June 21 (Bloomberg) -- For the winery started by the director of “The Godfather,” it was a matter of paying for protection.
Sued for patent infringement in 2012 over the laminated boxes used for its bottles of Sofia Mini Blanc de Blancs, Francis Ford Coppola’s vintner decided to quickly settle rather than rack up legal bills.
Other companies refused to pay royalties to Lamina Packaging Innovations LLC, a patent-licensing entity, and now face a possible ban on U.S. imports of their products. These include Hasbro Inc.’s Bop It XT toy, Pernod Ricard SA’s Chivas Regal Scotch whisky and Remy Cointreau SA’s Remy Martin cognac.
The case at the U.S. International Trade Commission in Washington has become central to a broader debate over whether to limit complaints by companies whose sole business is to obtain patents and seek royalties on them.
“The ITC was not designed to protect the theoretical patent rights of people who were not developing products in commerce or moving society or civilization forward,” said lawyer Claude Stern, who represented Francis Ford Coppola Presents LLC in the settlement.
Congress, the U.S. Federal Trade Commission, and President Barack Obama have proposed to curb litigation by companies known as non-practicing entities or by the pejorative “troll.” One proposal would restrict cases such companies could pursue at the agency, which defends U.S. markets from unfair competition.
After Lamina filed claims against 15 companies in February, the ITC ordered an expedited hearing on whether Lamina met its requirement that patent owners who file complaints prove the existence of a domestic industry. Lamina, instead of citing a manufacturing plant or products, argues its settlements are that proof.
Lamina, which told the ITC it has two employees and five consultants, shares a Longview, Texas, office building with a church, radio station, debt collection agency and landscaping company.
It was created in 2010 by Medici Portfolio Acquisition LLC, a licensing company based in a Washington suburb that acquired the patents of a Wisconsin businessman who, according to Lamina’s ITC complaint, was “unable to make significant progress in commercialization” because of rampant copying of his ideas.
Michael Connelly, Medici’s chief executive officer, had no immediate comment for this story. Lamina’s lawyer, Gregory Love of Stevens Love in Longview, didn’t return a message seeking comment.
In May, ITC Judge Theodore Essex heard testimony from both sides on whether Lamina meets the standard for a domestic market. His findings are due July 5. A ruling against Lamina could end the case. Otherwise, a trial on the patents will be held in December.
Pernod Ricard, Remy and Hasbro, which deny infringing the patents, contend this type of dispute belongs in federal court, where it would come down to a fight over whether they owe Lamina royalties. Other companies resisting Lamina include Beats Electronics LLC, the headphone maker founded by rapper Dr. Dre, and liquor companies Diageo Plc and LVMH Moet Hennessy Louis Vuitton SA.
In addition to the Coppola winery, in Geyserville, California, Lamina last year reached settlements with candlemaker Lafco Enterprises Inc. and Sara Happ Inc., maker of a lip scrub popular with actresses in Hollywood. Since filing its ITC case, Lamina has struck accords with cosmetics producer L’Oreal SA and Grey Goose vodka distributor Sidney Frank Importing Co., commission records show.
No patent-licensing company that didn’t invent the technology underlying an infringement claim has won an import ban since at least 2006. In an April 15 report, the ITC said 20 percent of the 301 cases instituted between 2006 and the first quarter of 2013 were by non-practicing entities. Only four won import bans, and all of them had invented the technology, the agency said.
There’s nothing wrong with using the ITC to push companies into licensing agreements, said Bill Merritt, chief executive officer of InterDigital Corp., which has pending cases against Nokia Oyj, Huawei Technologies Co. and ZTE Corp. over smartphone technology.
Merritt said companies like his, with about 290 employees and a continuing research budget, are the type of firms Congress had in mind when it passed a 1988 law allowing licensing agencies to file complaints at the ITC.
“What’s the ITC’s job?” Merritt said. “Protect jobs and create jobs.”
The commission’s decision to order the expedited look at Lamina was part of the agency’s harder stance on the domestic-industry rules, said Lyle Vander Schaaf, an ITC lawyer with Brinks Hofer in Washington.
Lamina objected to the expedited hearing, saying in an ITC filing that it’s been unfairly singled out for a new procedure.
Dirk Thomas, of McKool Smith in Washington, who specializes in ITC cases, said the company may have a difficult time proving its argument. “The licensing activity can’t be your litigation budget,” he said. “If that’s all they’ve got, they’ve got a hard road.”
Lamina filed four lawsuits last year. Three companies settled within months. The holdout, Monsieur Touton Selection Ltd., a New York wine distributor, told a judge March 21 that Lamina’s lawsuits were intended to create licensing agreements “in order to manufacture a domestic industry under its patents.”
The judge dismissed the case.
Settling came cheap, said Coppola attorney Stern, managing partner of Quinn Emanuel in Redwood Shores, California. A typical patent lawyer working on an ITC case would bill about $700 an hour, so a 40-hour week would equal $28,000 for each of the many lawyers assigned to the case, he said.
The fees incurred by defendants in all three settlements “cost less collectively than any one respondent in the ITC case has paid for a week of litigation,” he said.
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