A Bad Example for Nanotech Industry
By
Alan B. Shalleck
NanoClarity LLC
February 2007
Well, it has finally happened. Nanotechnology has begun to experience the long predicted triumph of the nanotech patent lawyers, potentially inhibiting the growth of the entire industry. A patent licensing suit is holding up a major nanoproduct line (nanotech based
TVs) from commercial introduction. Unfortunately, the strategy being pursued by the patent holder is myopic and Pyrrhic. It is bad for the company’s economic future and clearly a bad example for the industry. The suit is a strategic suicide and, if imitated, could severely limit nanotechnology’s commercial growth in critical applications over the next few years.
The two defendant companies are not small companies. They are Canon and Toshiba.
The complaining litigant is the very small subsidiary, Applied Nanotech (AN), of public
Nano Proprietary, Inc. (NPI) of Austin, Texas. NPI has an IP (royalty) based business model. NPI accumulates intellectual property (patents, trademarks, know how, etc) and, after further developing its patented technology, licenses the improved technology under the patents for future royalties. Since its only future income is a royalty, NPI is completely dependent upon the successful introduction and growing sales of a third party product containing the licensed technology for its future revenue. NPI doesn’t control any end user customer base nor does it control the timing of revenue growth. Clearly, the third party introduced product must be very very successful to generate significant royalty income for NPI. It is tough to earn royalty revenues in a predictable and timely way.
The patents in question are core nanotube patents describing carbon nanotube field electron emission TV displays (FED) and surface electron (slit stimulated) emission TV displays (SED). CNT’s emit electrons similar to an electron gun in a TV tube firing electrons at screen phosphors. Printing CNT’s and control circuitry just behind each phosphor results in very thin displays, low manufacturing cost and incredible sharpness.
SED’s use a nanosized slit with or without nanotubes for a similar effect. AN claims it has fundamental patents in both areas.
Canon licensed the SED patent technology (lump sum limited rights purchase) from AN and formed a joint venture (SED, Inc.) with Toshiba, one of the largest TV display makers to create and market SED TV displays. As a part of the joint venture, Canon shared CNT/SED information with Toshiba. AN, claiming that Canon had no right to share its patented information with a non-subsidiary, sued to enjoin any product made by
Toshiba or by the joint venture. As a result of the suit, Toshiba which has an amazing new 55” screen product line based on a superbly sharp SED display and a full production capability investment pulled its new 55” SED screen TV from Comdex last month and indefinitely postponed product introduction. Moreover, it is now uncertain whether the
Toshiba SED TV will be free of litigation to be introduced even next year.

How sad. There isn’t a dollar in nanobased TV sales revenue or in royalties over which to argue in a $70 billion market, and NPI has stopped a high profile superb nanotech TV product from introduction. No one will make any money from this nanotechnology achievement for at least two years because of NPI’s Pyrrhic lawsuit. It is just an insane business strategy. Rather NPI should have immediately non-exclusively licensed Toshiba for a nominal royalty and encouraged Toshiba to market its TV product immediately to generate royalty income.
The entire nanotech industry should learn from this strategic stupidity. Encourage companies to license your patented technology immediately. Until the nanotech industry matures, no one (but the patent lawyers) wins in nanotech patent suits. Nanotech needs commercial products in the field to prove that all the funds spent were not wasted and to develop sales momentum and visibility. Stopping a billion dollar potential product is not the way to build up or generate positive publicity or actual sales revenue for the industry.
Nanotech is at the bottom of the value chain. A company with core patents needs many products incorporating their patented technology on the market to earn significant royalties. One licensed company or product is not a path to sustainable profitability.
Small nanocompanies with licensable patents do not have strong “appropriability” regimes against larger companies in an industry where billions are being spent on R & D worldwide. If small nanocompanies choose to fight the world to protect alleged patent claims, in almost all cases, they will not have the resources to prevail in the courts if challenged, nor can they prevent massive investment by those they sue to work around a specific patent claim. It’s my experience that given enough time and money, all patents can be worked around by large companies … if they elect to follow that strategy.
Patent claim fighting is a long term losing strategy for the small nanotech company.
Patents in a changing industry such as nanotechnology buy only time. Time is the valuable asset. By suing in court the small patent holding company is wasting its time advantage and inhibiting the very source of its future income … the sales of the product by the company being sued. It’s just not a bright thing to do.
Therefore, in order to maximize future revenues, as Microsoft showed with Windows (vs.
Apple’s proprietary operating system strategy) small nanocompanies with licensable IP should offer their patented technology to all comers as soon as practical. They should responsibly non-exclusively license the world. The model shows they should approve many product paths to the marketplace for a lower per license royalty and watch the multiple-sourced sustaining royalties swell their bank accounts.
Alan B. Shalleck
© 2007 NanoClarity LLC - all rights reserved.
NanoClarity LLC www.nanoclarity.com alan@nanooclarity.com