Dispute on patent adds to Toyota's problems

From Preclusion to Exclusion? ITC Staff Supports Paice Summary Judgment Motion

GreenPatentBlog.com

January 20, 2010

In two previous posts (here and here) I discussed the patent infringement case between hybrid drivetrain technology company Paice LLC (Paice) and Toyota in the U.S. International Trade Commission (ITC).

In September of last year, Paice filed a complaint in the ITC asking the agency to investigate whether Toyota’s importation of the third generation Prius, the Camry hybrid and two Lexus models (Accused Products) infringed U.S. Patent No. 5,343,970 (’970 Patent).

After the ITC agreed to open an investigation, Paice moved for summary determination of infringement, validity and enforceability of the ‘970 Patent. 

Specifically, Paice contended that Toyota was barred from asserting a defense of non-infringement of the ‘970 patent and from challenging the validity or enforceability of the ‘970 patent under the principles of claim preclusion and issue preclusion because of a prior federal district court and appeals court ruling against Toyota.

In a response issued in December and made public earlier this month, the ITC staff agreed with Paice and supported its motion.   The response noted that, although the Accused Products are different from those at issue in the federal court case, Toyota admitted that the hybrid drivetrains are materially the same as the vehicles found to infringe in that lawsuit.

Compounding Toyota’s troubles was a ruling last week in the same case in which the ITC staff opposed the automaker’s cross-motion for summary judgment that claim preclusion should bar Paice from obtaining any remedy in the investigation. 

The response rejected Toyota’s argument because claim preclusion applies only to the cause of action and does not include the ensuing remedies.

Assuming the administrative law judge follows the recommendations of the ITC staff, the only remaining issue would be whether Paice meets the “domestic industry” requirement. 

19 U.S.C. 1337 requires that there be an industry in the U.S. relating to the products at issue, which includes both an economic prong (demonstrated investment in plant/equipment, labor/capital, research and development or licensing) and a technical prong (demonstrated practice of the asserted intellectual property right).

Now the big question is whether Toyota will continue to fight or decide to fold and pay royalties to Paice.  If the case moves forward, it will be interesting to see whether the ITC finds Paice’s engineering, R&D and licensing activities in the U.S. suffice to meet the domestic industry requirement.

Considering what is at stake in this case - Paice has requested a permanent exclusion order barring entry into the U.S. of the Prius, Camry hybrid and the two accused Lexus models - I wonder if and when the mainstream media will start to pay attention.

ITC Sides With Paice In Toyota Hybrid Patent Case

Toyota's Prius threatened by probe

Could the Prius and other Toyota hybrids be banned from the U.S.? It seems unthinkable, but that's one possible ending to a patent investigation launched this week.

This case centers around Paice, a tiny Florida company that has patented a way to apply force to a car's wheels from the electric motor or the internal combustion engine.

Paice thinks that Toyota (TM) is infringing on its technology, and is going after the automaker in court. The legal spat became much more serious for Toyota this week, when the U.S. International Trade Commission decided to investigate the matter.

Bing: How do hybrid cars work?

The problem is that the ITC can stop any imports that infringe on U.S. patents. So in the worst-case scenario for Toyota, the commission could ban the hybrid Camry, third-generation Prius, Lexus HS250h sedan and Lexus RX450h SUV, according to Bloomberg.

And that could potentially be devastating for Toyota, which Bloomberg says has sold more than 1.1 million hybrids in the U.S. in the last decade -- most of them Prius cars.

Paice won a 2005 patent suit against Toyota in federal court in Marshall, Tex. And you might snicker at that, because Marshall is notorious for granting all sorts of wacko patent cases. But still, the verdict was upheld on appeal, and a judge ordered Toyota to pay royalties to Paice based on car sales.

Paice has more lawsuits against Toyota in the Marshall court, and some may go to trial in January.

So can't Toyota just throw a little licensing money at Paice and make it go away? It's not that easy, according to one lawyer familiar with the case. Paice wants the cars banned.

"As soon as Paice wins an exclusion order from the ITC, Toyota’s in trouble," the lawyer, Michael Murphy, told HybridCars.com. "It doesn’t matter that Toyota can appeal that decision. And it doesn’t matter that Toyota might eventually have that decision overturned. For some indeterminate period of time, perhaps months, Toyota is stuck without any ability to bring these new vehicles into the United States and sell them. Think of the cost. Toyota would lose millions of dollars."

Realistically, the chances that Toyota hybrids will be banned are slim. Paice likely would accept big money -- not puny licensing payments -- from Toyota in return for dropping its complaints, so there is a way out for Toyota here.

At any rate, this isn't helping Toyota in the U.S. The automaker saw its sales drop 29% through August in the U.S., its largest market, and is struggling to revive its business here.

Toyota is still blazing ahead with its hybrids, and plans to add one or two more versions of the Prius, according to Reuters. Toyota also plans to spend $1 million in a marketing blitz in the fourth quarter -- about 30% to 40% more than it would normally spend to promote its cars.

