Lexar Awarded $380 Million in Damages

March 24, 2005 | Mark Goldstein | Global | 0 Comments |

Lexar MediaLexar Media Press Release

Jury Awards Lexar Over $380 Million For Toshiba’s Theft of Trade Secrets and Breach of Fiduciary Duty

Jury To Consider Punitive Damages Tomorrow

FREMONT, CA, March 23, 2005 – Lexar Media, Inc. (Nasdaq:LEXR), a leading marketer and manufacturer of high-performance digital media and accessories, today announced that after a six week trial, the jury found Toshiba Corporation (JP:6502) and Toshiba America Electronic Components, Inc. (PNK:TOSBF.PK) liable of breach of fiduciary duty and theft of trade secrets and awarded Lexar over $380 million in damages. 

The jury also found that Toshiba’s and TAEC’s actions were oppressive, fraudulent or malicious, which supports an award of punitive damages.  Evidence and argument will be presented to the jury tomorrow on the amount of punitive damages.

Thanks to Sanj for letting me know.

“The implications of this verdict to the flash memory industry are enormous and we appreciate that the jury took the time to understand difficult technical issues and to consider a wealth of evidence,” said Eric Whitaker, executive vice president and general counsel, Lexar.  “This verdict validates Lexar’s core intellectual property and contributions to the flash memory industry.  It holds Toshiba accountable for its conduct – building Lexar’s trust to acquire our technology and then betraying that trust to partner with our competitor and compete against us.  It sends a clear message to Toshiba that this type of corporate conduct will not be tolerated – as a strategic partner and board member, Toshiba was required to act with the utmost good faith and fell far short of that standard.”

During the six-week trial, the jury heard over 4,000 pages of testimony and examined almost 400 exhibits.  Lexar’s evidence was based in large part on Toshiba’s own internal documents that had previously been confidential within Toshiba. Key witnesses at the trial included Lexar’s founders, Petro Estakhri and Mike Assar, Toshiba senior executives Hideo Ito, Yoshihide Fujii and Kiyoshi Kobayashi, and SanDisk (Nasdaq: SNDK) top executives Eli Harari and Sanjay Mehrotra. 

Toshiba’s defense rested in large part on the argument that the disputed technology had been independently developed by Toshiba.  The jury rejected that argument, recognizing Lexar’s important contributions to the development of NAND flash memory, particularly high performance system designs.  These trade secrets included Lexar’s inventions regarding critical flash functions such as Parallel Write, Internal Page Copy, Pipelining, and Superblocks, aspects of which are also now the subject of multiple U.S. and foreign patents, including U.S. Patents 5,907,856; 6,034,897; 6,040,997; 6,081,878; 6,141,249 and 6,374,337.

Remaining Issues
Lexar’s claim for unfair competition, based on California Business and Professions Code Section 17200 was not given to the jury and will be decided by the Court.  Lexar expects that the Court will rule on that claim as well as on anticipated post-trial motions shortly after a hearing currently scheduled for April 13, 2005.

Based on the jury’s verdict and findings, Lexar intends to ask the Court for an injunction that bars the sale of Toshiba’s products in the United States.  Lexar will ask that the injunction include products that have been found to incorporate Lexar’s trade secrets, including Toshiba’s large and small block NAND flash chips, its CompactFlash, Secure Digital and xD Picture Card products.  Though the length of the injunction will be determined by the Court, during the trial, there was testimony that it could take as long as eighteen months to implement the types of features Lexar disclosed to Toshiba.  Lexar expects that the Court will hold a hearing on Lexar’s request for an injunction on April 13, 2005.

Lexar was represented by Weil, Gotshal and Manges.  Lexar’s lead trial counsel was Matt Powers who was assisted at trial by David Ball, Perry Clark, Chris Cox, David Healey and Anita Kadala and an experienced trial team.  They were also assisted by their associates Rip Finst, Ira Hatton, Sven Raz and Archana Bhuta.  The trial took place in the Superior Court for the State of California, County of Santa Clara and was encaptioned Lexar Media, Inc. v. Toshiba Corporation. 

Patent Case Proceeding
Lexar’s case for patent infringement against Toshiba on more than ten of its patents remains pending in Federal Court. In January, the United States District Court for the Northern District of California issued a claim construction ruling that will have considerable impact on the case as it proceeds toward trial. The ruling arose from a special proceeding required under U.S. patent law called a ‘Markman hearing,’ where both sides present their arguments to the court as to how they believe certain claims at issue in the lawsuit should be interpreted.  In the ruling, the Court construed several key terms in Lexar’s favor, rejecting several of Toshiba’s attempts to avoid infringement of Lexar’s patents. 

Lexar believes that the Markman hearing ruling affirms its assertion that Toshiba infringes substantial elements of our patented technology.  During the hearing, the Court interpreted fourteen terms in six Lexar patents, including U.S. Patent Nos. 5,479,638 entitled “Flash Memory Mass Storage Architecture Incorporation Wear Leveling Technique”; 6,145,051 entitled “Moving Sectors Within Block of Information in a Flash Memory Mass Storage Architecture”; 6,397,314 “Increasing The Memory Performance Of Flash Memory Devices By Writing Sectors Simultaneously To Multiple Flash Memory Device”; 6,202,138 “Increasing The Memory Performance Of Flash Memory Devices By Writing Sectors Simultaneously To Multiple Flash”; 6,262,918 “Space Management For Managing High Capacity Nonvolatile Memory”; and 6,040,997 “Flash Memory Leveling Architecture Having No External Latch.”

Discovery has now begun in the patent case.  Lexar alleges that Toshiba infringes more than ten of Lexar’s 82 worldwide patents, including U.S. Patent Nos. 5,479,638; 5,818,781; 5,907,856; 5,930,815; 6,034,897; 6,040,997; 6,134,151; 6,141,249; 6,145,051; 6,172,906; 6,202,138; 6,262,918; 6,374,337; and 6,397,314. Lexar is seeking damages as well as an injunction against Toshiba for those Toshiba products that infringe Lexar’s patents, including its flash memory chips, flash cards and digital cameras.

About Lexar Media, Inc.
Lexar is a leading marketer and manufacturer of flash memory cards, USB flash drives, card readers and ATA controller technology for the digital photography, consumer electronics, industrial and communications markets. The company holds over 78 issued or allowed controller and system patents, and licenses its technology to companies including Olympus, Samsung Electronics, SanDisk and Sony. For more information, please call 1-800-789-9418 or visit http://www.lexar.com.

Cautionary Note Regarding Forward-Looking Statements
This news release contains forward-looking information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and is subject to the safe harbor created by those sections. These forward-looking statements include assertions regarding our current litigation with Toshiba, including, among others, statements regarding anticipated timing of hearings and decisions by the Court as well as the outcome of the claim construction hearing in our lawsuit against Toshiba for patent infringement. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks include: that there is no guarantee regarding the timing and outcome of our current litigation matters, including whether such matters will be resolved in our favor; and that we may become involved in additional litigation that could divert management’s time and attention, be time-consuming and expensive to defend and limit our access to important technology. Readers should also refer to the risk factors described in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission on March 15, 2004, and our Quarterly Report on Form 10-Q for its fiscal quarter ended September 30, 2004, filed with the Securities and Exchange Commission on November 9, 2004. We assume no obligation to update the forward-looking information contained in this news release.

Lexar and the Lexar logo are trademarks of Lexar Media, Inc.  All other brand or product names are trademarks or registered trademarks of their respective holders.



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