Peace breaks out in LED patent battles

So far, 2009 has been a busy year for attorneys working on patent cases in the LED industry. However, rather than just preparing to go to court, much effort has been spent negotiating settlements. Three intellectual property battles ongoing for more than a year have been terminated, and three new alliances have been established.

Two of the pioneering GaN LED chip makers "“ Nichia and Cree "“ have been right at the center of these maneuvers. What has changed, and what does it mean?

Perhaps the biggest surprise so far was the cessation of hostilities between Nichia and Seoul Semiconductor on February 2. Starting with a Nichia claim in January 2006, Seoul soon fired back with counterclaims. At the point of settlement, cases were ongoing in five countries and the two companies had also accused each other of defamation.

“Nichia is a private company, it doesn t have to answer to shareholders,” commented Jed Dorsheimer, principal and senior analyst at investment management and banking firm CanAccord Adams. “Seoul is a public company that does, but its chairman has a pretty sizable ownership in the company. So the two companies just went at each other.”

Nichia won a nominal victory in the California courts in November 2007, but instead of the $2.5 million sought, it was awarded just $62. According to Seoul, presiding Judge Maxine Chesney also scolded Nichia, saying that it had “imposed a significant burden on the jurors time and the court s resources”. Then in October 2008 Seoul claimed its own victory, after a Korean court declared a Nichia patent invalid.

Both these events now look to have been key turning points in a dispute that, according to Dorsheimer, was initiated by Nichia to secure its market share and send a message to its competitors. But eventually, the spiraling costs of the litigation prompted Nichia to seek an out-of-court settlement.

“They felt that they had made their point,” he said. “Probably Nichia got most of the things it wanted to out of that cross-license and was able to protect its market position.”

Shortly after Seoul and Nichia signed their cross-license agreement SemiLEDs, the US-headquartered firm who had been drawn into the dispute, signed a similar licensing agreement with Nichia. The Seoul-SemiLEDs collaboration, which makes use of the latter s copper-based LEDs, is now free to continue. And now that its legal resources have been freed up, Seoul says it will actively protect its fundamental IP.

Meanwhile, Nichia has signed a cross-license and supply deal with comparative industry newcomer, Luminus Devices. Dorsheimer says that Luminus patented photonic lattice technology has attracted Nichia.

“To an encumbent like Nichia, which has patents on the development of the LED chip, here is an enhancement that is obviously appealing to them in certain markets,” he said. By granting the Japanese giant a license for its innovative LED designs, Luminus in return gains access to basic patents needed to enter LED mass production.

Cree s successful enforcements
While Nichia has entered new territory, its rival Cree has turned its legal fight with Bridgelux into a similar license-and-supply deal. In resolving the conflict that dated back to 2006 Cree has not licensed any technology from Bridgelux, but Dorsheimer says that the company's motivation is again avoiding legal costs.

Cree gained an up-front fee, is due more royalties in future and the supply agreement has also increased demand for its die. Since the chief executive officers of Cree and Bridgelux are brothers Chuck and Mark Swoboda respectively, it's easy to see how the agreement could have come about.

In February Cree also convinced US conglomerate Honeywell to drop it from a suit that had initially been filed against Cree and Philips Lumileds in 2007. Pivotal to both Cree settlements was a patent that the Durham, North Carolina firm licensed exclusively from Boston University.

“Cree went back to Honeywell and then highlighted some of its early Boston University patents, which seem to be the fundamental patents that Cree has,” Dorsheimer explained. “When Honeywell analyzed it, they probably saw it would be a much better solution to settle for a cross-license than to actually pursue a lawsuit.” This leaves Lumileds to defend the suit by itself, but Dorsheimer says that the Philips subsidiary should be encouraged that a settlement now looks possible.

The Boston University patents could also explain why Cree is defending itself against the industry-wide suit from retired academic Gertrude Neumark Rothschild, rather than settling out of court as Lumileds and the majority of other defendants have already done. Rothschild has now extended her US International Trade Comission suit to encompass six additional Taiwanese and Chinese LED makers.

“The other companies are probably looking at getting to a jury trial and going up against an individual "“ an elderly woman,” Dorsheimer pointed out. “Gertrude Rothschild would have a significant advantage.”

The one thing that Dorsheimer doesn t believe has been driving the glut of licensing deals this year has been any fear of expiring patents. He points out that most companies will evolve their intellectual property portfolio so that new patents will still cover their basic technology and expand it into new areas.

A good example of this is February s cross-license agreement between Toyoda Gosei and Showa Denko. Dorsheimer says that a number of Japanese companies bought MOCVD reactors in advance of the expiry of Toyoda Gosei s US patent 5,122,845 on June 16, 2008. Showa Denko was one of these companies, and it seems that the desire to use Toyoda Gosei s GaN technology has demanded that it signs an agreement with its compatriot.

“It would appear as if TG was able to weave together some later IP to that fundamental patent, which resulted in a cross-license from Showa Denko,” Dorsheimer said.

So, what have these maneuvering LED companies achieved? All of them have exploited their patents to reposition themselves in the market. However, in doing so they have defined a landscape in which all the major players are now broadly cross-licensed with each other.

More and more small companies are entering deals offering access to their innovative technology to larger businesses in exchange for guaranteed rights to basic LED manufacturing technology. These relationships look to be settling into an increasingly stable structure.

Whether they intended it or not, this most recent bout of patent wrangling has brought about comparative peace in the LED industry. It remains to be seen whether it will last.