A123 in talks to settle battery patent fight

A123 Patent Dispute centers on lithium iron phosphate patents, with settlement talks ongoing as A123's shares surge on EV battery optimism; litigation spans Hydro-Quebec and UT Austin, impacting automotive suppliers and U.S. electrification goals.

A123 Systems Inc., a maker of lithium batteries for plug-in cars that has only just now sold stock, is in talks to end a patent dispute with the University of Texas and Hydro-Quebec over technology underlying its products.

The parties “continue to engage in ongoing settlement discussions that may resolve the issues in dispute in this matter,” A123 said in a September 15 court filing. Shares of the Watertown, Massachusetts-based company soared 50 percent in the first day of trading after its IPO on optimism A123 will benefit from the U.S. push for battery-powered vehicles.

“We have a strong business model and don’t see this as a major issue,” Ric Fulop, A123’s co-founder and vice president of business development, said in an interview. He declined to discuss the litigation or settlement discussions.

A123’s goal is to be the top U.S. supplier of batteries for cars powered solely or in part by electricity as the Obama administration pushes for vehicles that cut gasoline use and carbon exhaust. Customers for the company, partly owned by General Electric Co., include Bayerische Motoren Werke AG, Chrysler Group LLC, General Motors Co., whose Volt battery advances signaled progress for electrification, Shanghai Automotive Industry Corp. and Delphi Corp., according to a September 22 prospectus.

A123 rose $6.79, or 50 percent, to $20.29 in trading of 41 million shares on the Nasdaq Stock Market, as investors tracked a Michigan lithium-ion facility development that buoyed peers.

The university, located in Austin, and Hydro-Quebec, Canada’s largest utility, sued A123, Black & Decker Corp. and China BAK Battery Inc. in 2006, claiming the companies were using school inventions in Black & Decker’s DeWalt cordless power tools. A123 sued Hydro-Quebec, seeking to invalidate the patents or get a ruling the inventions weren’t used in A123’s battery technology.

Both cases were put on hold while the U.S. Patent and Trademark Office reviewed the patents. The patents were reissued with some alterations. The companies are fighting over whether the dispute, if revived, should be handled in federal court in Dallas, where the university’s suit was filed, or in Boston, where A123 sued Montreal-based Hydro-Quebec.

In a September 22 regulatory filing, A123 said it could be forced to pay “substantial damages” if the case isn’t resolved in its favor.

“In addition, an adverse ruling could cause us, and our customers, development partners and licensees, to stop, modify or delay activities in the United States such as research, development, U.S. manufacturing and sales of products based on technologies covered by these patents,” A123 said in the filing.

A123’s competitors in the emerging market to supply lithium-ion batteries for passenger vehicles amid the industry’s quest for better batteries include Panasonic EV Energy Co., a Toyota Motor Corp. subsidiary that’s the largest supplier of hybrid car packs, GS Yuasa Corp., South Korea’s LG Chem Ltd., Johnson Controls-Saft Advanced Power Solutions LLC and China’s BYD Co., in which Warren Buffett has a HK$1.8 billion (US$232 million) stake.

The university said its technology related to rechargeable lithium iron-phosphate batteries was developed by John Goodenough, a scientist and professor working at the school’s material science and engineering department and leading lithium battery research with industry. Hydro-Quebec licensed the patents with the rights to make cathode materials and batteries based on Goodenough’s inventions, according to the school’s complaint.

The agreement gives Hydro-Quebec exclusive worldwide rights to make and sell lithium iron-phosphate batteries for computers, tools, scooters, consumer electronics and hybrid electric vehicles through a battery licensing agreement framework, the university contends.

China BAK, based in Kuichong Town, Shenzhen, makes the A123 batteries which are used in the tools made by Towson, Maryland- based Black & Decker. A123, founded by Fulop and Yet-Ming Chiang, a Massachusetts Institute of Technology scientist, said it improved upon the Texas university’s work.

The university, in its complaint, contended that A123 was “building its business on infringing products,” described its patents as “pioneering” and said any battery cathode materials using the iron-phosphate technology are infringing its patents.

The University of Texas wants to amend the complaint to reflect changes that were made during the patent office review process. A123’s September 15 filing was to seek more time to respond to that request.

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