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  • Unipixel 1; CIT 0 20 comments
    May 6, 2013 8:38 AM | about stocks: UNXL

    UniPixel Defeats CIT in Important First Round of Litigation

    Last Tuesday, April 30, United States District Judge, Sim Lake, handed CIT/Carclo its first defeat in the ongoing litigation between CIT and UniPixel. Judge Lake granted UniPixel's motion for remand, rejecting Carclo's arguments to hear the case in Federal Court, and sending the case back to UniPixel's home-turf state court in the 284th Judicial District in Montgomery County, Texas.

    As a reminder, in December 2012 CIT filed two suits in the UK against UniPixel alleging that UniPixel violated the terms of NDAs the companies had signed (most notably relying on the 2005 NDA), and alleging that UniPixel used CIT's technology in two of their own patent applications.

    In January of this year UniPixel responded to the CIT suits with actions in the Montgomery County, Texas court. UniPixel asked that a Montgomery county judge issue a preliminary ruling affirming that CIT's claims should be addressed in Montgomery County, that CIT breached terms of their agreement by filing in the UK, that UniPixel did not violate terms of the NDAs, and that UniPixel should be compensated for all related costs.

    CIT subsequently attempted to remove the UniPixel action from state court to federal court, causing Unipixel to file a motion to remand this case back to Montgomery County. As noted above, the federal judge has ruled in favor of Unipixel's motion to remand - UniPixel won this fight.

    I spent some time with a lawyer and a couple other people close to these developments to understand the ramifications of the ruling. While on the surface this may seem to be a small victory, the reality is that it carries quite a bit of significance.

    Texas HR 274, filed on 2/2/11, and signed into law by Governor Rick Perry on 6/17/11 empowers state trial courts to dismiss frivolous lawsuits immediately if there is no basis in law or fact for the lawsuit. The statute also authorizes the court to impose sanctions on a litigant who commences a frivolous action. This is commonly referred to as a "loser pays" law, and it is not applicable in federal district courts. In other words, if CIT wanted to drag this case out over a longer period of time, and reduce their chances of paying sanctions they would logically try to have the case removed to federal courts.

    The remand to Montgomery County court creates a real risk for CIT and could cause the company to come to a more realistic assessment of the facts surrounding this case, leading them to drop all or part of their claims. While it's true that the UK also has a "loser pays" system, facing this obstacle on an opponent's home turf is another matter altogether.

    Perhaps just as important, Judge Sim's ruling may influence the UK court's decision. Apparently the UK judge has been waiting for the US rulings before issuing his jurisdictional determination. The fact that a US District Judge rejected CIT's two principal arguments for keeping the matter in federal court is likely to carry weight in the UK court's determination. CIT had argued that the 2010 NDA didn't supersede the 2005 NDA (CIT is relying on the 2005 NDA because it is narrower in scope than the 2010 agreement, and it does not specify venue selection), and that UniPixel waived its rights to enforce the venue-selection clause when it relied on both the 2005 and 2006 NDAs in support of its claim against CIT. Judge Sim stated he was, "not persuaded by either argument."

    Even if not for the US District Court ruling, the likelihood of all claims being heard in a Montgomery County court would still be high. The 2010 NDA specifically dictates that the agreement be governed by the laws of the state of Texas and that the "VENUE SHOULD LIE EXCLUSIVELY IN THE COURTS OF MONTGOMERY COUNTY TEXAS." It's the only section of the document laid out in all capital letters - making it very difficult for the judge to miss. The 2010 NDA also states, "This Agreement supersedes any and all prior agreements." The 2005 and 2006 NDAs did not specify jurisdictions.

    Regardless of where the hearings take place, the fact remains that CIT's claims look weak at best. My best guess is that CIT eventually drops most or all of this fight to avoid monetary and reputational damage sometime after the venue is finalized.

    The claims that form the very foundation of CIT's case rely on the notion that UniPixel uses CIT's technology that is "inkjet printed using piezoelectric drop-on-demand printheads" and that UniPixel uses CIT's proprietary ink material formulations. Yet these claims are at odds with the simple, indisputable facts surrounding UniBoss.