Toyota Hybrids Facing US-Market Ban?

By Edward Niedermeyer
October 6, 2009

www.thetruthaboutcars.com

Bloomberg reports that the US International Trade Commission has launched a probe of alleged patent violations which could result in the banning of all Toyota hybrids from the US market. Paice LLC won a 2005 civil suit against Toyota, in which Paice’s founder Alex Severinsky sought a court order banning the sale of Toyota’s Prius, Highlander and Lexus RX400h hybrids. Instead, an appeals judge awarded Paice $4.3m in damages, and ordered Toyota pay Paice a $100 royalty per hybrid sold in the US. In the current case before the ITC, Paice claims that Toyota’s Camry, third-generation Prius, Lexus HS250h sedan and Lexus RX450h are “are materially the same” and violate the same patents as those in its first case. If Paice can convince the ITC that Toyota indeed violated its patents, he will still need to prove that the little-known company has a market to protect. But Paice doesn’t actually want Toyota to be banned from selling cars. In the words of one spokesman,  an “injunction would have given Paice strong leverage to negotiate a lucrative licensing deal with Toyota…Paice always felt that their technology was worth a lot more than [$100 per car] to Toyota.”

Independent patent lawyer Michael Murphy explains Toyota’s patent violation thusly:

At its heart, it’s the cooperative dual management of the internal combustion and the electric motor. Either one is a candidate at any time for providing some of the torque or all of the torque needed to spin the drive wheels. What Paice says is its real innovation is in the fusing of the two, the seamless management of torque from either or both drive inputs….

If all you were doing was switching from an electric mode to a gas mode, you wouldn’t have infringement. In other words, you wouldn’t have infringement if you made a crude hybrid system that said we’re either running on batteries or we’re running on the gas engine, but never both.

The real point of [Paice’s claimed] sophistication is where you get torque. It may be, under certain conditions, it’s more efficient to get torque from the electric motor. Under other conditions, it’s more efficient to get that from the gas engine. And under other conditions, you want to seamlessly blend torque from both sources.

[Paice would] say their microprocessor-based controller looks at engine speed, motor speed, battery voltage, battery charge, ambient temperature, acceleration, direction, deceleration—all of those things—to make a decision about how much of the torque should be supplied by the engine versus the electric motor. That’s the heart of it. If it was an either-or system, Toyota wouldn’t be in court. Also, it wouldn’t be a very efficient hybrid system.

Read a complete interview with Murphy at hybridcars.com.

Automotive News
October 6, 2009

Click here to watch the Autonews.com video. Skip to 3:21 for the "Patent Probe" story and get the latest on the Paice LLC vs. Toyota ITC Case. 

Expert Explains Toyota’s Hybrid Patent Problems

Published October 5, 2009

HybridCars.com

Paice LLC, a small Florida-based hybrid car technology company that won a patent infringement case against Toyota in 2005, has now brought a related case to the International Trade Commission, which has the power to ban all Toyota hybrids from the United States. What's at stake for Toyota if its hybrids were banned from the US?

In 2008, Alex Severinksy was inducted in the University of Maryland’s Clark School of Engineering “Innovation Hall of Fame,” for his pioneering work in hybrid drivetrain systems. Paice LLC, Severinky's company, continues to fight Toyota for greater leverage over its hybrid patents.

"It doesn’t matter that Toyota might eventually have that decision overturned...Toyota would lose millions of dollars," Michael Murphy, a N.C.-based intellectual property lawyer and former electrical engineer, told HybridCars.com. Murphy has a deep understanding of both patent law and hybrid electrical systems.

The case won't be decided for another year and a half, but even the slight prospect of losing the case represents another pothole for Toyota, just one year after overtaking General Motors as the world’s largest car company. In recent months, the Japanese company reported its first corporate losses (to the tune of billions), a growing problem with quality, its biggest recall in history, and the decision to close its first factory in the United States.

Murphy explained that Paice’s intellectual property holdings consist primarily of patents originated by inventor Dr. Alex Severinsky, a Russian immigrant who is an electrical engineer by training. Severinsky began work on hybrid drivetrain concepts, by his statements, as early as the 1980s. When the US district court in Marshall, Tex.—well-known as a favorable environment for patent holders—ruled that Toyota did indeed infringe upon Paice’s hybrid patent, the court forced the company to pay a “compulsory license” to Paice of about $100 per hybrid car.

HybridCars.com spoke with Murphy to learn more about the twists and turns in the story of Toyota's hybrid patent saga.

Court Definition of Terms

HybridCars.com: What specifically is the innovation that Paice owns?

Michael Murphy: At its heart, it’s the cooperative dual management of the internal combustion and the electric motor. Either one is a candidate at any time for providing some of the torque or all of the torque needed to spin the drive wheels. What Paice says is its real innovation is in the fusing of the two, the seamless management of torque from either or both drive inputs.

