Static Control Initiates Legal Action against Chip Partner

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Date: Thursday April 12, 2012 09:24:27 am
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    Static Control Initiates Legal Action against Chip Partner

    On March 8, Static Control Components filed a complaint in the U.S. District Court for the Middle District of North Carolina alleging that seven firms violated a cross-licensing agreement they entered into with the company. According to the filing, the firms named as defendants are either owned or run by Steven Miller, an inventor based in Florida. Through the firms, Mr. Miller licensed certain chip technologies to Static Control for components used in Lexmark cartridges. Now, apparently, the deal is on the rocks.

    The agreement reached by Static Control and Mr. Millers companies is intricate almost convoluted. Static Control claims the various Miller companies transferred patent rights without its knowledge and then tried to poach its clients by claiming Static Control was selling them patent-infringing chips. Some of the allegations are difficult to fully comprehend because the actual licensing agreement is under seal. We are not lawyers and have not been privy to all the evidence, but here is what we can discern from the public court documents.

    Static Control Cries Foul
    The complaint filed in the North Carolina court alleges that Static Control executed a cross-licensing agreement with IED, ICT, and CCA in November 2007. The deal granted the Stanford, NC-based firm rights to three U.S. patents (7,286,774, 7,221,886, and 7,187,874), which cover intellectual property found in so-called universal chips for Lexmark monochrome toner cartridges. The license, claims Static Control, also covered ¡°any continuation¡± of the three patents that might be used in other patented technologies.

    Static Control filed suit against its former chip partner here at the federal courthouse in Greensboro, NC

    While it does not explain the significance of the move, the filing contends that Mr. Miller transferred the patent rights granted to Static Control to other companies he operates in May 2010. Specifically, the rights to the ¡®774, ¡®886, and ¡®874 patents were assigned to defendant UIH, and Static Control then agreed to the transfer after the fact. In addition, Mr. Miller transferred rights to U.S. patent 7,551,859 to AIC without informing Static Control. The ®859 patent also covers universal chip technology, and Static Control contends it is a continuation-in-part of both the 774 and 874 patents.

    The 859 patent sits at the heart of the complaint. According to Static Control, the assignment of the 859 patent to AIC is in derogation of Static Controls rights under the cross-license agreement. Apparently, some or all of Mr. Millers companies contend that Static Control has not been granted any rights to the 859 patent. Attorneys for the Miller companies contacted Static Control to inform it that it was selling certain products that infringe the 859 patent. Static Control, however, refutes this claim and says it hold the rights to use the 859 patent under the licensing agreement because it is a continuation of the 774 and 874 patents.

    The two sides have tried and failed to resolve the matter, says Static Control, and now the matter is before the court.
    The Plot Thickens

    The Static Control complaint sheds some light on recent allegations made by certain defendants in the case, including AIC and ICT along with Platinum Manufacturing International, the latter another Miller firm that is not named as a defendant in Static Controls complaint. In December, these three Miller companies sued dozens of third-party supplies vendors, including some of Static Controls customers, for marketing remanufactured Lexmark cartridges with chips that infringe the 859 patent and other patents Mr. Miller holds .

    Static Control alleges that, after filing the December suit, the Miller companies contacted the Static Control customers named in the complaint and offered to dismiss their claims if the defendants would agree to purchase their cartridge chips directly from the Miller Entities, rather than Static Control.Static Control contents that, as a result, the Miller companies breached their cross-licensing agreement.

    Defendants in the Miller companies lawsuit that stand accused of violating the 859 patents will find the Static Control filing relevant, especially those defendants that purchased Static Control products alleged to be infringing. Static Control is asking the court for declaratory judgment affirming that the cross-licensing agreement is enforceable and therefore the company has a valid and exclusive right to market products based on the 859 patent.

    Static Controls lawyer, William London, also included an interesting contingency in his filing. In the event that the court finds the cross-licensing agreement does not cover the 859 patent, Static Control is challenging the patents validity. If the agreement itself is not enforceable, then the company requests the court to render a declaratory judgment that the 859 patent is unenforceable along with a judgment that it did not infringe the patent.

    We wonder what bearing, if any, Static Controls suit may have on past and present chip cases involving the plaintiff and the defendants. For example, Static Control and ICT are co-plaintiffs and co-defendants in a lawsuit against Future Graphics that is pending in the same North Carolina court in which Static Control is suing the various Miller entities. If the cross-licensing agreement is not affirmed, will Future Graphics case be strengthened? Likewise, the now-estranged partners sued Future Graphics chip supplier, PowerVIP. Will PowerVIP be emboldened to challenge aspects of that case if the agreement between Static Control and ICT is not binding?


    FUD Factor
    While an endless stream of questions may spring from Static Controls lawsuit, the one certainty is that, in the short-term, remanufacturers and their distributors will be filled with FUD fear, uncertainty, and doubt about Lexmark chips and remanufactured cartridges. Numerous unsubstantiated rumors are circulating that representatives from one or more of the Miller companies have informed remanufacturers that Static Controls chips are infringing. The blogosphere is now rife with posts from concerned distributors looking for cartridges with non-infringing chips. It would have been better for all concerned if the two combatants could have settled their differences outside of the courthouse.

    Static Control may have felt that it had no choice but to sue. We think, however, the suit exposes the firm to no small amount of risk. Over the past several years, Static Control has emerged as one of the industrys leading chip manufacturers at the very least the largest in North America and perhaps the largest in the world. This squabble could send customers fleeing into the arms of the competition. Having moved away from commodity products like monochrome toner and OPC drums, Static Control cannot afford to lose the revenue derived from its Lexmark chips.

    Mr. Millers firms will not fare much better. It is unlikely any remanufacturer would drop Static Control out of fear of a lawsuit from Mr. Millers companies, only to turn around and purchase chips from companies being sued by Static Control. Companies are bound to look at chips from the Miller companies with a wary eye knowing they¡¯ve locked horns with Mr. London. The Miller firms face other risks. Entities own by Mr. Miller are currently embroiled in multiple other legal actions with various companies including the 28 firms named in the December suit, Future Graphics, PowerVIP, and others. A couple of Mr. Miller¡¯s firms have even entered into an infringement battle with Lexmark. Can pitched legal battles be fought successfully on so many fronts without the experiencing some collateral damage?

    Remanufacturers will be even more wary about where they source their chips as a result of all the lawsuits
    The big winners in all this are rival chipmakers like Apex Microelectronics, Printchip International, and others that have remained above the fray. Static Control and its estranged partner have been quite active in suing the competition. We suspect that any major chip manufacturer that has managed to avoid being targeted by Static Control and the Miller companies has most likely successfully worked around the patented technologies in question. Static Control and Mr. Miller¡¯s companies are at least destined to lose some sales of chips for Lexmark cartridges to these competitors. And they could lose even more business if their customers decide to avoid the litigious duo altogether and source all their chips from new vendors.

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