    UniPixel does NOT use "inkjet printed using piezoelectric drop-on-demand printheads" in UniBoss's production process. Instead, UniPixel uses a proprietary flexographic micro-contact print methodology. You will not find an inkjet printhead anywhere near the UniBoss production process.

    In addition, UniBoss does NOT use palladium acetate - one of two "primary components" in CIT's proprietary ink. How is it possible that UniPixel has stolen CIT's ink formula when UniPixel doesn't even use what CIT believes is one of the most critical components of its recipe? CIT accuses UniPixel of stealing its secret chocolate chip cookie recipe, but the claim doesn't even make sense - UniPixel is making crème brulee.

    The fact that UniBoss does not rely whatsoever on these and other of the fundamental processes and materials necessary in CIT's proprietary methodology, make it highly unlikely that CIT will prevail in its claims. This is true whether those claims are heard in the UK or in Montgomery County, Texas. Furthermore, the fact that CIT would assert that UniBoss does rely on these technologies reveals how little CIT understands the UniBoss product and process. CIT's fundamental misunderstanding of the basic technologies used in UniBoss production leave the impression that its lawsuits are frivolous, and that they create a liability for CIT.

    We may not know the final outcome of this conflict for months or years. Yet based on this initial ruling and the facts surrounding the litigation, it appears that UniPixel is in a good position to defend its ownership and use of the UniBoss technology, and to potentially recover costs and perhaps damages at the expense of CIT.

    CIT's pursuit of what is arguably a frivolous lawsuit makes the firm look desperate and frightened. Why would CIT lash out at UniPixel with wildly inaccurate claims when CIT appears to have the lead in bringing product to market? What purpose does this serve? Why is CIT so threatened by the UniBoss technology? Perhaps they understand that a truly additive, roll-to-roll process will enjoy scale economies that XSense's production process cannot approach. If this is true then CIT is pursuing a perfectly logical strategy. In football (American football for all you Brits) we call it the Hail Mary.

    Disclosure: I am long UNXL.

    Stocks: UNXL
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Comments (20)
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  • Chris Hofmann
    , contributor
    Comments (756) | Send Message
     
    Great article GRA. Does UNXL's win in this aspect of the lawsuit also help set precedent for the 2010 NDA fully overriding the 2005/2006 NDA's? Perhaps this victory will reach further than just setting the location of the case.
    6 May 2013, 08:59 AM Reply Like
  • Green River Asset
    , contributor
    Comments (260) | Send Message
     
    Author’s reply » Appreciate it, Chris. That's a key question for sure. I'm not qualified to answer it, but I've spoken with a couple people who are more qualified and they think this ruling could be influential in determining how much the 2010 NDA is relied upon in the proceedings.

     

    Judge Lake specifically says that the question of whether or not the 2010 NDA supersedes the 2005 NDA is not being decided by his court. Yet he clearly relies on the 2010 NDA in his assessment of UniPixel's claims.

     

    The wording in the 2010 NDA around the supersede clause conflicts with itself. I was told that all the NDAs were pretty sloppy documents. For instance, we couldn't find any reference to jurisdiction in the '05 NDA.

     

    It sounds to this layman as if all three NDAs are going to come into play in the proceedings (if we ever get to that point).
    6 May 2013, 10:17 AM Reply Like
  • The Stock Miner
    , contributor
    Comments (33) | Send Message
     
    Great piece - thanks for sharing the information so thoroughly.
    6 May 2013, 09:05 AM Reply Like
  • netmore
    , contributor
    Comments (37) | Send Message
     
    Great! Thank you GRA!
    6 May 2013, 09:08 AM Reply Like
  • kcchris
    , contributor
    Comments (57) | Send Message
     
    Nice summary of the situation Scott. We can only hope that CIT drops the case in the near future. It is obvious this case is not going to damage UNXL moving forward. It is more likely that CIT will be forced to pay our legal fees in a few years.
    6 May 2013, 09:28 AM Reply Like
  • Northpith
    , contributor
    Comments (22) | Send Message
     
    Excellent review of the ramifications of this decision, GRA. Once again, as longs have been saying since the filing of this lawsuit, CIT's claims are frivolous and the bar is now set even higher for it to dispute that they are not. Watch for CIT to back out of this claim as fast as they can.
    6 May 2013, 09:28 AM Reply Like
  • ouijaman1
    , contributor
    Comments (247) | Send Message
     
