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Canon v. Nano-Proprietary: Implications for Big Companies That Bring Nanotechnology to the Market
Volume 4, Issue 2

Reza Mollaaghababa, Nutter McClennen & Fish LLP
Ronald E. Cahill, Nutter McClennen & Fish LLP

The flat-panel TV market is growing at a fast rate in the U.S. and worldwide. While plasma and liquid crystal displays currently dominate flat-panel technologies, a number of emerging nanotechnologies show promise in providing enhanced performance at a lower cost. Nano-Proprietary, Inc., an Austin, Texas-based holding company, owns a number of patents and patent applications directed to such emerging display technologies, including electron field emission display (“FED”) technology. Nano-Proprietary granted Canon, Inc. a non-exclusive license to its FED-related patents and patent applications on March 26, 1999. Although the license agreement authorized Canon to share the licensed technology with its subsidiaries, it expressly forbade Canon from sublicensing its rights to third parties. Notwithstanding, in June 1999, Canon entered into a joint venture agreement with Toshiba, Inc. to fabricate flat-panel TV displays based on surface-conduction electron-emitter display technology, arguably a subset of FED technology. In 2004, Canon and Toshiba entered a second agreement, with terms similar to those in the first agreement, pursuant to which a third company, SED, Inc., was formed to carry out the development of the displays under the terms of the joint venture. Nano-Proprietary sued Canon in 2005 in federal court in the Western District of Texas for breach of the license agreement, arguing that SED, Inc. was not a “subsidiary” of Canon as defined in the license agreement and that Canon had effectively sublicensed the licensed technology in breach of the agreement. In a recent ruling, the Texas court sided with Nano-Proprietary, declaring that Canon had materially breached the license agreement, and hence Nano-Proprietary was entitled to terminate it. In this article, we will review the legal issues that arose in the suit and their resolution by the Texas court. Further, we will discuss the ramifications of this case for manufacturing companies that have significant manufacturing and marketing capabilities for brining new technologies to the market, but may lack the requisite intellectual property, and research/development companies that do not possess such capabilities, but own significant intellectual property in such technologies.

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