Lexar-Toshiba Flash Case Progresses


Lexar Media was dealt a blow in its legal war with Toshiba after a
California Superior Court judge declined the Flash memory maker’s request
for Toshiba to stop selling its own Flash products.


The silver lining for Lexar is that Superior Court Judge Jack Komar found
that Toshiba engaged in unfair or unlawful competition, a violation of
California Business and Professions Code Section 17200.


Moreover, Lexar legal counsel suggested that Lexar could pursue customers
who use Toshiba’s Flash memory cards, which Lexar claims employ some of its
technology.


This paves the way for Lexar’s next legal barrage against Toshiba. A Lexar
spokeswoman did not return calls seeking comment, but the company said in a
statement it will pursue its outstanding patent infringement cases against
its Flash memory rival.


Lexar won
$465.4 million in legal and punitive damages from Toshiba in March after the
court found that the Japanese tech giant breached fiduciary duty and stole
trade secrets.


Lexar then asked the court to halt Toshiba’s Flash manufacturing on the
grounds that Toshiba employs Lexar technology in its own Flash memory
cards. Lexar and Toshiba both make Flash memory storage
cards used in digital cameras and MP3 players.


Eric Whitaker, Lexar executive vice president and general counsel, said that
while Lexar was encouraged by the court’s finding that Toshiba violated
California business laws, it is disappointed the judge voted down the
injunction.


“Given that the court recognized that there are a large number of products
that are manufactured and sold by [Toshiba] which contain elements of what
were [Lexar] trade secrets, we are, in turn, disappointed the court
declined to enter an injunction to prevent the shipment of those products,”
Whitaker said.


The lawyer said Lexar still believes that an injunction is the only way to
level the playing field. He vowed the company will continue to pursue its
claims for patent infringement against Toshiba, noting that the earlier jury
verdict finding Toshiba liable for theft of trade secrets and the court’s
findings make infringement clear.


He added that Lexar warned Toshiba’s customers that the products they are
using contain technology that has been stolen from Lexar, and suggested that
the customers could be litigation targets going forward as the company
continues to “consider all potential remedies to correct that wrong.”


In a statement, Julius G. Christensen, senior vice president and general counsel for Toshiba, said Toshiba we will continue to pursue all legal avenues available “to correct what we believe to be an erroneous jury verdict in this case.”


Gartner semiconductor memory analyst Joe Unsworth said that while he was not
surprised that the injunction was not upheld, it shouldn’t impede the
momentum for Lexar. After all, Lexar won the main case and can now focus on
the patent infringement case, which could broaden the scope of the suit to
include parties who infringe on Lexar technology via Toshiba.


“The ramifications of such a verdict would be far reaching if Toshiba’s NAND
product was barred from the U.S.,” Unsworth said. “This would severely hurt
not only Toshiba America Electronic Components but also customers or
partners such as M-Systems, SanDisk, Apple, etc. by barring products. This
is a drastic measure in my opinion.”


Unsworth said he believes both companies will look to resolve their issues
at some point rather than continue to chuck time and money at the protracted
litigation.


The roots of this case run nasty and deep. Toshiba invested in and secured a
seat on the Lexar board in 1996 only to take the technology and
use it for its own gain, according to Lexar.


Lexar claims Toshiba began
talks with Lexar rival SanDisk after accessing Lexar technical information. Toshiba later resigned its seat on the
board and announced its relationship with SanDisk. Lexar sued Toshiba in
2002.


Toshiba tried to argue that it developed the technology in question but
Lexar counsel discovered a paper trail of Toshiba’s own internal
documents.


Lexar, which has been struggling financially, could get more money from
Toshiba because it has other claims pending. Additional hearings will be
scheduled throughout July as the litigants and court decide how to proceed.

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