TOKYO When Canon Inc. (7751.T) was sued by a
small, money-losing U.S. technology firm two years ago, the
dispute was over a patent license that had cost the Japanese
electronics giant a one-time payment of $5.6 million.
But now that the lawsuit has caused Canon to lose the
license, a fresh agreement with Texas-based Nano-Proprietary
Inc. NNPP.OB could be worth millions of dollars more, lawyers
Last week a U.S. court ruled against Canon, saying the
company breached its deal with Nano-Proprietary by trying to
share the flat display technology with Toshiba Corp. (6502.T).
The court's decision comes as a major setback and perhaps
an embarrassment for Tokyo-based Canon, the third-biggest
patent owner in the United States.
"It seems strange Canon managed to go all the way to trial
and lose," said Peter Godwin, a Tokyo-based partner at law firm
Herbert Smith. "Assuming they were advised they were at risk,
you'd expect a company of the size of Canon to have reached a
settlement before that."
Now, Canon is left with no plans for mass production of the
displays. The sale of the new TVs, scheduled for the fourth
quarter, will be limited to Japan and on a small scale.
The court has yet to address Nano-Proprietary's claims that
Canon engaged in fraud to extend its license rights to Toshiba
and perhaps other Japanese companies.
When Canon and Toshiba set up the joint venture in 2004 to
develop the panels, the initial plan was to mass-produce the
new type of flat TVs in time for the 2008 Beijing Olympics.
But it was the partnership itself that ultimately hurt the
Japanese companies in the dispute two years later.
The original deal allowed Canon to license
Nano-Proprietary's technology to its own units. Canon had
claimed the venture with Toshiba was a subsidiary because
Canon's 50 percent stake included one more share than its
To resolve the situation, Nano-Proprietary had offered to
negotiate a separate license with Toshiba on the same terms as
the initial deal with Canon, people familiar with the situation
But Canon told its partner not to worry and blocked Toshiba
from talking to Nano-Proprietary, these people said.
Spokesmen at Canon and Toshiba declined to comment, saying
the lawsuit was still going on. A Nano-Proprietary spokesman
also declined to discuss its dealings with Canon and Toshiba.
A LATE MOVE
In April 2005, Nano-Proprietary sued Canon in U.S. District
Court, challenging a company that has $35 billion in annual
revenue and employs more than 500 intellectual property
But after months into the litigation, the court ruled that
the joint venture with Toshiba was not a Canon subsidiary.
For Judge Sam Sparks of Texas, Canon's decision in January
to buy out Toshiba's stake in the unit came too late.
"But clearly, it takes two to settle and the patent is a
very important one," Godwin said. "Both Canon and Nano may have
taken the view that the legal fees involved were insignificant
compared to the benefits should they win."
A person close to the trial said the parties may reach a
settlement before the court rules on damages due the U.S. firm.
The next session of the trial is set for the first
available date after April 2.
A new licensing deal between Canon and Nano-Proprietary
could be a pay-as-you-use contract and may be priced well above
the original one-time upfront contract, Credit Suisse analyst
Kunihiko Kanno wrote in a note to his clients.
"That would have an impact on (Canon's) profitability."
On the other hand, last week's ruling sent Nano-Proprietary
shares up 17 percent on expectations the firm may earn higher
patent-related revenues. Nano-Proprietary, which has close to
200 patents and pending applications, also owns technology in
carbon nanotube TVs and carbon nanotube backlights for
Nano-Proprietary's technology that was licensed to Canon is
used for surface-conduction electron-emitter displays (SED)
TVs, which are said to have brighter images and consume less
energy than existing LCDs and plasma models.
Canon, also the world's top maker of cameras and copiers,
had hoped to tap into the booming demand in the $84 billion
global flat-panel TV market with brand new SEDs.
But some analysts including James Kim at Lehman Brothers
said they are skeptical about cost-competitiveness of SEDs in
an already crowded flat TV industry.
Separately, Nano-Proprietary is said to be in talks with
various manufacturers to license patents used for other
displays and related technology such as backlights for LCDs.
Earlier this week, technology publisher Smarthouse reported
that Samsung Electronics (005930.KS) has made approaches to get
access to SED technology from Nano-Proprietary, citing a source
at the South Korean consumer electronics giant.
A Samsung spokeswoman denied that the company was
considering SED technology but added that the company would be
interested in entering the market if there was any sign of
Nano-Proprietary spokesman William Spina said the company
would talk to anyone who was interested.
"We will talk to Canon, Toshiba, Samsung or any interested
party regarding SED licensing agreement on a non-exclusive or
exclusive basis," Spina said.
(Additional reporting by Marie-France Han in Seoul)