It sounds like Paice made claim to the special sauce that makes a hybrid what it is—the key ability to switch back and forth from electric to internal combustion.

If all you were doing was switching from an electric mode to a gas mode, you wouldn’t have infringement. In other words, you wouldn’t have infringement if you made a crude hybrid system that said we’re either running on batteries or we’re running on the gas engine, but never both.

Michael Murphy

The real point of [Paice’s claimed] sophistication is where you get torque. It may be, under certain conditions, it’s more efficient to get torque from the electric motor. Under other conditions, it’s more efficient to get that from the gas engine. And under other conditions, you want to seamlessly blend torque from both sources.

So, it’s in the reading of what’s required based on the needs of the driver and other conditions, and the delivery of torque to satisfy that requirement.

Paice would probably describe it a little different. They say their microprocessor-based controller looks at engine speed, motor speed, battery voltage, battery charge, ambient temperature, acceleration, direction, deceleration—all of those things—to make a decision about how much of the torque should be supplied by the engine versus the electric motor. That’s the heart of it. If it was an either-or system, Toyota wouldn’t be in court. Also, it wouldn’t be a very efficient hybrid system.

Injunction, Fee or Exclusion

Does the ruling in Paice’s favor hold true for all of Toyota’s future hybrid models?

That’s exactly what the International Trade Commission proceeding hinges on.

But first, you have to go back to the first case in the eastern district of Texas, where it was found that the hybrid drivetrain in the Prius II, the then existing Toyota Highlander Hybrid, and the Lexus RX 400h all infringed claims 11 and 39 of U.S. Patent No. 5,343,970.

What Paice wanted out of that first lawsuit was a permanent injunction, banning Toyota from selling or importing these infringing drivetrains. The injunction would have given Paice strong leverage to negotiate a lucrative licensing deal with Toyota. Paice didn’t get the injunction, because the court had to balance the harm—the cost to the patent owner—versus the interests of the public and whether money damages are going to be adequate remedies. The district court denied Paice’s motion for a permanent injunction. Instead, they said Toyota has to pay license fees. That’s called a compulsory license.

Now, several years down the road, here comes Toyota with new vehicles, the Prius III, the new Lexus HS 250h, that were not part of the original court settlement, and they’re coming into the country.

Paice is saying to Toyota, you don’t have a license for the new vehicles, but you need to get one.

They don’t want to give Toyota a license. Paice never wanted to grant a license to Toyota, at least not under the court terms. Paice always felt that their technology was worth a lot more than that to Toyota. And by the court denying the permanent injunction, Paice lost a huge point of leverage against Toyota. Toyota is allowed to build and sell these vehicles. And all Toyota has to do is pay the licensing fee.

So as new vehicles are coming to the market, Paice is viewing it as their opportunity to open up a new case and get better terms.

Paice didn’t get the decision they wanted in the first case. Now, there’s a second lawsuit, also filed in Texas, by Paice against Toyota. And it is alleging infringement of these new vehicles—the third-generation Prius, the Camry Hybrid, the Lexus HS 250h, and the Lexus RX 450h.

Paice sees these new vehicles as new acts of infringement. So they see an opportunity to go to the International Trade Commission and have the ITC do its own infringement hearings as essentially a parallel process to the ongoing court proceedings. But what the ITC can do—and what would be a huge setback for Toyota—the ITC can exclude or stop importation of these new vehicles if they determine that they are infringing Paice’s patent.

Low Chance of a Ban

Has the ITC decided the issue?

Paice just submitted their complaint to the ITC in the last month.

Is there any chance that Toyota hybrids will get banned?

If you ask the question like that, the answer has to be yes. Is there ANY chance? Is there a strong chance? No.

But banning those hybrids is not good for Paice…

That’s not right. Paice wants them banned—and really the term here is excluded. As soon as Paice wins an exclusion order from the ITC, Toyota’s in trouble. It doesn’t matter that Toyota can appeal that decision. And it doesn’t matter that Toyota might eventually have that decision overturned. For some indeterminate period of time, perhaps months, Toyota is stuck without any ability to bring these new vehicles into the United States and sell them. Think of the cost. Toyota would lose millions of dollars.

I can't imagine Toyota letting that happen.

If it does happen, Toyota will run to Paice and negotiate a license. And it won’t be on favorable terms to Toyota. So Paice does want the exclusion order, because that will be Paice’s point of leverage to secure a much more lucrative licensing agreement with Toyota than it got out of the 2005 court proceedings.

Applying Pressure Through International Trade Commission

Do you know when the ITC case will be decided?

It may take about 15 months or so, but it could be sooner. The ITC will likely rule more quickly than the district court. And that’s the whole point of the strategy. If you can get an ITC ruling favorable to you, the patent owner, you just ratcheted up the pressure enormously.

Does the ITC subscribe to the same set of laws that were used in the previous case decided in Paice’s favor over Toyota?

