Nichia Domination of LED Market Bars Patent Infringer Ban

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By Tony Dutra

Nichia Corp. has been so successful in light emitting diode (LED) sales and licensing, it can’t keep a small, patent-infringing competitor out of the market, a federal appeals court said April 28 ( Nichia Corp. v. Everlight Americas, Inc. , 2017 BL 140827, Fed. Cir., No. 2016-1618, 4/28/17 ).

The U.S. Court of Appeals for the Federal Circuit affirmed a lower court’s decision denying Nichia’s request for an injunction against Everlight Electronics Co. The ruling will allow Everlight to pay royalties to Nichia while it continues to sell products with LED chips.

The court made clear that injunctions for patent infringement by competitors are the norm. However, Nichia failed to show that it lost any sales to Everlight, and Nichia was supporting other low-cost competitors by freely licensing its technology. Nichia therefore failed to make the important showing of “irreparable harm” absent the injunction.

Valid and Infringed Patents

Japan-based Nichia asserted U.S. Patent Nos. 7,432,589, 7,462,870 and 8,530,250, which disclose package designs and methods of manufacturing LED devices, in the U.S. District Court for the Eastern District of Texas. Everlight, based in Taiwan with a Carrollton, Texas, subsidiary, failed in challenges to the validity of all three, which the Federal Circuit upheld.

The court also rejected Everlight’s arguments that its products did not infringe certain patent claims. The infringement question turned on the scope of the claims and a dispute over the meaning of the term “planar.” The word is not used in the patent specification, but “in a substantially similar plane” is.

The district court equated those terms, and Everlight argued that was erroneous because Nichia would have used “in a substantially similar plan” if it meant that. The Federal Circuit rejected that argument, saying it has no hard-and-fast rule that a distinction between specification and claim terms makes a difference in claim scope.

Too Big to Get Injunction

However, the district court denied Nichia’s request for permanent injunctive relief. Judge J. Rodney Gilstrap summarized his market-competition analysis by saying, “justification for an injunction is remote indeed.” The Federal Circuit deferred to Gilstrap’s fact findings and conclusion.

An important consideration in the injunction analysis is whether monetary compensation from the alleged infringer, on an ongoing basis, would be satisfactory. The patent owner has to show that it would not, and that it would suffer irreparable harm unless the infringer’s products are taken off the market.

The facts belied Nichia’s claim of irreparable harm. Of 516 sales opportunities, Everlight competed on only three—"the proverbial ‘drop in the bucket,’” Gilstrap said. Nichia sells directly to customers and Everlight mostly sells to distributors. And there could be no compounding of previous lost sales going into the future, the Federal Circuit said in response to Nichia’s appellate argument, when there was no evidence of a single lost sale.

Nichia’s licensing of the patents also hurt its case. The appeals court said that there’s no categorical rule that a patent licensor can’t show irreparable harm. But here, it said, licenses were given to “significant competitors” who posed “major threats” to Nichia’s sales. Adding that Nichia policy onto its market dominance weighed against a finding of irreparable harm, the court said.

When the case returns to district court, Gilstrap can consider arguments about what reasonable royalty will compensate Nichia for ongoing Everlight infringement.

Judge Kara F. Stoll wrote the court’s opinion, which was joined by Judges Jimmie V. Reyna and Todd M. Hughes.

Rothwell, Figg, Ernst & Manbeck PC, Washington, represented Nichia. Patterson & Sheridan LLP, Dallas, represented Everlight. Attorneys for the parties did not respond immediately to requests for comment.

To contact the reporter on this story: Tony Dutra in Washington at adutra@bna.com

To contact the editor responsible for this story: Mike Wilczek at mwilczek@bna.com

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