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Netac sets up a model in IPR suit

By Jiang Jingjing (China Daily)
Updated: 2008-04-07 14:20

Not everyone has the courage to speak up when their intellectual property (IP) rights are infringed upon, especially when it happens in a rival's country.

But Deng Guoshun, founder and president of Shenzhen-based Netac Technology Co Ltd, was brave enough to take action against PNY Technologies Inc, a market leader in the US computer storage retail market.

After a two-year lawsuit, the two parties agreed to settle out of court and signed a patent license agreement, granting PNY permission to use Netac's patent legally.

"I am very satisfied with the outcome, which is exactly what we expected two years ago," Deng says, declining to reveal details about the negotiation.

"We only wanted to protect our patent, and the US court ruled last October that our proof stands its ground," Deng says, explaining why his company did not seek a final court ruling and possible compensation from its rival. "We want our partnership (with PNY) to continue."

A pioneer of the USB flash drive industry, Netac is one of the largest USB memory devise solution suppliers and manufacturers in the world.

Netac sued PNY in the Texas Eastern District Court on February 16, 2006, for infringement of its flash memory patent. Netac requested the court to enter a judgment enjoining PNY from producing or selling the flash memory disks in question, and ordered the company to provide Netac adequate compensation for the infringement.

Netac's action was highly praised by the Chinese industry. This patent litigation being brought against a US enterprise by a Chinese enterprise outside of Chinese jurisdiction is seen as a milestone.

Netac obtained a patent for its flash memory technology and flash memory disk used in data processing systems in July 2002, with the patent number ZL 99117225.6. After four years of strict scrutiny, the US Patent and Trademark Office approved the patent on December 7, 2004, with the patent number US 6,829,672.

The Netac flash memory drive is the first mobile storage devise in the world to combine flash memory and a USB interface. It has many technical advantages compared to floppy disks, including a higher speed, larger memory, longer life, plug-and-play and size.

It was claimed as one of the most important breakthroughs in the global computer mobile storage area in more than a decade.

The disputes between Netac and PNY arose from this patent.

With the development of Chinese technology, the number of patents obtained by Chinese enterprises in the US has steadily increased. Accordingly, the frequency of patent infringements has increased as well, says Yang Zhengwu, director of the China Intellectual Property Society.

He says Netac's success has created a model for numerous Chinese companies who share a similar experience.

"The cost is controllable for overseas lawsuits," Deng notes, ruling out worries that many local companies have about costs. "Compared with the cost of at least several million yuan spent by many local firms to run advertisements during Central China Television's prime time, our cost is very small."

"Many Chinese companies worry about the cost and the possible jury bias when a Chinese company does litigation in US. But after some experience, most businesses worldwide see the concern as overblown, manageable and just another cost of doing business in a competitive environment," says Stephen Judlowe, Netac's representative lawyer, with the Morgan Lewis & Bockius LLP.

Deng says the legal action shows his company's intent to expand and protect its business in the US flash memory market. "This 'patent first' way is similar to most international technology companies' globalization strategy. Chinese companies strive to participate the global competition with a new approach, and IP will be respected worldwide," he says.

Currently there are still many companies from both home and abroad using Netac's patent illegally, and Deng did not rule out the possibility of further suits.

Netac has 336 patents globally, of which 245 are invention patents. It licenses 32 patents across the world, including the Chinese mainland, the US, South Korea, Hong Kong, Taiwan, Singapore and Malaysia.