A123 in Talks to Settle Lithium Battery Patent Fight

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By Susan Decker and Alan Ohnsman

Sept. 24 (Bloomberg) -- A123 Systems Inc., a maker of lithium batteries for plug-in cars that first sold stock today, 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 Sept. 15 court filing. Shares of the Watertown, Massachusetts-based company soared 50 percent in the first day of trading 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., Shanghai Automotive Industry Corp. and Delphi Corp., according to a Sept. 22 prospectus.

A123 rose $6.79, or 50 percent, to $20.29 in trading of 41 million shares on the Nasdaq Stock Market.

Patent Suit

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 Sept. 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, manufacturing and sales of products based on technologies covered by these patents,†A123 said in the filing.

Competitors

A123’s competitors in the emerging market to supply lithium-ion batteries for passenger vehicles 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 ($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. 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, 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.

‘Pioneering’

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 Sept. 15 filing was to seek more time to respond to that request.

The cases are A123 Systems Inc. v Hydro-Quebec, 06cv10612, U.S. District Court, District of Massachusetts (Boston); and The Board of Regents of the University of Texas System v. A123 Systems Inc., 06cv1655, U.S. District Court, Northern District of Texas (Dallas).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Alan Ohnsman in Los Angeles at aohnsman@bloomberg.net.

Last Updated: September 24, 2009 17:32 EDT