A California jury ordered Toshiba Corp. to pay $84 million in punitive damages to Lexar Media Inc. for stealing trade secrets, taking Lexar's total award in the case to $465 million.
The award was a fraction of the $1 billion or more sought by Lexar, which called the award the biggest intellectual property victory ever in California courts. The total damages also dwarfed Lexar's market value of $251 million as of Wednesday's close. Toshiba, the world's seventh-largest chip maker, said the verdict was in error and it plans to pursue all available legal avenues, suggesting an appeal.
At issue in the case is NAND-type flash memory, which is used widely in digital cameras and photo-snapping mobile phones and has been Toshiba's cash cow in recent years. Lexar, whose memory cards are used in consumer devices such as digital cameras and music players, claimed its secrets were stolen by a Toshiba executive who sat on Lexar's board.
"Toshiba invented NAND flash memory technologies and has been a pioneer throughout its development," the Tokyo-based company said in a statement, adding it has no plans at the moment to revise its earnings forecasts for the year ending on March 31. The total award is 10 percent larger than Toshiba's estimated net profit for the year of $423.2 million.
Lexar shares fell after the Thursday decision but were still about 74 percent higher than Wednesday's close on Nasdaq, while Toshiba shares were down 0.67 percent at 446 yen in afternoon Tokyo trade on Friday, extending a 3.2 percent slide on Thursday.
Could affect others
Lexar also said it has a patent case pending against Toshiba and was seeking an injunction barring Toshiba from selling its memory products in the United States. Lexar General Counsel Eric Whitaker said the injunction could include popular electronics made by the likes of Apple Computer Inc. as well as products by SanDisk Corp.
SanDisk spokeswoman Lori Barker said there were no grounds for an injunction against her company, which owns a factory jointly with Toshiba. Apple, which uses Toshiba flash memory in its iPod Shuffle, declined to comment.
Analysts in Japan said the financial impact on Toshiba would not be something unmanageable, even in the worst-case scenario.
"Toshiba had about 400 billion yen in cash and cash equivalent at the end of last year, and its flash memory business posts some 80 billion yen in operating profit (a year) ... I don't see any long-lasting impact," said Yuichi Ishida, analyst at Mizuho Investors Securities.
He also said it would not be very difficult for Toshiba to find alternative markets if its flash products were banned in the United States, given strong global demand for the memory chips.
Cash poor?
Lexar, which on Thursday reported a fourth-quarter loss of $63.3 million, was in danger of running out of cash this year without the award. CIBC World Markets analyst Daniel Gelbtuch said investors had been concerned mounting losses could force Lexar to seek bankruptcy protection.
"If they did not have this win, they would have gone bankrupt inside of four months," Gelbtuch said. "This is purely a cash-per-share increase in the stock price and it negates the notion that they are going to go bankrupt." Gelbtuch upgraded the stock to "sector outperformer" from "sector underperformer."
Asked about the concerns, Lexar spokesman Jim Gustke said the company was revamping marketing and improving inventory management, aiming to "compete profitably in this market regardless of the outcome of the trial."
Wall Street analysts have said an appeal from Toshiba could delay the cash influx at a crucial time for Lexar. Lexar could be forced to try to raise debt or equity while under pressure, according to JP Morgan analyst Paul Coster.
Coster said Lexar may be forced to take on debt or issue shares if Toshiba appeals and the funds are held in escrow. "In either case turning to the capital markets could be tough ... Nonetheless, the legal payments could be bigger than we anticipated and Lexar probably lives to fight another day (or year)," Coster wrote in a note.
Analysts noted that Lexar also still relies on Samsung Electronics for its components. Rival SanDisk makes its own flash memory and therefore has more control over supply and pricing.
Still, a favorable result in the patent case could boost Lexar's revenue and perhaps help it forge partnerships with memory chip makers, such as Micron Technology or Advanced Micro Devices, analysts said.