Yes, subject to a few exceptions that probably are not important to this ITC proceeding. More importantly, Paice will say they got a fully adjudicated final decision by the district court in 2005 that Toyota infringed two patent claims. They will say, “We are in a related second court proceeding where the admissions made by Toyota of record include that the drivetrains in these new vehicles are not materially different that were at issue in the 2005 court case. Therefore, Toyota has effectively admitted that its new cars infringe the same two patent claims.”

Paice is turning to the ITC and saying, you guys don’t have to do anything except look at the record. Infringement is there. Stop importation of these new models which are not covered by the compulsory license ordered in the 2005 infringement decision.

In principle, is the prior ruling of infringement one that would hold weight at the ITC?

Absolutely.

So, it’s not looking good for Toyota?

That’s probably a fair assessment, but keep in mind that I’m talking about Paice's characterization that Toyota has made those admissions. I don’t know that Toyota has actually made those admissions or conceded that point.

Secondarily, you also have to look at how the ITC works. When the ITC grants these exclusion orders, it does a similar balancing act as the court would do when it’s granting an injunction. It will look at the effective exclusion on the public health and welfare, and the competitive conditions in the US economy, and the production of like or directly competitive articles in the US. It’s not a light switch. You don’t just flip it on and off.

So even if the ITC buys into Paice’s arguments, there’s still no guarantee the ITC will grant an exclusion order. They might look at the same thing the district court did. For example, Paice doesn’t sell hybrid drivetrains. Instead, Paice’s focus is on licensing their hybrid drivetrain technology. In some sense, one might argue that Paice essentially is a licensing company. Here, I think Paice’s arguments are not very strong.

And that’s a mitigating factor for the ITC? That Paice did come up with an innovation, but they don't make or sell hybrid cars.

That’s right. If the ITC is considering the effect of exclusion on public health and welfare, and you have what might be regarded as a licensing company that doesn’t make the infringing product, and there’s no other party in the United States that’s been identified as providing a substitute product or an alternative to it, and these hybrid vehicles are perceive as being desirable, they’re selling well, there’s growing interest in them in terms of economy and reduced pollution, well how do you balance that out? Maybe it’s better to let the importation continue.

Could the ITC enforce a certain level of royalty like the district court did?

No. The remedy from the ITC is limited to exclusion.

Harm and Fairness

But the ITC could just let it fall back to the court, and say Paice is already getting their royalties. For the future vehicles, there’s a decent likelihood that they’ll get similar royalties. And let it stand there.

That could happen. The district court in Texas said back in 2005 to Paice: “You were seeking a license from Toyota on this technology, which demonstrates that money damages are an adequate remedy here. Here’s your license.” And it could be in the second proceeding [regarding Toyota’s more recent crop of hybrids] that the district court turns around and does what it did in 2005. Here are compulsory licenses on these new vehicles. The real point here is, unless and until Paice can prevent Toyota from bringing those vehicles into the country, they don’t have as strong a position for licensing the technology as they want. If they can get the ITC to put a ban in place, then all the sudden the balance of negotiating strength goes to Paice.

It sounds like Paice is willing to spend the money to bring it to the ITC because it could give them a chance at stronger leverage, but they’re probably aware that it’s a long shot. They also probably feel wronged, and sense a lot of money at stake, and they’ll do what they can to bring the case as far as they can.

I don’t doubt that Paice believes it has a strong case for exclusion. If you read the complaint with a friendly eye toward Paice, it sounds like they’ve made a pretty good argument for exclusion. On the other hand, if you view Paice primarily as a licensing company, you have to wonder if they’re really suffering irreparable harm, or some kind of fundamental unfairness, if they’re not granted an injunction.

So you have a manufacturer out there making leading edge hybrid car products that everyone wants. Consumers are clamoring for it. Apparently, hybrid cars have benefits for the environment, reduced pollution, higher fuel efficiency, all of that great stuff. Then you have a company saying we don’t actually make any product, but we don’t want anybody else to be able to make it either, unless they pay a potentially high license fee to us. A lot of people who want Toyota’s hybrid cars are going to say that’s not fair.

On the other hand, you have the whole world of patent owners who say, “What is my patent worth if the only thing it gets me is a ticket for some court to impose a compulsory license at a royalty I wasn’t free to negotiate? Shouldn’t I be able to go out and negotiate that in the free market?” These are the top-level philosophical issues.

Trade Officials to Probe Toyota Patent Claim

US trade officials to begin investigation over claim that Toyota violated hybrid patents

The Associated Press

NEW YORK October 6, 2009

U.S. trade officials said they will launch an investigation into whether Toyota Motor Corp. violated patents held by a U.S. hybrid technology company.

The company, Bonita Springs, Fla.-based Paice LLC, claims that popular Toyota hybrids like the third-generation Prius and the Lexus HS250h contain technology that violate its patents related to the propulsion of gas-electric vehicles.

