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Netac v. PNY – Trend or Anomaly?

Posted in General Commentary, Litigation Commentary by Jake Ward on January 19, 2007


A friend and former colleague of mine who is now working in China emailed the other day.  Interestingly, amongst our general chatting about life, the universe, and everything,  he made the following statement:

“I notice that IP infringement is not just one way. . . I hear [a] US [company is] being sued by [a] Chinese [company] for copying [a] jump drive.”

The matter my friend refers to is the case of Netac v. PNY.  Netac Technology (a company based in Shenzhen, China) sued PNY Technologies (a company based in Parsippany, New Jersey, USA) in a U.S. District Court (E.D. Tex) on February 16, 2006 for infringement of Netac’s flash memory patent, U.S. Patent No. 6,829,672.  Netac requested an injunction prohibiting PNY from producing or selling infringing flash memory disks, as well as damages as compensation for the previous infringement.  Netac had already won infringement cases against a number of Chinese companies, including Beijing Hua Qi Information Digital Technology Co., Ltd. (Product brand: Aigo) and Shenzhen Fu Guang Hui Electronics Co., Ltd. (OEM factory for Hua Qi). 

Even more notable, Netac had also sued Sony (yes, multinational Sony) for patent infringement.  According to this online law firm bulletin, Sony settled in late 2006 and going forward will purchase flash memory products from Netac. 

According to this different online bulletin from a Chinese law firm, Netac’s suit “is highly praised by the [Chinese] government authorities” and “is seen as a milestone event.”  In fact, Netac’s own website states:

In 1999, founders of Netac, using their creativity, diligence and persistence in tough conditions, successfully invented the world’s first mobile flash memory drive that could be used for computer data storage and exchange. The mobile flash memory drive was given the name “You Pan” in Chinese. (“You Pan” and “OnlyDisk” is a registered trademark of Netac technology Co., Ltd in China). (Emphasis mine).

During the development of flash memory drive, they always worked day and night in their small rented office. In order to study the flash memory drive and its stability, they even broke four computers during the experiment and test. They overcame all the hardship and difficulties, and finally successfully developed the new product. . . . 

If the infringement is confirmed by the US court, PNY will face [a] considerably severe penalty. The financial award to Netac could be among the largest amounts ever in the USB flash storage industry.

I had three initial thoughts based on my friend’s comment.  First, is this still a water cooler topic in China?  We had seen a flurry of news about this particular case almost a year ago.  See, e.g., see February ’06 posts by China Law Blog , Doug Miller’s Blog, and Zura’s 271 Patent Blog, and articles by China Daily and Wall Street Journal.  However, there hasn’t been much news since then, with the exception of Netac’s settlement with Sony.  If still a hot topic, is this an encouraging sign that the patent laws may be garnering more respect in China?  Or, is it more a case of reciprocative finger pointing (hey, your companies do it too!).      

My second thought was drawn to the two-way street aspect of IP law.  Yes, the street is two-way, and rightly so.  Also, I think it is encouraging  that a Chinese company is having success in applying U.S. and Chinese patent laws.  This may signify that business in China (at least in this particular technology sector) is developing to a point where a value of protecting innovation (and thus respecting patent laws that protect those innovations) outweighs a value of copying, infringement, and piracy (and consequently ignoring patent laws).  

And my third thought?  Well, there is probably little doubting that this is a first, and therefore may rightly be labeled a milestone.  However, does the presence of  a lone Chinese company diligently applying patent laws, domestically or internationally, point to a trend?  I think an argument can be made that, at least at this point in time, Netac’s actions are more an anomaly than a trend.  One can still point to numerous technologies and industries where piracy and infringement are commonplace.  However, one can hope that Netac’s respect of IPR will someday become mainstream in Chinese business. 

Any other thoughts out there on this topic?  Does anyone have insight into the progression of this case, e.g., when is it expected to be heard at District Court, or how the Sony settlement might affect the PNY matter?  Comments welcomed.