Dr. John Ormerod, Principal and Founder, JOC LLC
By a strange coincidence permanent magnets based on the Nd2Fe14B tetragonal compound were discovered, and the key inventive claims were filed in 1982 by both General Motors Corp. (GMC) and Sumitomo Special Metals Corp. (SSMC). SSMC was later to form a JV with Hitachi and eventually merged as Hitachi Metals in 2007. So fast forward to 2017, 35 years later, and we are still litigating patent rights related to NdFeB materials and technologies; how is this possible?Well, from its birth NdFeB was a subject of controversy about who was first to discover, competing technologies and complex IP claims. In addition to GMC and SSMC, researchers at the Naval Research Lab and several academic groups publicly claimed the discovery of similar hard magnet compositions at the 1983 Magnetism and Magnetic Materials conference in Pittsburgh. Inevitably the large corporations won these initial legal skirmishes. However, competing patents were filed by SSMC and GMC in different jurisdictions, which ultimately led to the two companies entering into a cross-license agreement. Magnequench (MQ) which was formed by GMC in 1985 to develop this business was granted the rights to make and market rapidly solidified REFeB powders and magnets produced from such powder, included in which was a license under the SSMC patents.
During the second half of the 1980’s and early 1990’s several magnet companies reached licensing agreements with SSMC to manufacture and sell sintered NdFeB magnets in specific markets and regions which for a time did create some order and stability in the industry. However, this was to change with the growth of the Chinese magnet industry and the desire of the patent holders (and licensees) to protect the US market from disruption by unlicensed product.
What followed was a series of complaints being filed requesting Section 337 investigations to be conducted by the US International Trade Commission (USITC). Section 337 investigations most often involve claims regarding intellectual property rights, including allegations of patent infringement and trademark infringement by imported goods. The first of which began with Crucible Materials Corp. filing a complaint in February, 1995 resulting in the USITC investigation 337-TA-372. The respondents included San Huan, Ningbo Konit, Tridus and five other companies. The main Crucible patent cited was US Patent No. 4,588,439 (which expired in May 2005). The ‘439 patent claimed a range of oxygen content in NdFeB magnets, which was a composition common in sintered magnets at that time. The San Huan entities entered into a consent order with subsequent enforcement proceeding in 1996 by Crucible against the San Huan entities when San Huan was found in violation of the consent order.
Next in July, 1998 SSMC and MQ filed a complaint against several US, Chinese and Taiwanese companies. The cited patent was US Patent No. 5,645,651 which itself was controversial within the industry as it was considered to be a repackaging of the original 1982 (priority date) composition patents of SSMC. The USITC initiated investigation 337-TA-413, which resulted in a general exclusion order being issued. However the Chinese respondents Jing Ma and Xin Huan defaulted.
Then litigation took a back seat until 2012 when Hitachi Metals Limited (HML) the successor of SSMC began flexing its legal muscles. It’s instructive to see how patent application activity and patent enforcement is a key strategic element of Hitachi’s corporate business planning as detailed in this 2014 Hitachi corporate presentation http://www.hitachi.com/IR-e/library/presentation/140410/140410a.pdf.
At the beginning of this decade the magnet industry was eagerly anticipating the expiration of the ‘651 patent; the last remaining basic NdFe(Co)B compositional patent. Both magnet users and suppliers were expecting significantly increased competition in the US market with the expiration of this patent. Then in August 2012 out of the blue HML filed a complaint with the USITC (a few months after announcing their plans to build an NdFeB plant in the US) against 29 manufacturers and importers of RE magnets and products containing RE magnets. Respondents were not only Chinese magnet manufacturers and magnet distributors but device manufacturers including major headphones, motors, speakers, electric tools and golf equipment OEM’s. Four US patents were cited in the complaint: 6,461,565, 6,491,765, 6,527,874 and 6,537,385. In September 2012, the USITC instituted a section 337 investigation (337-TA-855); multiple law firms and dozens of attorneys were involved. The key claims of the four cited patents are as follows:
- ‘565- Temperature and humidity control in the press room
- ‘874 – Effect of Nb.
- ‘765 and ‘565 – Particle removal during jet milling
During the ensuing months the five original licensed Chinese manufacturers (plus three others) agreed to new terms under the cited patents. A matter of days before the scheduled July 2013 trial HML announced that settlement agreements had been reached with all parties and withdraw the petition to the USITC. Therefore, there was no day in court to determine validity of the cited patents. Many in the industry felt that both the prior art was very compiling and the novelty of the invention was overstated and were disappointed that the validity of the patents would not be argued at trial.
