Barnes & Noble Sues to Block LSI Patent Royalty Claims on Nook

Barnes & Noble Inc., the largest U.S. bookstore chain, sued LSI Corp. (LSI) to prevent the chipmaker from demanding patent royalties on sales of the Nook digital reader.

LSI notified Barnes & Noble on June 29, 2010, and at other times “its intention to pursue claims of infringement of the LSI patents,” the New York-based bookseller said in a complaint filed yesterday in federal court in San Francisco.

The preemptive move reflects the legal headaches Barnes & Noble is facing since it began manufacturing a technology gadget in 2009, branching out from its traditional business as a retailer of books and other products. The company was named in 14 patent-infringement lawsuits last year, up from three in 2008, according to Bloomberg Law data. Including LSI, the company is involved in nine complaints so far this year.

“If you’re a book company, you never get sued,” said Robert Yoches, a patent lawyer at Finnegan Henderson in Washington who specializes in electronics cases. “Then you move online and you get sued a little bit. Now you’ve got an electronic box. As you add features, it becomes more like a computer.”

Electronic devices are more frequently the target of patent suits and royalty demands because the products typically include thousands of features and circuits, many of which are covered by patents, he said.

LSI Chips

Mary Ellen Keating, a spokeswoman for Barnes & Noble, declined to comment on the case. The company is seeking an order that it isn’t using technology covered by 10 LSI patents.

“Barnes & Noble does not infringe and has not infringed the LSI patents,” the company said in the filing.

LSI makes chips used in computer disk drives and reported $2.57 billion in revenue last year. The patents cited in the lawsuit include technology for wireless local-area networks, ways to enhance communications, and a DVD audio decoder.

Derrick Meyer, a spokesman for the Milpitas, California- based company, didn’t immediately return a telephone call seeking comment.

Barnes & Noble Chief Executive Officer William Lynch said the Nook is the second-best selling tablet in the U.S. behind Apple Inc.’s iPad. Barnes & Noble last month unveiled a smaller, lower-cost Nook in an effort to boost its market share in digital readers.

Barnes & Noble’s digital push showed enough promise to solicit a takeover bid from John Malone’s Liberty Media Corp. last month that values the company at about $1 billion. The offer was the first made public since the bookseller began a strategic review last year.

Microsoft Case

Barnes & Noble in July sued Xerox Corp. and Alcatel-Lucent SA seeking rulings that it doesn’t have to pay patent royalties to those companies.

The biggest patent dispute for Barnes & Noble is one brought by Microsoft Corp. (MSFT), which filed a complaint in March at the U.S. International Trade Commission in Washington seeking to block imports of the Nook. Microsoft claims any electronics that run on Google Inc.’s Android operating system, including the Nook, infringe its patents and is demanding licensing fees.

Digital books increased to 8 percent of the U.S. trade-book market last year, from 3 percent a year earlier as sales more than doubled to $441.3 million, according to the Association of American Publishers.

The case is Barnes & Noble Inc. (BKS), 11cv02709, U.S. District Court for the Northern District of California (San Francisco).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Matthew Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Allan Holmes at aholmes25@bloomberg.net; Robin Ajello at rajello@bloomberg.net

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