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Hewlett-Packard Co. may have winced when it forked over $400 million in cash to Pitney Bowes Inc. to settle a patent infringement suit, but some patent litigators say the sum is not surprising given the billions of dollars in revenue from HP printers that use the patented technology in question. Palo Alto, Calif.-based Hewlett-Packard agreed to settle the six-year suit on Monday, just as the case was about to go to a jury trial. The patent at issue covers a method for improving the resolution of printed images by using toner dots of different sizes. According to Pitney, the technology is fundamental to modern laser printers. Because Pitney, which is headquartered in Chicago, Ill., did not use the technology in any of its products, a jury award would have been limited to royalties on past sales of HP laser printers, roughly from 1989 to 2000 — the year the patent expired. “There was a fight over what the royalty would be and what it would be based on,” said Pitney Vice President and general counsel Sara Moss. “The royalty rate could have been based on either sales or profits. We factored that in agreeing to the [settlement] amount.” Pitney’s outside counsel, Michael Ciresi, a partner at Minneapolis-based Robins, Kaplan, Miller & Ciresi, said the two companies also disagreed over whether the royalty base should be limited to the sale of laser printers ($16 billion over 10 years) or also include the sales of accessory products (an additional $8 billion). Ciresi said the $400 million settlement is the largest cash settlement outside a trial verdict that he is aware of in a patent case. In 1999, Genentech Inc. settled a patent infringement suit with the University of California for $200 million, which at the time was considered one of the biggest patent settlements in history. However, most settlements in patent disputes are kept confidential. HP’s attorney, Morgan Chu, a partner at Irell & Manella in Los Angeles, referred questions about the agreement to Hewlett-Packard. Company spokesman David Berman said he couldn’t “characterize the settlement” beyond what was in HP’s press release. Asked about the annual sales of HP laser printers, Berman said, “we don’t break out those financial details.” According to HP’s annual filing with the SEC, the company’s net revenue for all of its imaging and printing systems totaled $20.5 billion last year. Other litigators say that while the award is significant, it is not out of line given the revenue from HP printers. “My guess is the amount of settlement in proportion to the amount of exposure is within the normal range,” said Michael Ladra, a partner at Wilson Sonsini Goodrich & Rosati in Palo Alto, Calif. The laser printing patent was issued to Frank Cheek Jr. and Ronald Sansome in 1983. Pitney subsequently acquired the patent and filed an infringement suit against HP in 1995. A federal court in Connecticut ruled that the patent was not infringed and dismissed the case. In 1999 the U.S. Court of Appeals for the Federal Circuit found that the lower court had incorrectly construed one of the patent claims and remanded the case for further proceedings. Bridgeport, Conn., federal Judge Janet Hall issued a ruling on the construction of three patent claims last month and was set to begin the trial Monday. The agreement now gives Pitney ammunition to go after other manufacturers of laser printers. Moss said Pitney has contacted more than 20 companies to discuss licensing arrangements. The settlement also is a boost for Pitney’s strategy of acquiring patents outside its business, primarily the manufacture of postage meters. The company has 3,000 patents ranging from cellular phones to encryption and word processing. “A large part of the importance [of the HP agreement] is the recognition that Pitney Bowes has a portfolio that is very wide and very deep,” Moss said. “We spent hundreds of millions on R&D. This is a return on shareholder investment.”

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