo
According to the announcement, Solaia releases any potential claims on the &rsquo318 patent against customers for the purchase or use of products, software, services, equipment or devices made or supplied by GE Fanuc Automation, GE or FANUC LTD. &ldquoFurthermore,&rdquo says the announcement, &ldquoany system that was substantially integrated by a GE entity is released, regardless of which company manufactured the individual system components.
&ldquoGE Fanuc reached this important agreement with Solaia in order to assure our customers that they have no potential risk for litigation under the &rsquo318 patent,&rdquo said Jeff Garwood, president and CEO, GE Fanuc Automation. &ldquoAt this critical time in our global economy, manufacturers need to concentrate on improving productivity, reducing costs and achieving peak performance, and we are committed to helping our customers do just that with best-in-class automation solutions and the worldwide support of GE.&rdquo
Technocrats Take the '318 Patent to Task
Considering the highly developed nature of patent law these days, most of the patents granted are likely to be truly legitimate. But with so many patents being granted (according to U.S. Dept. of Justice, Bureau of Justice Statistics, the number of patents granted has increased 197% from 62,000 annually in 1983 to 184,000 in 2001) for things not envisioned when the laws were devised (internet commerce and bio-engineered organisms to cite two examples) it&rsquos equally likely that there will be some that truly aren&rsquot, and that shouldn&rsquot have been granted in the first place. Many agree that this is true for Solaia&rsquos Patent 318.
In a letter from a person identifying himself as an &ldquoindustry veteran who prefers to remain nameless,&rdquo (Start magazine &ldquoMail Call,&rdquo Jan. &rsquo03, p10) The &rsquo318 patent &ldquobasically patents a method for controlling a manufacturing operation using a spreadsheet add-on that talks directly to the registers in a programmable logic controller (PLC) without using the operating system or any I/O device.&rdquo He points out two big problems with &rsquo318: One, it&rsquos extremely narrow, and two, it had to be narrow to avoid a rejection based on a considerable amount of prior art&mdashsomething that anything patentable has to rise above to be granted.
Mr. Nameless offers a nicely succinct appraisal, but for a comprehensive analysis of the &rsquo318 patent on the record, the staff at High Tech Services (HTS), a North Carolina-based systems integrator provide a detailed appraisal on their website.
High Tech Services, founded by president by Keith Baldwin (who holds a Masters in integrated manufacturing systems and is a founding member of the CSIA) recommends that to better understand the problematic nature of the &rsquo318 patent it&rsquos instructional to understand what is patentable.
New and Useful
The U.S. patent office offers this: &ldquoIn the language of the statute, any person who âinvents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent,&rsquo subject to the conditions and requirements of the law. The word âprocess&rsquo is defined by law as a process, act or method, and primarily includes industrial or technical processes. The term âmachine&rsquo used in the statute needs no explanation. The term âmanufacture&rsquo refers to articles that are made, and includes all manufactured articles. The term &ldquocomposition of matter&rdquo relates to chemical compositions and may include mixtures of ingredients as well as new chemical compounds. These classes of subject matter taken together include practically everything that is made by man and the processes for making the products.&rdquo
The HTS analysis then quotes Roseman from the original patent application on a number of points but one stands out:
&ldquoThe invention furnishes a program or instruction means that operates through a general purpose spreadsheet program to effect information transfers to and from the addressable registers of a PLC and assigned cells of a displayed spreadsheet directly from the spreadsheet program and without transfers through the operating system program or a specially written device driver program.&rdquo
Says HTS, &ldquoWe don&rsquot see how using the specific words âPLC&rsquo or âspreadsheet&rsquo constitutes anything ânew&rsquo or âimproved.&rsquo &rdquo The systems integrator&rsquos analysis argues that &ldquoPLC&rdquo and &ldquospreadsheet&rdquo are nothing more than a type of computer and type of software that are communicating with each other.
&ldquoThere were other companies already making SCADA software that talked with PLCs at the time,&rdquo says HTS, and &ldquothat because computer programs were already talking to PLCs, uploading and downloading data, one might think that a claim about PLCs and spreadsheets would not hold up.&rdquo
The discussion of prior art doesn&rsquot end there either. According to HTS, people were already reading and writing data to/from real-time controllers and PLCs using databases. &ldquoIn fact, our records show that we were using an IBM PC to read and write databases in factory automation in 1984. [And HTS] worked with a group at Texas Instruments in Johnson City, Tenn. in 1985 that developed a system tying manufacturing databases into automated lines, controlled by PLCs.&rdquo
Narrow and Obsolete
A close examination of the â318 patent reveals that most, if not all of its discussion, as well as the drawings submitted, refer to Lotus&rsquo 1-2-3 spreadsheet program or a Lotus spread sheet cell. What HTS tries to carefully explain is that Roseman stresses the application of Lotus 1-2-3 @ functions to get PLC data directly to the spreadsheet.
High Tech Services summarized it all by saying Roseman used the Lotus development kit to write code that interfaced Lotus 1-2-3 to a Square D PLC. &ldquoIn our humble opinion, this is the only real claim that he can make&mdasha Square D PLC talking directly to Lotus 1-2-3 via @ functions.&rdquo Seems like a pretty narrow application.High Tech Services&rsquo analysis points out that Lotus 1-2-3 is no longer around and that that alone should be enough to void the â318 patent. And says HTS, &ldquo15 years later hardly [anyone] uses a spreadsheet, much less Lotus 1-2-3 to interface to PLCs.&rdquo
Finally, HTS says there was other SCADA software already developed that talked with PLCs. &ldquoHow could Mr. Roseman talk to other types of PLCs without device drivers?&rdquo the company&rsquos spokesman asks. Wrapping it up with a bow, HTS declares: &ldquoMr. Roseman's invention was to interface Lotus 1-2-3 directly to a Square D PLC. We can understand&mdashbut do not agree with&mdasha claim against anyone using Lotus 1-2-3 to read and write [to] Square D PLCs. All other claims seem completely unjustified.&rdquo
Click the Download Now button below for the full text of the Summary Judgment Decision in the ArvinMeritor/Solaia Case in pdf format.