August 2013 it was announced that “a dozen Chinese rare earth magnet companies have formed an industrial alliance to sue Japan’s Hitachi Metals for holding invalid patents and infringing patent rights of Chinese companies”. This led to the filing of a petition for Inter Partes Review (IPR) of certain claims of ‘765 and ‘385 with the USPTO on August 11, 2014. IPR is a relatively new and streamlined process to challenge the claims of issued patents and is intended to be fast track process (at least on a geological timescale). The IPR’s were granted by Patent Trial and Appeal Board (PTAB) on February 2015 and once again the battle began between the attorneys. Finally in February 2016 the PTAB ruled that the challenged claim were unpatentable (or invalid). So case closed; well not so fast. Like much of our legal system the patent holder has the right to appeal and sure enough just before the deadline HML filed an appeal to the Federal Circuit Court. So in April 2017 the appeals court announced their decision. The court affirmed most of the conclusions that lower courts had previously ruled in the “Hitachi Metals, Ltd. v. Alliance of Rare-Earth Industry” case. In a 22-page opinion, the three-judge panel said that the PTAB was correct in finding that three claims of one of Hitachi Metals Ltd.’s patents would have been obvious over prior art. On every issue, the federal court upheld the PTAB’s decision of invalidity of the challenged claims except claims 3 and 4 of the ‘765 patent. The Federal Circuit says the PTAB has to reconsider whether those claims requiring some amount of oxygen in the high speed gas in the jet mill are obvious. The reasons are complicated, but basically they’re saying they interpreted that claim too broadly to include the particle separation stage, and it should be limited to the actual milling stage. So now back down to the PTAB for them to rethink Claims 3 and 4. All in all, a good result for the Alliance.
On April 24, 2017, three Chinese companies (DMEGC, Zhejiang Innuovo and Zhejiang Dongyang East Magnetic Rare Earth) filed IPR petitions challenging HML’s US patents ‘565 and ’874. A ruling by the PTAB to allow a review is expected before the end of the year.
I do want to mention a patent challenge that has not received much publicity but illustrates the difficulty and frustration of challenging an issued patent. In December 2009 the PTAB ruled that several claims of the ’651 patent (remember the last basic compositional and structural patent) were invalid because of double patenting i.e. prior art of the patent holder. So HML sensibly took all the legal appeal steps to run the clock out up to appealing at the Federal circuit court. So first the good news; the appeals court ruled “For the reasons stated above, we affirm the judgment of the Patent Trial and Appeal Board rejecting claims 1, 2, 6, 7, and 15-24 of Hitachi’s US Patent No. 5,645,651 in ex parte reexamination Control No. 90/010,759 for obviousness-type double patenting over claims 1, 3, 13, 16, 29 and 34 of US Patent No. 4,792,368.” The bad news is that the ruling was dated March 2015 and the patent had elapsed on July 2014.
So what to expect next? The recent rulings by PTAB and the Federal appeals court have definitely weakened the legitimacy of HML’s challenged patents and arguably cast doubt on their entire portfolio. However, it’s an open secret that unlicensed NdFeB product is entering the US market as magnets, devices or finished product and it’s hard to believe that the current HML licensees are not pressuring HML to take some action. We will see what happens.
What’s the next big challenge? We are seeing a increase in RE prices that in my opinion will benefit the Dy-diffusion processes developed by the major suppliers to reduce the Dy content in high temperature magnet grades. So it’s likely these companies will be active in protecting their IP and competitive advantage against anyone perceived as infringing
So what to conclude? Well the legal profession (and expert witnesses like yours truly) have profited from both the challenges and defense of NdFeB IP coupled with the complexity of our patent system. It is obvious that patents are being issued that in my opinion do not meet the hurdle of the novelty requirement that is the foundation of the patent system. This is not a criticism of the quality and dedication of the patent examiners at the USPTO; the issues are there are not enough examiners to handle the flood of applications and perhaps clearer guidelines and higher hurdles need to be written for what constitutes novelty and invention. In my opinion our current system places the responsibility for critical and timely review and the challenge of claimed inventions at the application stage by the magnet industry and other stakeholders. This will take a dedicated and knowledgeable resource to implement.
This article was previously posted on LinkedIn by the author.
Dr. John Ormerod is principal and founder of JOC LLC a consultancy to the Global Magnetics and Metals Industries. One of the services provided includes IP analysis and patent review and he has provided expert testimony for several cases. He has over thirty years of research, product development, and manufacturing experience in the area of magnetics. He has experience in Europe working for Phillips and in the USA with Arnold Engineering (now Arnold Magnetic Technologies).
Clients include the following; major magnet manufacturers, magnetic equipment manufacturers, medical device R and D companies, motor manufacturers, tier 1 automotive suppliers and new magnetic material R and D businesses.
John Ormerod is giving a presentation at MAGNETICS 2018 on Permanent Magnets Material Options: Why $/kg and (BH)max are Misleading Metrics.