Paice is seeking to bar the import of the vehicles into the U.S. The U.S. International Trade Commission, which investigates claims of trade violations, voted to launch the probe on Monday.

After the ITC decides to begin an investigation, a judge is named usually within 45 days and hearings are held, an ITC spokeswoman said. If the ITC sides with Paice, the trade body could issue penalties including a possible ban on the hybrids' import.

A spokesman for the Japanese automaker said the company's position remains unchanged from last month, when it issued a statement saying it "has many patents on the hybrid technology and believes that it has strong defenses against all of Paice's claims and that it will prevail in the ITC proceeding."

American Depositary Shares of the company added $2.15, or 2.9 percent, to $77.22 in afternoon trading.

UPDATE 2-US panel to hear hybrid patent case vs Toyota
Tue Oct 6, 2009 5:41pm EDT

Reuters.com

* Paice complaint similar to one filed in court in Texas

* Toyota has many hybrid patents; confident of prevailing (Recasts with comment from Toyota, background)

WASHINGTON, Oct 6 (Reuters) - A U.S. trade panel that hears patent disputes said it would investigate allegations that Toyota Motor Corp (7203.T), the world's largest automaker, infringed patented technology to make its popular hybrid vehicles.

The U.S. International Trade Commission said on Tuesday that Paice LLC, based in Bonita Springs, Florida, had asked it to order Japan's Toyota to stop using the infringing technology to make the cars and to bar imports with the fuel-saving gasoline/electric technology.

The suit is similar to one that Paice filed in a U.S. court in Texas, a popular venue for infringement suits, where David Folsom issued an order in April requiring Toyota to pay fees to Paice based on the number of cars sold.

Toyota has appealed Folsom's order to the U.S. Court of Appeals for the Federal Circuit.

"Toyota itself has many patents on the hybrid technology and believes that it has strong defenses against all of Paice's claims and that it will prevail in the ITC proceeding," Toyota said in a statement.

Toyota Motor North America and Toyota Motor Sales were also named in the suit.

Paice did not return calls seeking comment.

Toyota is the global leader in mass-market hybrid car sales, with the Prius its signature model. The Prius alone accounted for nearly half of hybrid sales in the U.S. market this year through September. (Reporting by Diane Bartz and John Crawley; Editing by Lisa Von Ahn and Tim Dobbyn)

Toyota Hybrids Face Potential U.S. Import Ban on Patent Probe

By Susan Decker and Alan Ohnsman

Oct. 6 (Bloomberg) -- Toyota Motor Corp., the world’s largest maker of hybrid vehicles, faces a potential U.S. import ban on Prius and other hybrid models as trade officials begin a patent-infringement investigation.

The U.S. International Trade Commission will start a probe into a claim by closely held Paice LLC that some Toyota vehicles infringe a patent for a way of supplying torque, or force, to a car’s wheels from both an electric motor and internal combustion engine, the agency said yesterday.

The ITC has the power to block imports of products that infringe U.S. patents, potentially disrupting Toyota’s sales in the world’s biggest auto market. Paice won a 2005 civil patent suit against Toyota, which was upheld on appeal. In that case, a federal judge rejected Paice’s request to halt sales of the cars and instead ordered royalty payments.

The earlier Paice verdict related to the Prius, hybrid Highlander and Lexus RX400h sport-utility vehicles. The new ITC complaint claims the hybrid Camry, third-generation Prius, Lexus HS250h sedan and Lexus RX450h SUV infringe the same patent.

Since 2000, when Toyota introduced the Prius in the U.S., the Toyota City, Japan-based company has sold more than 1.1 million hybrids in the market, including more than 750,000 Prius cars.

‘Materially the Same’

In the complaint, Paice said Toyota is precluded from arguing that the additional vehicles don’t infringe the patent or challenging its validity because of the 2005 verdict. The hybrid drivetrains of the vehicles in the ITC case “are materially the same” as those in the Lexus and Toyota models in the civil case, Paice said in the complaint.

Paice claims in lawsuits in federal court in Marshall, Texas, that the Camry infringes the patent. That case may go to trial in January. A second case involves claims of infringement of another patent by the Highlander and Lexus models.

To be able to win at the ITC, Paice must show that it has a market to protect. In the complaint, Paice says it has made “substantial investments” in vendors and suppliers and in research and licensing.

The company is based in Bonita Springs, Florida, and has offices in Maryland, Michigan and Virginia, according to the complaint.

The ITC, in an unrelated case, is currently considering the standard that must be met before patent owners who don’t make products can file complaints.

Toyota “has many patents on the hybrid technology and believes it has strong defenses against all of Paice’s claims and that it will prevail in the ITC proceeding,” said Celeste Migliore, a spokeswoman for the carmaker’s U.S. sales unit in Torrance, California, restating comments made last month.

