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Judge May Deny Lexar Injunction Request

The $465 million award that a jury ordered Toshiba to pay Lexar Media could negate an injunction, legal experts said.

At a hearing April 13, Lexar is expected to request an injunction barring Toshiba's Flash memory products in the United States.

Lexar's argument is that Toshiba's CompactFlash, Secure Digital and xD Picture Cards use some of its intellectual property. Flash products from Toshiba are used to store data in USB drives, Flash cards and music players, including Apple's iPod shuffle.

But legal and industry experts say an injunction is unlikely because the current levy against Toshiba may be steep enough to make a judge reticent about enjoining Toshiba, said Bruce Sunstein, a co-founder of intellectual property law firm Bromberg & Sunstein LLP.

"Fashioning relief when there's been a theft is a difficult issue because there are a lot of open questions," Sunstein said. "Assuming there is a theft, what advantage did that give Toshiba? Maybe Toshiba could have sold into the market anyway ... Maybe money is enough. And what does the injunction say? Does the injunction say simply not to use the technology anymore?"

Further complicating the matter, is that Lexar also has cases pending against Toshiba for unfair competition and patent infringement. Some of the trade secret technology Toshiba has just been fined for is the subject of patents, Sunstein said.

"You can't have it both ways," he said. "If the patents have been issued, where are the trade secrets? Patents are public. Because the patent issue is still at large, the case is uncertain. The judge might be slow to decide there can be an injunction."

At the hearing in two weeks, a judge will hear cases from both sides and decide whether or not an injunction is warranted. While Toshiba has been particularly quiet about the case, the company said in a statement it believes the judgment was rendered in error and plans to contest it.

Sunstein said a judge deciding an injunction must weigh whether or not the monetary damages Lexar is receiving are enough compensation versus whether or not Toshiba has caused enough damage to warrant additional punishment.

This is no easy task on any level, he said, for a case that has its roots in an investment Toshiba made in Lexar in 1996. At that time, the companies were friendly to the point where Toshiba installed an employee on Lexar's board.

Toshiba later dropped its partnership with Lexar and forged a relationship with SanDisk, Lexar's chief competitor at the time. Lexar sued Toshiba in 2002 for sharing IP with SanDisk in a case revisited by last week's jarring decision.

Other experts say the injunction might not be granted because it might do more harm than good for everyone.

An injunction halting Toshiba products could be disastrous to the company, said Steven Frank, a partner in Goodwin Procter's intellectual property group.

"For a trade secret fine, you only have to write out a check for money damages," said Frank. "For an injunction, you have to stop doing what you're doing."

An injunction would surely sting Toshiba, which does a fair bit of business in the U.S. But it would also harm Toshiba's partners and customers, who rely on the company's technology for their business, said Joe Unsworth, an analyst with research firm Gartner, who tracks the Flash memory market.

"Folks like Apple, M-Systems, Kingston Technology and everyone else that uses their Flash are going to be hurt," Unsworth said. "If an injunction goes forward, I would think it would be restricted to Toshiba products. That's why I'm a bit skeptical that there is going to be a full-blown injunction barring everything the company sells in the U.S.

"I think the fine will be appealed," he continued. "This may not even go to appeal. What if this case gets settled out of court for half the cost? Lexar gets more than $200 million and then they can be set up for patent infringement -- make it through the rest of this year."

Toshiba has not said specifically whether it will appeal the decision, but that would be the next logical step.

Regardless of which way the judge swings April 13, the case is going to have repercussions that go beyond Lexar's gripe, Frank said, noting that companies are going to be more careful about who they hire.