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.

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