Could a patent dispute take the Kindle off the market?

By Richard Nieva , written on February 6, 2013

From The News Desk

Can the baggage of one of its manufacturing partners burn Amazon? It seems unlikely, but that could be the case if a federal court grants the permanent injunction that one company is seeking.

Copytele, a company that licenses out its patents to other companies, has filed a lawsuit that in part seeks for the company E Ink, which makes the technology behind e-readers like the Kindle and Nook's screens, to stop production of those displays. Copytele claims E Ink illegally obtained the patents required to make them. Because E Ink is the only company that makes those screens, this could mean that Kindles and Nooks go off the market, at least for some period of time.

To be sure, E Ink technology is only used in the no-frills e-reader models – the gray with black text, non-LCD screens, unlike the display on a Kindle Fire, which is more of a common tablet. So on a scale of old school Game Boy to iPad, E Ink falls more on the monochromatic end.

The trail leading back to Copytele is a bit complex. The company has filed two lawsuits. First, Copytele is suing AU Optronics (AUO), a Taiwanese technology manufacturer, and E Ink for “AUO’s breach of contract and fraud, and E Ink’s aiding, abetting and conspiracy to effectuate AUO’s fraud,” the lawsuit says. E Ink declined to comment. And both AUO and Amazon did not return requests for comment.

It’s less Hollywood thriller than it sounds, but it’s not without its corporate intrigue. In May 2011, AUO approached the Melville, Long Island-based Copytele wanting to buy patents for electrophoretic technology, which makes the electric ink display possible. Copytele refused, but agreed to work with AUO to license the patents and work jointly to take a Kindle and Nook competitor to market. Then, a little over a year into the agreement, AUO sold that part of its business to E Ink for $50 million, and sublicensed the Copytele patents to that company, leaving Copytele with nothing, says Rob Berman, Copytele’s CEO. Berman thinks AUO made the Copytele deal already knowing it would sell to E Ink.

The second lawsuit involves AUO's licensing out another one of Copytele’s patents so the two companies could jointly develop their own tablet. Copytele's "nano field emission display" patent helps enable manufacturers to make slimmer tablets and television screens. Seven months into the Copytele licensing agreement, AUO cancelled the whole production budget. Berman says he thinks AUO, which works with Apple to make iPads, made the move to avoid cannibalizing tablet sales with Apple.

“These acts are really the final blow to put the company into bankruptcy,” says Berman. Along with the injunction, Copytele is asking for damages in the form of a cash settlement. Berman didn’t specify say how much the company wants, but says Copytele should be paid hundreds of millions of dollars for each of the two lawsuits.

It’s hard to tell what to make of the lawsuits. Berman is certainly no stranger to suing large companies. He joined the company in September, coming from Acacia as its chief legal enforcer, and has in the past sued Microsoft, Apple and Comcast. Copytele calls itself a “patent monetization and assertion company” which generates revenue from licensing to other companies, and also takes in money from going after infringers. Pejoratively, these companies have also been called “patent trolls.” They make no products of their own, and are known as “non practicing entities.”

The wrinkle, though, is that this wasn’t always the case for Copytele. The company used to make technology products of its own, but chalking it up to being run by bad businessmen, eventually decided to lean on its patent portfolio. Over 30 years as a company, it developed 55 patents, and the ones in question here are patents that the company invented. Regardless, I suppose the origins of the patents wouldn’t have any bearing on the company’s modus operandi, whatever that may be. Still, if the company has legitimately been wronged, it deserves reparation.

What seems clearer, though, is that being granted a permanent injunction looks like an uphill battle. A lawyer friend of mine says the company might be primarily looking for cash and seeking the injunction as a prayer. He tells me the litmus test for a court granting an injunction hinges on four things, one of which asks if the party is likely to suffer “irreparable harm” without the injunction. In other words, is it absolutely necessary to stop E Ink's production -- and by extension the sale of Kindles or Nooks, or is the cash settlement enough to fill the hole for Copytele? Another part of the test asks if it is in the public’s interest to grant the injunction. It seems like taking these e-readers off the market would be against that interest.

Either way, it’s certainly against Amazon’s interest. In its quarterly report last week, the company's e-reader business seemed to be the best thing going for the company, whose earnings fell 45 percent last quarter. Some analysts say the company shipped 5 million Kindles last holiday quarter, though the specific breakdown of sales for types of Kindles are unclear. Nevertheless, taking away the pure e-reader version would be a blow to the company.

[Illustration by Hallie Bateman]