Patent infringement case remains a tangled web

In the April issue of CONTROL magazine, Managing Editor Steve Kuehn reports on how Solaia may have finally met its match now that it has faced off against Rockwell Automation in a U.S. patent court case.

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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 $1–2 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.

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