Font Size: 
Toyota Locked in Litigation Over Hybrid Car Patents
The National Law Journal
November 02, 2009
In its newest, flower-filled ad campaign, the Toyota Prius is touted as "harmony between man, nature and machine."
But when it comes to intellectual property, harmony is the last word to describe the Prius. The iconic eco-friendly car, beloved by celebrities such as Leonardo DiCaprio, Cameron Diaz and Julia Roberts, is at the center of a bruising patent fight on multiple fronts.
The latest battle is taking place at the International Trade Commission, where nothing less than Toyota's ability to continue importing the Prius, as well as hybrid versions of the Camry and Lexus, is at stake.
On one side is a tiny company, Paice LLC of Bonita Springs, Fla., that owns a patent related to a key component of the cars' hybrid engine. On the other is the world's largest automaker, which has sold more than 600,000 Prius cars in the United States since the model's introduction in 2000.
Paice doesn't make hybrid cars, nor does it have any plans to do so. Instead, the company's goal is money -- getting the maximum royalty fee for every Toyota hybrid sold here using technology that a federal court in Texas already found belongs to Paice.
"It's a death blow for Paice if Toyota is able to take our ideas and not pay for them," said Paice lead counsel Ruffin Cordell, a Washington partner at Fish & Richardson. "These guys have been using Paice's technology for years now."
Toyota, which is represented by George Badenoch of Kenyon & Kenyon in New York, has some serious allies in the fight. Apple Inc., Cisco Systems Inc., Microsoft Corp., Verizon Communications Inc., Volkswagen Group of America Inc., plus trade groups for major automakers have weighed in on a parallel case now pending before the U.S. Court of Appeals for the Federal Circuit.
These companies are all intensely interested in how the court goes about calculating the ongoing royalty rate for Paice's patent -- a question that has become more pressing in the wake of a 2006 Supreme Court decision eBay Inc. v. MercExchange.
WHIPSAWED BY EBAY
At the root of the fight is an invention that relates to the drive train of hybrid cars. In gas/electric hybrids like the Prius, the wheels are sometimes driven by an electric motor, sometimes by an internal combustion engine and sometimes by both. The tricky part is combining and controlling power from each source.
In 1994, Dr. Alex Severinsky was issued a patent for a microprocessor that did just that. Severinsky had immigrated to Texas from the Soviet Union, arriving just in time for the gasoline shortage of 1979. "He left Russia, where he waited in line for bread, to come to the U.S., where he waited in line for gas," said Cordell. The experience inspired him to look for an alternative way to power a car, and Paice -- which stands for Power Assisted Internal Combustion Engine -- was founded in 1992.
Severinsky, who continued to secure related patents, presented his invention to major automakers including Toyota, but a deal remained elusive, said Cordell. Toyota's lawyer, Badenoch, declined to comment for this story.
When Toyota introduced its second-generation Prius in 2004 using technology that looked suspiciously familiar to Severinsky, Paice filed suit in Texas federal court. Paice alleged three counts of patent infringement, naming three Toyota vehicles: the Prius, the Highlander hybrid sport utility vehicle and the Lexus RX400h SUV.
In December 2005, after a 10-day trial, a jury found Toyota had infringed one of Paice's patents. Paice was awarded damages of $4.3 million. (The judge in the case, David Folsom, wrote in a later decision that he "felt the jury's award was low.")
But Paice didn't initially complain. That's because the company was focused on a bigger prize: winning a permanent injunction that would bar Toyota from making, using or selling the cars in the United States for the life of the patent, which expires in 2012.
"When you have a threat of an injunction that would be incredibly disruptive and incredibly costly to Toyota's business, Paice's bargaining position would be that much better to negotiate a higher royalty rate going forward," said Eric Lane, a senior intellectual property associate at San Diego's Luce, Forward, Hamilton & Scripps who has been following the case on his Green Patent Blog.
But in May 2006, less than a month after the hearing on Paice's injunction motion but before Folsom had issued a ruling, the Supreme Court handed down its eBay decision.
