Copytele Sues Taiwanese Manufacturer for Conspiracy to Steal Patented Technologies

The Taiwanese manufacture of electronic ink digital display screens, a major industry within electronic device manufacturing, is at the center of a complaint from New York-based patented technology developer CopyTele Inc (CTI). CTI is seeking punitive, treble and exemplary damages of more than $700 million from Taiwan digital display manufacturer AU Optronics Corp. (AUO), for stealing patented technology with the intent to aid the monopolization of the digital display market.

CTI claims that AUO and another Taiwanese firm, E Ink Holdings, conspired to steal patented technologies from CopyTele to monopolize production of display screens for popular consumer devices. AUO is a major manufacturer of flat screen displays for computers, televisions and tablet devices, including Apple’s iPad. E Ink Holdings is another Taiwanese electronics manufacturer that develops eReader screens for devices like Barnes & Noble’s Nook and Amazon’s Kindle.

The complaint states that CTI and AUO entered into a contractual agreement on May 27, 2011, to jointly develop device components based on CTI’s patented electrophoretic display (EPD) and nano field emission display (nFED) technologies for tablet devices, including the Nook, the iPad and the Kindle. These technologies both allow tablet readers and other handheld readers to display sharp, clear text on a screen so that the screen mirrors the appearance and page brightness of an actual book; often, these types of displays are called “electronic paper” or “electronic ink.” Both methods of screen display are also designed to reduce power consumption required by a device’s display screen.

CTI alleges that AUO never intended to jointly develop these digital products with the American company. After seven months of development, AUO stopped all activity and impeded progress on nFED screen development for four months by refusing to build the substrates needed to manufacture the display screens. The complaint specifically alleges: “AUO never intended to jointly develop the nFED Products with CopyTele, and instead sought to use the joint development programs as a ruse to obtain licenses to CopyTele’s nFED Patents for significantly less than CopyTell would have otherwise been willing to license them.”

This breach of contract is made worse by the fact that CTI incurred excessive costs by being forced to pay for supplemental research from outside firms and equipment purchases to produce nFED screens. Around the same time, AUO’s development of the EPD displays were slowed unnecessarily for 15 months by various AUO actions, including their refusal to release proprietary software code from their subsidiary, SiPix Imaging Inc., required to run a computer controller that would test CTI’s suspension fluids for the display. CTI’s development team also worked with what the complaint calls a “revolving door” staffing strategy on the part of AUO, as the much larger firm assigned multiple supervising managers and working scientists to the project in a seven-month span, disrupting project continuity. CTI believes that this constitutes a breach of contract, as AUO did not use its “best efforts” to manufacture the products outlined in the two agreements, one each for the nFED and EPD products.

On April 24, 2012, CTI received correspondence from AUO that the budget for the nFED project would be cancelled. CTI believes that the inability to produce these displays for AUO’s iPad manufacturing operations amounts to several hundred million dollars in damages alone, between lost royalties, out of pocket expenses and progress payments from AUO. Later, AUO also sold its EPD development operations, contained within the subsidiary organization SiPix Imaging, to E Ink Holdings for $50 million, a move that gave E Ink much more control in the Kindle and Nook development industry.

CTI’s complaint states that the firm has proof that AUO’s actions, including the firm’s decision to halt production of CTI’s technologies and the sale of SiPix to E Ink, were specifically designed to financially damage CTI because it’s an American company. CTI says that it is in possession of statements directly from top AUO officials that the company wanted to “screw” CTI as retribution for what AUO saw as unfair treatment from larger American firms, like Apple.

CTI’s contracts with AUO were to pay heavy royalties to the American company if the display products ever reached the market. AUO also used their contractual power to sublicense CTI’s patents to E Ink for a fraction of their actual value. These actions were pursued in the face of a December 2010 meeting between CTI and AUO, where the two firms discussed the protection of CTI’s patents from E Ink Holdings specifically, even if it meant litigation.

CTI also believes that it has evidence that E Ink had conspired to take over CTI’s patented technology for at least a decade. In 1999, CTI sold one of its early EPD devices to Barrett Comiskey, a co-founder of E Ink. At a later trade show, an E Ink employee made comments to CTI employees that E Ink had reverse engineered CTI’s EPD technology; this employee further expected the American firm to pursue a lawsuit eventually against E Ink.

The complaint asks for a jury trial to settle 13 claims for relief against either AUO or E Ink, including charges of attempted monopolization, fraudulent inducement, civil conspiracy and negligent misrepresentation. The complaint also seeks a declaratory judgment allowing CTI to rescind both the nFED and EPD agreements, legally preventing AUO from continuing to sublicense their patents. The patent lists for both the nFED and EPD development projects are attached, although they are redacted in the public version of the complaint. The lawsuit has been filed in the U.S. District Court’s Northern District of California; although none of the associated firms have headquarters in that jurisdiction, the district was selected because the defendants engage in business within that district.

Official Complaint – CopyTele, Inc.