Damages Awarded

In the earlier case, the jury awarded $4.3 million in damages and the verdict was upheld on appeal. U.S. District Judge David Folsom in Marshall rejected Paice’s request to issue a court order to halt sales of the Toyota vehicles.

Instead, in April he ordered Toyota to pay royalties based on the wholesale prices equal to 0.48 percent for a second- generation Prius, 0.32 percent for each Highlander and 0.26 percent for each Lexus RX400h. Toyota is appealing that order.

The ITC case is In the Mater of Hybrid Electric Vehicles, 337-688, U.S. International Trade Commission (Washington). The civil cases are Paice LLC v. Toyota Motor Corp., 04- cv-211; 07cv180 and 08-cv-261, U.S. District Court, Eastern District of Texas (Marshall).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net.

Last Updated: October 5, 2009 21:30 EDT

Excluded Icon? Paice ITC Action Seeks Prius Importation Ban

TOYOTA'S HYBRIDS COULD BE BANNED FROM THE AMERICAN MARKET

Autoline on Autoblog.com with John McElroy

by John McElroy on Sep 17th 2009 at 6:01PM

TOYOTA'S HYBRIDS COULD BE BANNED FROM THE AMERICAN MARKET

In a shocking development Toyota faces a lawsuit filed with the U.S. International Trade Commission that seeks to ban the import of all hybrids to the American market. Toyota is being sued by Paice LLC for patent infringement on its hybrid system.

Before you think this is just a frivolous lawsuit that has no standing whatsoever, consider the fact that Paice has already successfully sued Toyota on five counts of patent infringement, and won on three of them. In April of this year, Paice was awarded by the Federal district court in the Eastern District of Texas a future royalty of $98 for every Prius sold.

Toyota is appealing that verdict, but just to up the ante Paice decided to file its suit with the ITC and go for an all-out ban on all the hybrids the giant Japanese automaker brings into the U.S. market.
 

____________________________________________________________________________________

John McElroy is host of the TV program "Autoline Detroit" and daily web video "Autoline Daily". Every week he brings his unique insights as an auto industry insider to Autoblog readers.
____________________________________________________________________________________
Paice's hybrid system is the brainchild of Russian inventor Alex Severinski who managed to emigrate from the former Soviet Union in the mid-1970s. He landed in the United States smack dab in the middle of the first oil embargo. The way he tells it he escaped from the Soviet system where people had to stand in line to buy food only to land in America were people were standing in line to buy gasoline. Being an electronics engineer he decided to design a series hybrid system based on low-cost, high-voltage electronics. Severinski then began the long, arduous effort to get the auto industry interested in his invention.

 

Fast-forward a decade or so and an entirely chance encounter brought his invention to the attention of the late Bob Templin, the former chief engineer at Cadillac. Templin was retired at the time but became intrigued by the possibilities that Severinski's invention offered. Soon he recruited other automotive executives with extensive experience, including Ted Louckes, the former chief engineer of Oldsmobile, and Bob Oswald the former president of North American operations for the Bosch Company.

I mention their names because I've known each of these men for most of my career. They're honest, straight-forward executives who came up through the engineering ranks and really know technology. They're not the types who could get snowed by some pie-in-the-sky inventor.

The first thing they did was advise Severinski to get his invention patented. After that they joined Paice's board of directors. Then they too tried to get automakers interested in their hybrid system, but to no avail.

When Toyota came out with the Prius, Paice was pretty sure Toyota had infringed on its patents, so it sued the automaker. The lawsuit wound its way through the courts until they won this April's verdict.

Clearly Paice is more interested in getting Toyota to pay it royalties than in preventing the automaker from importing hybrids. And while Toyota can easily afford to pay them, it would certainly lose a lot of face if it turns out that it infringed on someone else's patents while trying to build its reputation as the world's leader in hybrid technology.
 

Autoline Daily

Video Episode 224 – GM To Move Out Of Detroit, GM’s CFO In Trouble, Paice Lawsuit on Toyota Hybrids

AutoLineDetroit.TV
September 9, 2009

Excerpt:

"Last week we reported that the Paice Company filed suit with the International Trade Commission to prevent Toyota from importing anymore hybrids into the American market. We pointed out that Paice had successfully sued Toyota over patent infringement and now Autoline Daily has more information on that law suit. In April of this year, Paice was awarded by the Federal district court in the Eastern District of Texas a future royalty of $98 for every Prius sold. So far, Toyota has sold over 1 million Priuses worldwide since it first came out. If this stands up under appeal, Toyota could face a big fine, but more importantly, it would lose face over having infringed on someone else’s patents in bringing hybrids to the market." 

 

Did the Prius Violate Patents?

The news broke last week that Toyota is once again being assailed by a company called Paice LLC. Paice has asked the International Trade Commission to do something about what it alleges is patent infringement of its hybrid drivetrain technology by Toyota. In 2005, Paice won a legal case in which Toyota was ordered to pay a royalty on its hybrid cars, but Toyota appealed the judgment. Conceivably, the ITC complaint could block imports of cars such as the almighty Prius to these shores.

