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Appellate Court Upholds Patent-Infringement Case With Wide Implications for U.S. Electronic Toll Roads




Dallas, TX (Vocus) May 5, 2009

A federal appeals court has affirmed the dismissal of a patent-infringement case that could have cost Haynes and Boone, LLP client Electronic Transaction Consultants Corporation (ETC) more than $ 60 million and jeopardized the vehicle identification system used to electronically collect a significant portion of tolls in the U.S. (TransCore, LP and TC License, Ltd. vs. Electronic Transaction Consultants Corporation, United States Court of Appeals for the Federal Circuit, court case # 2008-1430) .




The U.S. Court of Appeals for the Federal Circuit affirmed the May 2008 summary judgment of the United States District Court for the Northern District of Texas that dismissed a patent-infringement lawsuit brought against ETC by TransCore, a unit of Roper Industries (NYSE:ROP). TransCore alleged that ETC infringed four different TransCore patents that relate to the automatic electronic collection of tolls. TransCore claimed more than $ 20 million in damages, which it sought to treble to more than $ 60 million.

The dispute arose from a request for bids to upgrade the toll-collection facilities for a major toll authority. Part of the project included providing the toll authority with enhanced open road tolling capability using automatic vehicle identification (AVI) equipment manufactured by Mark IV Industries, a Canadian company, and sold to the toll authority by its U.S. sister company, Mark IV IVHS. Open road tolling allows a toll authority to collect tolls electronically from vehicles traveling at highway speeds.

Both TransCore and ETC bid on the project. After ETC won, TransCore sued ETC for patent infringement. TransCore claimed that the Mark IV equipment infringed its patents, and thus that ETCs use of the Mark IV equipment — by installing and testing it during the project — also infringed its patents.

At the heart of the decision is the legal concept of patent exhaustion which, in this case, stems from an earlier TransCore-Mark IV lawsuit (TransCore, LP and TC License, Ltd. vs. Electronic Transaction Consultants Corporation, United States District Court for the Northern District of Texas Dallas Division, 3:05-CV-2316-K), in which TransCore sued Mark IV for infringing three of the four patents at issue in the ETC case. As a part of the settlement of that case, TransCore granted Mark IV a covenant not to sue Mark IV for infringing the three patents. The Federal Circuit affirmed the district courts holding that this covenant not to sue was effectively a license under the patents. Thus, when Mark IV then sold the allegedly infringing equipment to the toll authority, it did so with TransCores authority under the three patents, exhausting TransCores rights (if any) in the equipment.

The fourth TransCore patent had not yet been issued when TransCore and Mark IV settled their earlier case, so it was not included in the covenant not to sue. The Federal Circuit affirmed the district courts holding that Mark IV held an implied license in the fourth patent under the theory of legal estoppel. Because the fourth patent was broader than and encompassed the claim scope of at least one of the licensed patents, Mark IV could not practice this earlier, licensed patent without practicing the broader, later issued patent. TransCore was legally estopped from asserting the fourth patent against Mark IV because it could not assert that fourth patent against Mark IV without derogating from the rights it granted Mark IV under the earlier patents. Thus, Mark IV held an implied license under that patent, and its sales of the toll equipment exhausted TransCores patent rights in that equipment.

The district court found that Mark IVs sales of the AVI equipment installed by ETC were authorized by the TransCore-Mark IV settlement agreement, such that TransCores patent rights were exhausted as to those systems. We agree, wrote Judge Arthur J. Gajarsa in the appeals court ruling.

Said Russell Emerson, the Haynes and Boone partner who led the defense effort: Our position on behalf of ETC has now been vindicated at both the trial-court and appellate levels. It should be abundantly clear that an authorized sale of a patented product exhausts the patent monopoly as to that product.

Added partner Phillip Philbin: While ETC, not the product manufacturer Mark IV, was the specific target of the TransCore litigation, ETCs unwavering commitment to take up the fight on behalf of Mark IV and their mutual customer has rendered a clear and decisive statement from the courts that benefits the U.S. toll industry.

Timothy Gallagher, Chairman and Managing Director of ETC, added: The TransCore-Mark IV settlement would have been meaningless if TransCore had been able to prevent Mark IV from manufacturing and selling the toll products by suing Mark IV’s customers. This case held broad ramifications for our industry, and were very pleased by this ruling and appreciative of the strong outpouring of support weve received from industry friends and colleagues throughout this important process.

A TransCore victory could have directly impacted the electronic toll-collection systems used by the E-ZPass Interagency Group (IAG) of 25 toll agencies in 14 states with more than 10 million account holders. The IAG collects approximately 80 percent of all tolls in the United States, and Mark IV supplies IAG-member toll authorities with electronic toll-collection equipment. Any toll authority (including those belonging to the IAG) or equipment installer using the Mark IV equipment in question potentially could have faced legal action by TransCore or been forced to pay license fees had TransCore won the lawsuit.

About Haynes and Boone:

Haynes and Boone, LLP is an international corporate law firm with offices in Texas, New York, California, Washington, D.C., Mexico City and Moscow, providing a full spectrum of legal services. With almost 550 attorneys, Haynes and Boone is ranked among the largest law firms in the nation by The National Law Journal. The firm has been recognized as one of the “Best Corporate Law Firms in America” (Corporate Board Member Magazine, 2001-2008), as one of “The Best 20 Law Firms to Work For” (Vault.com, 2008), and as a Top 100 law firm for both diversity (MultiCultural Law Magazine, 2009) and women (Women 3.0, 2008).

About ETC:

For more than a decade, ETC Corporation has delivered innovative solutions to the toll industry that increase mobility, improve operational efficiency, and support high levels of customer service. Today, ETCs solutions collect nearly one-third of the toll transactions in the United States on some of the most technically advanced toll facilities in the industry. These solutions enable all-electronic toll collection, dynamic pricing, HOT lanes, interoperability, and open road tolling. ETCs lane-to-back office integrated solutions are supported by an impressive array of operations and maintenance services. ETC offers its solutions and services as both a customer-delivered model as well as through a hosted environment at ETCs state-of-the-art data and operations center. In December 2007, Autostrade International U.S. Holdings, Inc., an indirectly wholly owned subsidiary of Atlantia S.p.A., (Autostrade), one of the worlds leading toll operators, took an investment position in ETC, creating the foundation for a long-term relationship between the two companies and positioning ETC for additional growth in the U.S. and international toll marketplace. More information on the company can be found at http://www.etcc.com.

CONTACT:

Douglas Bedell

Haynes and Boone, LLP

214.651.5815 (office)

214.704.3058 (cell)

doug.bedell(at)haynesboone.com

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