    US courts are much less likely to protect thinly connected technologies than are the European courts. That much is a fact. So having the case in Texas is a huge factor. I'd put the odds of CIT winning anything out of this case at maybe 1 in 5.
    6 May 2013, 11:10 AM Reply Like
  • clifk
    , contributor
    Comments (74) | Send Message
     
    Thanks for the update GRA - do you have the detailed court finding from which you draw your conclusion you could share please? I agree that the finding is in accordance with the 2010 NDA, but my reading of it is that apart from the specification of venue, the terms are pretty much identical to the prior NDAs.

     

    Without referring to our previous interactions on palladium acetate, I thought the discussion was not on whether it was being used but how much was involved for Uniboss. Are you sure Uniboss now doesn't use it all?
    7 May 2013, 07:08 PM Reply Like
  • Green River Asset
    , contributor
    Comments (260) | Send Message
     
    Author’s reply » According to Bob Petcavich, the UniBoss seed ink doesn't use any palladium at all. Palladium is a very expensive input. UniPixel thinks that the lack of palladium in their ink is a point of differentiation.
    8 May 2013, 08:20 AM Reply Like
  • clifk
    , contributor
    Comments (74) | Send Message
     
    I've managed to find a summary of the court conclusion....

     

    UNXL vs. CIT case news - victory
    V. Conclusion and Order
    The venue-selection clause in the 2010 NDA is "clear and
    unequivocal" as to exclusivity, and Uni-Pixel's claims fall within
    its scope. The court therefore concludes that the venue-selection
    clause in the 2010 NDA prevents CIT from properly exercising its
    right to removal. Accordingly, Uni-Pixel's Motion for Remand,
    Request for Attorneysf Fees and Costs, and Request for Expedited
    Consideration and Oral Argument (Docket Entry No. 9) is GRANTED in
    part, DENIED in part, and MOOT in part, as follows :
    (1) The Motion for Remand is GRANTED, and this action
    is REMANDED to the 284th Judicial District Court of
    Montgomery County, Texas. The Clerk of Court is
    directed to promptly send a copy of this Memorandum
    Opinion and Order of remand to the District Clerk
    of Montgomery County, Texas.
    (2) The Request for Attorneys' Fees and Costs is
    DENIED.
    (3) The Request for Expedited Consideration and Oral
    Argument is MOOT.
    SIGNED at Houston, Texas, on this 30th day of April, 2013.
    7 May 2013, 07:22 PM Reply Like
  • Ivan Jimenez
    , contributor
    Comments (431) | Send Message
     
    GRA

     

    Your analysis is fundamentally flawed because this case is not about UniPixel's current technologies, this case is about a "non-disclosure agreement".

     

    The fact is that UniPixel submitted a patent disclosing CIT's core technologies including the use of "palladium acetate and ethyl lactate" and the use of Xaar print heads. The fact that UniPixel is or is not currently using these technologies is irrelevant. Your argument that UniPixel is not using "palladium" (even though a recent patent by UniPixel says that they do) and that they don't use print heads is just is irrelevant. The fact is that UniPixel disclosed these CIT's core technologies in a patent request and that's the smoking gun!

     

    There is no frivolous law suit here the evidence is point blank clear. This is not a patent dispute this is a "non-disclosure agreement dispute" but the discovery in this case is what CIT will use to build a patent dispute against UniPixel later after this case is over.

     

    There is a can of worms here that UniPixel doesn't want to be opened.
    8 May 2013, 12:19 PM Reply Like
  • Green River Asset
    , contributor
    Comments (260) | Send Message
     
    Author’s reply » Ivan, what you've described is very much in-line with what many UNXL longs have long held. CIT doesn't have much to go on - they're on a fishing expedition. They want to find out more about the UniBoss process so they can either copy it or make up another bogus claim and try to slow UNXL's progress.

     

    The problem is that they've gone into some detail telling us what proprietary technologies they worked on with UniPixel, and they don't match-up with what UniPixel uses in UniBoss. Thus, whether or not they discover more about the UniBoss technology is irrelevant if it's not technology that CIT shared with UniPixel - and we know that it's not.