Media reports have glossed the technology in question as involving hybrid drivetrains, but a bit of digging turned up the backstory. Evidently, in the 1970s, an émigré Russian engineer came to America, witnessed the gas crisis, and decided to do something about it. By the early 1990s, Alex J. Severisnsky had patented a hybrid gas-electric drivetrain that would, by the 2000s, become a hit for Toyota. Severinsky helped start Paice with a colleague, and at the moment, he’s a professor at the University of Maryland who drives a Prius, thinks Toyota is a good company—and presumably is waiting for the Japanese to start paying him some money.

It’s unclear (of course) whether Toyota actually infringed on Severinsky’s patent. Apparently, Toyota passed on a Paice proposal to do something with the hybrid drivetrain, then created its own version. And Severinsky isn’t trying to get Priuses and other Toytoa hybrids off the road. In fact, it seems that this latest complaint is designed to keep Paice’s claim current with new Toyota hybrid models, and probably not incidentally, keep the idea that Toyota is a patent-jumper fresh in the public’s mind.

Lawsuit Threatens to Halt Sales of Toyota Prius

Posted: Sep. 08, 2009 09:09 a.m.

Toyota Prius Faces Ban Due to US Patent Suit

TreeHugger.com

by Jaymi Heimbuch, San Francisco, California 09. 05.09
 

Photo via Beige Alert

Paice, a company that develops hybrid electric power train technology, has filed a patent infrigement case against Toyota (yet again), saying that the company is using Paice's technology in the Prius and two other hybrid vehicles. Should Paice win, it could spell the death of certain vehicle imports, possibly including the green icon Prius.

According to Sam Eaton in an article from Marketplace, Paice claims Toyota's new Prius, hybrid Camry and two Lexus models are using technology Paice created. Back in 2005, the company won a claim against Toyota for this very infringement. That claim cost Toyota a whopping $4.3 million - $25 for every Prius, Highlander and Lexus RX400h sold using the disputed technology. It says Toyota is again using the same technology, and therefore has a fighting chance for this claim.

On Thursday, Paice filed a patent infringement case with the U.S. International Trade Commission. The agency is set up to protect U.S. markets from unfair trade practices, patents included. If it rules in favor of Paice, the agency could decide to impose an import ban on the violating products. That process could take more than a year.

Because Toyota is, well, Toyota, industry experts say the likely outcome is a fairly massive fine, and not banning imports of the incredibly popular vehicles.

Here's a bit of a kicker: With the last suit, "Paice said the market for hybrid cars "did not take off" until Toyota "revamped its vehicle program" with technology Paice patented almost a decade earlier." So if a company has a technology that could be a huge boon for drivers and the environment and they sit on it for a decade, does a competing company that finally does something with it and makes it a success really need to be sued repeatedly for using it? Paice seems to be somewhat at fault for not being effective enough with a smart technology.

It's a sticky situation, and we certainly don't want to see Toyota hybrid vehicles banned from US import because another company can't make their own tech fly.

AllCarsElectric.com

Toyota Hybrids Blocked From U.S. Due to Patent Issues?

By  Eric Loveday

Author, September 5th, 2009

With sales of Toyota hybrids booming in its home country and elsewhere across the globe, Toyota leads the competition in the hybrid market.  Seemingly every hybrid model developed by the company fares well including the newly released Lexus HS 250h.  So what could hold Toyota back in this hybrid race?  Patent infringements could.  Depending on the judgment by U.S. courts, Toyota's imports of certain hybrid models could theoretically be entirely blocked from the U.S. shores. 

Autoline Daily

Video Episode 222 – Paice Sues Toyota, GM Executives Under Fire, Audi President Belittles Volt

AutoLineDetroit.TV
September 4, 2009

Excerpt:

"Uh-oh, even more trouble for Toyota. Bloomberg reports that a company called Paice claims that Toyota violated its patents for hybrids and is seeking a ban on all imports of the Prius and other Toyota hybrids into the United States. Before you think this is crazy, Paice sued Toyota for five counts of patent infringement in 2005 and won on three of them. Paice was founded by Russian inventor Alex Severinsky, and several retired auto executives from General Motors, Ford and the Robert Bosch company. In fact, I interviewed these people on Autoline Detroit nine years ago. You can find that interview in our archives, it’s show number 528. And while the video quality is lousy, the audio is OK."

U.S. could pull plug on Prius imports

Friday, September 4, 2009

Marketplac.PublicRadio.org

U.S. hybrid technology company Paice filed a patent infringement case yesterday claiming Toyota is using technology Paice invented. If the case rules in favor of Paice, an import ban may be imposed on violating products. Sam Eaton reports.

