Refac International Ltd., a New York City firm known for aggressively suing thousands of big and small companies to protect its patents, lost a major lawsuit it filed against 118 Southern California companies selling products with liquid crystal displays.
The federal appeals court ruling is significant because Refac's critics claim the company practices a form of legal extortion by suing manufacturers, distributors and even consumers in its quest to collect royalties. While some firms have the resources to fight back, many have found it easier to settle with Refac to stop the legal wrangling.
In a strongly worded opinion released late last week, a federal appeals court panel sitting in Washington, ruled that Refac had not supported its blanket claim of patent infringement.
"This is the first time a plaintiff was kicked out of court because it failed to tell the defendants exactly why they infringed," said Breton A. Bocchieri, a Century City attorney who represented Kawasaki Motors Corp. U.S.A.
Kawasaki was sued by Refac for using a liquid crystal display on its Voyager 1200 motorcycle.
Liquid crystal technology is used in the digital readouts of a wide variety of products, including calculators, appliances and automotive dashboards.
Refac Technology Development Corp., the licensing arm of Refac International, was founded in 1952 by inventor and philanthropist Eugene Lang. It helps inventors market and license technology in exchange for a part of the royalties collected from users.
The appeals court ordered the company to pay attorney's fees for the 50 law firms involved in the case--including double fees for those involved in the appeal. Two attorneys involved in the case estimated the costs could total $500,000 to $1 million, though Lang said the fees would be less.
Refac's suit, filed in September, 1987, alleged that the companies were selling products featuring patented liquid crystal technology, but did not specify exactly how they were infringing on the two patents involved.
Walt Disney Co., Circuit City, Adray's, Buffums, Sav-On, K mart, Pep Boys, Fedco and the Federated Group were among the firms on the long list of companies sued by Refac.
"Refac did not identify the elements of any specific product corresponding with the patent claim elements, made no reference to literal infringement or infringement by equivalents, and provided no analysis whatever respecting the . . . patents," said the appeals court ruling.
The panel also chastised Refac's Los Angeles attorneys for being unresponsive to local federal court orders and for suing companies that already held Refac licenses to use certain technologies.
Craig J. Stein, one of Refac's local attorneys, said he would have no comment on the ruling until he consulted with Refac's legal department in New York.
On Wednesday, Refac founder Lang said he relied on Philip Sperber, an attorney who served as Refac's vice president, to orchestrate the company's legal strategy.
"I was not competent to deal with the legal strategy or issues of infringement," said Lang, who made headlines when he promised members of a sixth-grade class at a Harlem school that he would pay their college expenses if they finished high school.
Sperber, who in licensing trade journals had frequently defended his aggressive legal moves, died in an automobile accident in December.
"We are unfortunately getting some unfair backlash for our sincere effort to provide a level playing field for inventors who would not be able to represent their interests on their own," said Lang. "The (royalty) money was coming from major companies who really didn't give the inventors we represented the right time."
Lang said Refac had never been involved in a lawsuit before Sperber joined the company in 1979. Lang said he personally preferred to negotiate royalty arrangements outside of court.
Last year, publicly held Refac posted revenues of $11.8 million and net income of $1.9 million. Lang said the firm will be "marginally profitable" this year.