     

    You are correct that this disagreement is about the NDAs, but you are incorrect when you say that it's "not about UniPixel's current technologies." Just read Carclo's press release on the subject. Carclo says that UniPixel has made, " unauthorised use of confidential CIT know-how, relating to the formulation and use of catalytic inks and metallisation technology in touch screen applications, in the development of its own metal mesh process and products (which it calls "UniBoss™") .

     

    In Carclo's claim HC12F02468 paragraph 71 part iii. they note "The UniBoss process makes use of a "Secret Sauce", understood by the Claimant to be a catalytic ink of the nature developed for the Defendant by Xennia as part of the TMOS Project, as disclosed in the Defendant's November 2010 "Investor Overview" document, a copy of which can be found at pages 487-516 of Exhibit
    CM I to the first statement or Mr Christopher Malley."

     

    In paragraph 71 part iv. Carclo's claim notes,"Each of the Applications in Suit, which were filed subsequent to the Defendant's
    disposal of the TMOS Project, relates to the UniBoss process."

     

    So, based on a layman's reading of Carclo's press release and their claim, it looks like your contention that the case is not about UniPixel's current technology is just wrong. Thus the notion that CIT is wrongly accusing UniPixel of using its technologies in the production of UniBoss stands. These allegations seem frivolous to this layman (and to a lawyer with whom I've spoken.)

     

    And to your argument that it's irrelevant that UniPixel doesn't use CIT's technologies in question, you're frankly off your rocker. This is the key issue at hand because all the money in this business will be made through UniBoss, not TMOS. Whether or not there's something to CIT's claims around TMOS patents will be determined in court, but I don't care much because there's no economic interest there. And if that patent battle lets CIT closer to UniBoss technology, it doesn't matter because UniBoss isn't using CIT technology.
    8 May 2013, 02:57 PM Reply Like
  • Ivan Jimenez
    , contributor
    Comments (431) | Send Message
     
    The law suit is extensive an it has many angles.

     

    1) First there is the "non-disclosure agreement" that firmly UniPixel violated.

     

    2) There is suspicion that UniPixel's "secret sauce" is a derivative or it was developed using CIT's catalytic ink/know how.

     

    Per Petcavich it is:

     

    "the knowledge we gained from that exercise taught us a lot about inks and printing, which we translated into a roll to roll process"
    Chief Technology Officer, Mr Robert Petcavich, published on the "Printed Electronics Now"

     

    Point One provides the grounds to initiate the discovery process to prove point Two.

     

    And if point Two is not true then great at least CIT will get point One.

     

    My point is that point One is strong enough to maintain this case in the table.

     

    Because point One has a strong foundation this is not frivolous law suit.

     

    Yes point Two is weak, we agree in that. ;-)
    8 May 2013, 06:09 PM Reply Like
  • Chris Hofmann
    , contributor
    Comments (756) | Send Message
     
    Ivan, what you continue to fail to mention is that if UNXL ONLY violates point 1, and not point 2, then nobody cares. No injunction, no licensing, minimal fine, etc.

     

    Even you seem to agree that this will be the case, but you continue to try and twist and spin it into something more negative than it actually is. Why don't you put your money where your mouth is since you're such an 'expert'
    8 May 2013, 06:30 PM Reply Like
  • Ivan Jimenez
    , contributor
    Comments (431) | Send Message
     
    So you agree with me that point One is strong.
    I just saying that point One will keep this case in the table.
    Point Two is indeed weak and like GRA said a fishing expedition but CIT has some nice angles to go fishing.
    8 May 2013, 07:21 PM Reply Like
  • LindonT
    , contributor
    Comments (207) | Send Message
     
