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Nakamura awarded $189 million for LED patents

A judge has ordered Nichia to pay its former employee Shuji Nakamura a total of 20 billion yen in compensation for the blue LED patents he filed while working for the company.
Shuji Nakamura, the researcher credited with Nichia’s phenomenal success in the nitride LED and laser field, has been awarded a sum of 20 billion yen ($189 million) in compensation for patents that he filed while working for the Japanese company.

Nakamura, who left Nichia in 2000 to take an academic post at the University of California at Santa Barbara, was paid 20,000 yen for each of the many patents that he filed while working for Nichia. At one stage, he continued his ground-breaking research in violation of written instructions from his superiors to stop working on nitride-based devices.

In September 2002, Nakamura lost his claim that he, rather than Nichia, owned the patents (see Nakamura loses patent claim against Nichia). However, the court recognized that Nakamura was entitled to compensation based on the amount of profit generated by the intellectual property for which he was responsible.

In his ruling announced on January 30, presiding judge Ryoichi Mimura estimated that the patents in question could have generated a total of 120.8 billion yen ($1.14 billion) for Nichia by the time they expire in 2010 (see “Estimating the amount of compensation”, below, for details of how this figure was derived). The judge also ruled that Nakamura’s contribution was “not less than 50%”, saying that the patents “had made possible the commercialization of blue LEDs.”

With the total value of the transfer of patent rights from Nakamura to Nichia valued at $60.4 billion yen, the judge awarded Nakamura the 20 billion yen that he had requested when filing the lawsuit.

The judge commented that Nakamura deserved the sum because “the invention was a totally rare example of a world-class invention achieved by the inventor’s individual ability and unique ideas in a poor research environment at a small company.”

“I am pleased that my contribution was recognized as 50%,” said Shuji Nakamura. “This ruling will increase the incentive for researchers to invent, and companies will profit from it over the long run as well.”

Of course, rather than reaching for the company check-book, Nichia appealed the decision later in the day. A company spokesperson said that “the unfair ruling overvalued the patent rights in dispute while failing to properly assess the contributions of the company and many other researchers.”

Nichia argued that, as of 2002, the cost of building its manufacturing infrastructure and continuing its research and development programs had exceeded the revenue generated from the patents by 1.5 billion yen.

Nichia is expected to report total sales of 180 billion yen ($1.7 billion) for its financial year ended December 31, 2003, up 55% over the previous year. LED products account for about 80% of that figure, or $1.36 billion. This dwarfs the revenue generated by competitors such as Cree, which reported LED sales of $56.5 million for the last quarter of 2003.

The patent ruling in the Nichia-Nakamura case came one day after another judge awarded 163 million yen to a former employee of Hitachi for the transfer of patent rights in the filed of optical discs. However, since the patent in question had expired, future profits were not a factor.

Estimating the amount of compensation

In Nichia’s case, the court calculated the company’s estimated sales from 1994, when its blue LEDs first reached the market, to 2010, based on overall market growth, and Nichia’s market share and growth rate. The total sales figure was assessed at 1.2 trillion yen ($11.4 billion).

Also, the court estimated that if Nichia had licensed its patent portfolio to other companies, its rivals would have generated about 600 billion yen in sales over the period to 2010. These rival companies would have paid at least 20% in patent royalties to Nichia. Therefore, said the court, by attempting to retain its monopoly in the LED market, Nichia had forgone 120.8 billion yen in royalty payments.

Although Nichia’s patent portfolio and the company’s litigious nature is thought to have been responsible for keeping many Japanese LED makers out of the blue LED market, Nichia was ultimately unsuccessful in patent lawsuits filed against its rivals such as Toyoda Gosei, Cree and Osram. Recognizing the strength of the IP portfolios of these companies, Nichia reached a number of patent agreements and cross-licensing deals during 2002 (see Licensing agreements stabilize nitride optoelectronics field (December 2002)).

Even so, Nichia continues to defend its IP position, notably against its Taiwanese rival Epistar (see Nichia sues Taiwanese blue LED rival Epistar (September 2003)).

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