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White v. Hitachi

September 17, 2007

JAMES W. WHITE, PLAINTIFF,
v.
HITACHI, LTD., HITACHI GLOBAL STORAGE TECHNOLOGIES, INC., AND HITACHI GLOBAL STORAGE TECHNOLOGIES NETHERLANDS B.V., DEFENDANTS.



The opinion of the court was delivered by: Thomas W. Phillips United States District Judge

(Phillips)

MEMORANDUM AND ORDER

This is a patent infringement case. Plaintiff James W. White is the named inventor of a hard disk drive slider design. White alleges that the Hitachi defendants have infringed upon United States Patent No. 4,870,519 (the "519 patent" or the "patent-in-suit") which was issued to White on September 26, 1989.

The Hitachi defendants have moved for summary judgment on the grounds that they are validly licensed to practice the patent-in-suit pursuant to a license that was entered into between IBM and White, effective October 20, 2000, which was assigned to Mariana HDD B.V., now HGST B.V. by IBM; and that HGST Inc., is validly sublicensed by HGST B.V.

White has filed a cross-motion for summary judgment on the grounds that the Hitachi defendants are not validly licensed to practice the patent-in-suit.

Factual Background

White is a retired professor of mechanical engineering whose specialty is fluid dynamics -- particularly air flows over components within a hard disk drive. White invented an improved slider, which allows hard disk drives to perform more reliably with less lost data, fewer corrupted files, and fewer computer crashes. In 1989, the U.S. Patent Office awarded White patent '519 for his improved slider. Since then, White has licensed 22 companies to practice the '519 patent, including IBM.

In November 2000, IBM and White entered into the IBM-White License Agreement. The terms were favorable to IBM because of the special relationship between White and IBM and the assistance IBM provided White in his education. The key terms of the agreement were prepared by White's counsel and stated that IBM and White had agreed upon the following items: (1) that four of White's U.S. issued patents (including the '519 patent at issue here) would be licensed to IBM, and the license would be for the life of the patents; (2) that IBM would also be licensed under any additional patents that were filed and owned by White two years before the execution of the license agreement; (3) a payment schedule for the lump sum payment of $6.5 million by IBM to White; and (4) that "additional terms and conditions will be the subject of a license agreement between the parties." Pursuant to the agreement, IBM received a fully paid-up royalty-free license to all of White's patents, with the right to sublicense its subsidiaries in exchange for a payment to White of $6.5 million, paid in installments. IBM paid the first $5 million during 2000-2002, and the final installment of $1.5 million was paid by HGST B.V., on or about August 15, 2003. The license continues until the last of the White patents expires.

For the purposes of this litigation and motion, the key provision of the IBM-White license is in Section 5, entitled "Assignments," which provides:

5.1 All releases and licenses from White to IBM shall not be assignable or otherwise transferable, except to a successor of IBM's business to which this Agreement relates, provided such successor is either already licensed under the patents licensed hereunder, or has no previous business relating to the Licensed Patents.

Pursuant to paragraph 5.1 of the agreement, IBM was entitled to assign the IBM-White license to any company that acquired its hard disk drive business, provided either that the successor was already licensed under the licensed patents, or the successor had no previous business relating to the licensed patents.

Between 2000 to 2002, IBM decided to focus on software and services instead of computer hardware. Accordingly, IBM decided to exit the hard disk drive business. In early 2002, IBM struck a deal to sell its hard disk drive business to Hitachi, Ltd. In April 2002, Hitachi, Ltd. and IBM entered a memorandum of understanding in which the parties envisioned forming a subsidiary to receive IBM's hard disk drive assets. IBM would contribute its hard disk drive business to a joint venture entity which would be owned 70% by Hitachi, Ltd. and 30% by IBM. Hitachi, Ltd. would hold 100% of the voting power, and IBM would not participate in the management of the joint venture entity.

In July 2002, IBM created a subsidiary called Mariana HDD B.V. Mariana was created pursuant to the agreement between IBM and Hitachi, Ltd. relating to the proposed transfer of IBM's worldwide hard disk drive business to a new entity to be jointly owned by Hitachi and IBM. Mariana was incorporated on July 24, 2002 in the Netherlands as a wholly-owned subsidiary of IBM.

On November 1, 2002, IBM sublicensed to Mariana its rights under all of its third-party patent licenses, including its rights under the IBM-White license, and made to Mariana a contribution in kind of all of IBM's tangible and intangible assets and liabilities of its hard disk drive business located in the United States in exchange for stock in Mariana. Prior to the transfer of IBM's business to Mariana, Mariana was not in the hard disk drive business. By December 31, 2002, through a series of transactions involving various IBM foreign subsidiaries, IBM transferred all of its overseas hard disk drive businesses to Mariana as well. On December 27, 2002, after IBM had transferred its ...


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