    As a UK invester in Carclo agreeing that there is loads of room for both companies I've been following this debate with lots of intrest & a good few laughs too! So just for a laugh I'd like to start another rumour! It DOES come from me... nothing I've heard elsewhere! Apparently the litigation case in Texas was was due to start a couple of days ago but it didn't & there has been no new date set for it. Comments I've seen suggest that is because Carclo with its highly respected management team ( & presumably access to some of the finest legal brains in the UK) knew they didn't have a leg to stand on, havent got a clue about what is drummed into 1st year law students, were simply on a fishing expidition & have now withdrawn to see if they can now negotiate a settlement with Unipixel out of court. SOooo... lets try another side of the coin just for the fun of it!
    After it was announced that Carclo felt they had been robbed by Unipixel & were going to sue them... the entire upper management team sat down & decided that on 1/3/13 to get out whilst the going was good because they knew they'd been a bunch of robbers. MAYBE... there ARE settlement talks going on. MAYBE it's Unipixel that are trying to settle out of court. MAYBE someone has got whisper of that. MAYBE that explains the Unipixel Crash!! Just sayin'. Have fun.
    18 May 2013, 09:26 AM Reply Like
  • Chris Hofmann
    , contributor
    Comments (756) | Send Message
     
    sorry, but given the timing of these settlement talks (right after UNXL 'won' the motion to have the trial in Texas), it seems much more likely that Carclo is the one now looking to settle. Texas has a loser pays law, which suddenly makes it significantly more risky for Carclo to continue the trial, regardless of the merits of their case.
    18 May 2013, 10:01 AM Reply Like
  • LindonT
    , contributor
    Comments (207) | Send Message
     
    "sorry but given the timing of these settlement talks (right after UNXL 'won' the motion to have the trial in Texas)
    Hey Chris, as you well know that was a VERY disingenuous statement to make!
    There has been NO announcement by either company that settlement talks are taking place. The only thing we know is that the case didn't start on the planned date & no new date has been set yet.
    Also the fact that the loser pays is enshrined in law in the state of Texas as a opposed to being at the discretion of the judge is pretty much irrelevant. If the case was heard in the UK (where Carclo originally their complaint) & Carclo DID lose... they would expect to pay even though its not a law that they should do so. Losing any case is always a possibility & would certainly have been taken into account before starting the serious legal procedure to go ahead & sue!
    To say that losing & facing the resultant cost of failure SUDDENLY makes it SIGNIFICANTLY more risky for Carclo to continue the trial regardless of the merits of their case grossly underestimates Carclo's attempt to protect they what they consider to be their property. I don't think they will run away at the 1st puff of smoke! Also although UNXL won the right to have it heard in Texas... their claims for cost were denied. I would suggest that means the judge didn't think the request to have the case heard outside of Texas was in any way frivolous. It will be interesting to see how it all pans out... although I do think the court case is pretty much a side show when taking the far bigger picture into context.
    19 May 2013, 09:16 PM Reply Like
  • Chris Hofmann
    , contributor
    Comments (756) | Send Message
     
    LindonT,

     

    I am not the one that is claiming there are settlement talks. You are. I was just trying to state that IF there are settlement talks, it is most likely that Uni-Pixel has the upper hand. Why? because Carclo clearly did not want the suit to be tried in Texas, and Uni-Pixel 'won' this motion. I am not a lawyer, and do not know the finer details of why it is better to be tried in Texas court vs. federal court, but I do know that when you win a motion, you are in a better position than you were before you won the motion (even if only slightly).

     

    I do, however, agree that the court case is just a sideshow.
    19 May 2013, 10:16 PM Reply Like
  • LindonT
    , contributor
    Comments (207) | Send Message
     
    Hi Chris, no worries. I have seen that the delay in the start date & no new date set... stated as a 'fact' I said that I've seen it 'suggested' that it may be due to an agreement to settle out of court. I was anxious that the way you worded your reply didn't give rise to yet another unfounded romour! As I'm sure you'll agree, there's too many of them doing the rounds!
    I do think though that people are guilty of underestimating the conservative & widely respected management team at Carclo who would undoubtedly have consulted with Atmel before agreeing to go down this road. Its not a decsion that would have been taken lightly. Carclo filed in the UK because they maintain that the terms of the old NDA were broken whilst the terms of that NDA were in force. That point is probably the crux of the whole thing. They tried to have it moved outside of Texas because they are not a resident of Texas. All perfectly reasonable... & as UNXl were denied costs it would seem that the judge thought so to. But there you go... The only words that really matter at the moment for both companies are... VALIDATION & YEILDS. Everything else is just a side show! Wish you well.
    20 May 2013, 08:21 AM Reply Like
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