TEXT OF RADIO STORY:

Listen to this Radio Story

Toyota Patent Trade Case May Threaten Hybrid Imports

Bloomberg.com

By Susan Decker and Alan Ohnsman

Sept. 4 (Bloomberg) -- Toyota Motor Corp., the world’s biggest seller of autos powered by a combination of gasoline and electricity, faces a patent-infringement claim that may result in a U.S. import ban on its Prius and other hybrid models.

Closely held Paice LLC filed a complaint yesterday with the U.S. International Trade Commission in Washington, claiming Toyota is infringing its patent. The company seeks an order to ban imports of Toyota products using its invention.

Paice won a jury verdict in 2005 that the Prius and hybrid Highlander and Lexus RX400h sport-utility vehicles used Paice inventions related to drivetrains. The new ITC complaint claims the hybrid Camry, third-generation Prius, Lexus HS250h sedan and Lexus RX450h SUV infringe the same patent.

“Given the momentum Toyota hybrids have in the marketplace, I don’t foresee a situation where their hybrid sales stop,” said Ed Kim, an analyst at AutoPacific Inc. in Tustin, California. “Toyota has been pretty good about looking ahead, so it would be surprising if they hadn’t foreseen and prepared for something like this.”

In the complaint, Paice said Toyota is precluded from arguing that the additional vehicles don’t infringe the patent or challenging its validity because of the 2005 verdict, which was upheld on appeal. The hybrid drivetrains of the vehicles in the ITC case “are materially the same” as those in the Lexus and Toyota models in the civil case, Paice said in the complaint.

That same patent will be at the center of another trial set to begin Oct. 1 in federal court in Marshall, Texas, involving the Camry. Paice claims the hybrid sedan infringes two other patents. A second case pending in Marshall involves claims of infringement of another patent by the Highlander and Lexus models.

Exclusion Order

The commission in Washington is set up to protect U.S. market from unfair trade practices, including patent infringement. If it agrees to investigate Paice’s claims, the investigation could be completed in about 15 months. It has the power to order U.S. Customs and Border Protection officials to block infringing products from entering the country.

Unlike a civil court, the ITC doesn’t have the power to order Toyota to pay royalties, and the only remedy possible if a violation is found is an exclusion order. Toyota spokesman Hideaki Homma declined to comment on the case.

To be able to win at the ITC, Paice must show that it has a market to protect. In the complaint, Paice says it has made “substantial investments” in vendors and suppliers and in research and licensing.

The company is based in Bonita Springs, Florida, and has offices in Maryland, Michigan and Virginia, according to the complaint. Company officials didn’t immediately return calls.

Patent Owners

The ITC, in an unrelated case, is currently considering the standard that must be met before patent owners who don’t make products can file complaints.

Toyota closed unchanged at 3,850 yen in Tokyo.

In the earlier case, the jury awarded $4.3 million in damages and the verdict was upheld on appeal. U.S. District Judge David Folsom in Marshall rejected Paice’s request to issue a court order to halt sales of the Toyota vehicles.

Instead, in April he ordered Toyota to pay royalties based on the wholesale prices equal to 0.48 percent for a second- generation Prius, 0.32 percent for each Highlander and 0.26 percent for each Lexus RX400h. Toyota is appealing that order.

1.1 Million Sold

Since 2000, when Toyota introduced the Prius in the U.S., the company has sold 1.1 million hybrids in the market, including more than 750,000 units of Prius.

Toyota created the market for hybrid vehicles when it introduced the Prius in Japan in 1997. The company has set a goal of selling a million gasoline-electric vehicles annually beginning in the early 2010s.

The third-generation Prius, which went on sale in May, gets an average of 50 miles per gallon in combined city and highway driving, making it the most fuel-efficient gasoline-engine vehicle sold in the U.S., according to the Environmental Protection Agency.

This isn’t the first ITC case Toyota has fought over its hybrid motors. Solomon Technologies Inc. of Tarpon Springs, Florida, lost a case in which it claimed its technology for transmission drives was used in Toyota Prius, Highlander, Camry and Lexus vehicles. An appeals court last year upheld the ITC’s decision.

Solomon has a pending civil suit against Toyota in federal court in Tampa, Florida, that Toyota is trying to get thrown out by arguing the issued was resolved by the ITC.

Rollover Cases

Toyota also may face demands that rollover-crash cases it won or settled be reopened, in light of accusations by a former company lawyer that the company hid records sought by plaintiffs.

The ex-Toyota lawyer, Dimitrios Biller, sued the company in July, claiming the world’s largest automaker and its U.S. units destroyed engineering and testing evidence relevant in more than 300 suits over sport-utility vehicle rollover accidents. Biller managed the electronic document-discovery program for Toyota, he said in court papers.

The ITC case is In the Mater of Hybrid Electric Vehicles, 337-2680, U.S. International Trade Commission (Washington). The civil cases are Paice LLC v. Toyota Motor Corp., 04- cv-211; 07cv180 and 08-cv-261, U.S. District Court, Eastern District of Texas (Marshall).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net.

Last Updated: September 4, 2009 02:44 EDT