Flash memory disk market under fire
Shenzhen-based Netac Technology Company, the flash memory disks patent holder in China, has been involved in just such disputes with domestic and international manufacturers operating in China.
In September 2002, Netac sued Beijing-based Huaqi and Shenzhen-based Fuguanghui and Xingzhidao, all IT companies, for alleged violations of Netac's USB flash memory drive patent, and demanded immediate suspension of the alleged violation and compensation of US$490,000.
Twelve months on, on June 7, 2003 the Shenzhen Intermediate People's Court as the court of first instance ruled in Netac's favour.
Beijing Huaqi Information and Digital Technology Co and the other two firms were ordered to cease violating Netac's patent rights and halt the manufacture and sale of MP3 players with the patented technology.
The three defendants were also ordered to pay Netac a total of 1 million yuan (US$120,000) in compensation.
Huaqi responded by applying to the State Intellectual Property Office seeking to nullify the patent, arguing that it covers widely known technology.
According to the court ruling, the patent incorporates USB flash drives which utilize USB port technology and flash memory technology, not in the simple way of adding and transplanting, but with creative work in flash electronic storage management method, power supply system strategy, connection, physical structure and reliability.
On June 10 last year, Netac held a grand press conference to celebrate its court win.
"This is a major victory on Netac's road to develop and protect its own intellectual property rights. The victory rings the bell of foresight and justice in the protection of intellectual property rights in the IT industry," announced Deng Guoshun, president of Netac.
"It makes the people who are hesitant about developing their independent property rights more determined, and is music to the ears of those who are committed to technological innovation," he said.
But an appeal to the Guangdong Higher People's Court has yet to deliver its verdict, the final judgment is eagerly awaited by all sides.
At the same time, Huaqi's "wide-known technology" plea to nullify Netac's flash memory disks patent is still under investigation by the State Intellectual Property Office.
Whether the patent is valid or void has yet to be decided.
Netac was founded in Shenzhen in May 1999 by Deng Guoshun and Cheng Xiaohua and started to produce and market its USB removable disks under the brand name of "OnlyDisk."
In November 1999, Deng and Cheng, who claimed to be the inventors of the flash memory disk, applied the patent in China.
Netac was duly granted the patent for "flash electronic external storage method and devices for data processing systems" by the State Intellectual Property Office in July last year.
Netac has invested more than US$7.3 million into the research of USB flash memory drives, Lu Pan, with the company's legal department, told the Economic Observer.
Since 1999, Netac has suffered losses worth millions of dollars due to alleged patent violation. If the violators were not punished, Netac may not be able to maintain its investment in technological innovation in the long run. Thus, the court verdict came just in time, said Lu.
Domestic sales of flash memory disks reached 1.6 billion yuan (US$192 million) in 2003, up 42 per cent on the previous year, figures from the Beijing-based CCID Consulting company show.
As China's PC penetration rate still has considerable room for improvement, it is expected that the flash disk market will also continue to grow rapidly in the coming years, business insiders predict.
Flash memory is widely used in consumer electronics products, such as MP3 players, digital recorders, digital cameras and PDAs (personal digital assistants).
Even before the dust could settle on litigation between domestic flash memory disk manufacturers, Netac began another action, this time targeting the international electronics giant Sony.
Last October Netac sued Sony for USB flash memory disk patent infringement, claiming Sony had copied their patented movable storage technology.
Netac asked Sony Electronics (Wuxi), Sony's manufacturing plant in East China's Jiangsu Province, for immediate cessation of the alleged infringement, claiming damages of 10 million yuan (US$1.2 million).
Netac submitted to the Shenzhen Intermediate People's Court an application for an evidence preservation measure. The court duly sealed those Sony products suspected of patent infringement manufactured in its Wuxi factory.
Sony has remained silent about the case which is still under investigation.
Whatever the ultimate result of the Netac disputes, they have become a milestone in China's intellectual property protection system for the IT industry, said Zhou Mian, a Beijing lawyer.
The case has made Sony one of the first international companies to be sued for patent infringement in China.
If Netac wins the lawsuit, it would not only change the USB flash memory disk market structure in China, but set a precedent in enforcing IT intellectual property rights law, said Zhou.
After 2002, the flash memory card market boomed, with over 100 domestic producers.
A report by Gartner, a leading provider of research and analysis on the global IT industry, shows that Sony occupied 11.9 per cent of the world's movable storage market as of 2004.