The law of the conservation of energy applies to start-ups too. Nothing is lost; it only changes form. The case of Israeli start-up Commil is an excellent example. Two years after closing down, it sold its assets for a few hundred thousand dollars to a new company, Commil USA LLC. Commil USA sued Cisco Systems Inc. (Nasdaq: CSCO) for infringement of its patent. Commil USA won the case and was awarded $3.7 million, but nevertheless in late 2010, it asked the court for a new trial. The request was granted.
US District Court for the Eastern District of Texas Judge Charles Everingham approved the motion, which was based on the claim that Cisco's attorney made prejudicial remarks against the plaintiff, which were welcomed by the jury. What is the connection between wireless telecommunications equipment patents and anti-Semitic remarks? There were many such connections in the case of Commil USA vs. Cisco.
However, before understanding why Cisco had to protect its coffers with unsavory strategic means, it is necessary to go back a little.
Commil was founded in 2000 on the basis of a patent registered by its founders, and developed Bluetooth applications. The company raised capital from DFJ Tamir Fishman Ventures Ltd. (TASE: TFVC), Gemini Israel Funds, Formula Ventures, and Royal Philips Electronics NV (NYSE: PHG; Euronext: PHIA), and got down to work. The company developed products that connect mobile and landline networks, enabling mobile carriers to offer customers disruption-free usage by the management of network traffic.
Commil's patent covered all telecommunications fields, but the company chose Bluetooth, because it appeared that that was where the market was heading. Reality wrecked the plan, when it became clear in 2004 that the market preferred WiFi. Commil tried to develop a new product, but it missed the opportunity, and lost the market.
In 2005, Commil fired all its employees, after raising $15 million. The company still had a few million dollars in cash, which CEO Yuval Dovev decided to return to the investors. He put the company's intellectual property up for sale.
In 2007, Adv. Jonathan David bought Commil's intellectual property for a few hundred thousand dollars. Until then, David specialized in damages claims by people exposed to asbestos. He and his partners are proud of winning $2 billion for their clients.
David bought Commil's assets after he found that the company's patents had been infringed by a number of large telecommunications network equipment companies, including Motorola Inc. (NYSE: MOT), Aruba Networks Inc. (Nasdaq: ARUN), and Cisco. Motorola and Aruba settled with Commil USA, but Cisco refused to compromise, and David sued the company in May 2007.
The trial began in May 2010 in the Texas town of Marshall. The jury found that Cisco had violated Commil's patent and awarded the company $3.7 million. In June 2010, Commil USA filed a motion for a new trial, citing improper remarks by Cisco's attorney, and what it believed was the low reward; it had asked for $50 million.
Commil did not mention the lawyer's name in the request for a new trial, but several reports say that it was Adv. Otis Carroll of the Ireland Carroll & Kelley PC law firm based in Tyler, Texas.
The motion for a new trial states that Carroll described David as a greedy financial investor, who was Jewish by the way, who resided in Israel no less, and sought to take money from the manufacturer, Cisco, which employed thousands of people at its center in Texas. For example, in the closing argument, Carroll made a connection between the case and the trial of Jesus before Pontius Pilate, who ordered the crucifixion. He said that the jurors should stop David before the money window, because he wanted to fill his money bags and take them to Israel.
Carroll even argued that $3.7 million was a great sum, considering that David bought the patent for a few hundred thousand dollars. He called David a "bottom feeder". When David mentioned a dinner meeting at a barbeque restaurant with one of the inventors of Commil's product, Carroll commented, "I bet not pork." Carroll also described David as "A financial investor who does not understand technology, and is seeking easy prey."
David told "Globes" that the demand for compensation for patent infringement was common practice. "A small company dares to go up against a large corporation, to demand what it is owed. Regrettably, in our case, instead of focusing the discussion on fair compensation, inappropriate remarks were made during the trial."
David now hopes that the new hearing on the case will be held in a fitting manner, since the court has already found that Cisco infringed Commil's patent.
"Globes": How did you really reach the company?
David: "I heard that Commil was about to close and that its assets were up for sale. I paid $100,000 for an initial review, and the indications showed that its patent had been infringed. Commil USA is not active in the market; it is a company that is trying to win back royalties and compensation for use of its patents. I've spent $2.5 million to date, not including lawyers' fees."
What do you believe is fair compensation?
"We showed the court in May 2010 that Cisco's sales, up to the first quarter of 2010, from products that infringed Commil's patents, totaled $1.1 billion. We demanded 5% royalties, which amounted to $57 million at the time.
"In January 2005, Cisco acquired Airespace for $450 million. That was a new start-up that developed products similar to Commil's, but had no patent. Commil USA owns the patent. We're not greedy, but we want to receive the compensation we're owed. We hope that when the new trial begins in April, we will be able to conclude the court hearing and examine whether it is possible to continue to sell licenses to use the patent in the market. The patent is valid for nine more years, and sales are only going up."
Published by Globes [online], Israel business news - www.globes-online.com - on January 31, 2011
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