SD-3C LLC Wins $69 Million Judgment in Fraud and Trademark Infringement Case
On March 17, 2015, SD-3C LLC won a summary judgment of more than $69 million when a federal judge ruled that two Chinese companies and four of its executives were guilty of fraud, trademark infringement, and breach of contract after underreporting sales and royalties on the sale of memory card technology licensed by SD-3C.
In the request for summary judgment before the US District Court for the Northern District of California, SD-3C successfully argued that Biwin Technology Ltd. and Wintek Enterprises Ltd. had fraudulently entered into license agreements with SD-3C, did not accurately report sales or pay appropriate royalties, and continued selling trademarked products long after SD-3C terminated the licenses. SD-3C was represented by partners Jerrold Abeles, Pamela M. Deese and Matthew Wright from Arent Fox LLP and the accounting firm of Miller Kaplan Arase LLP served as experts.
In SD-3C, LLC v. Biwin Technology Ltd., the Court also ruled that the corporate defendants operated as alter egos of the four individual defendants, who also operated other corporations that sold illegal SD-3C-trademarked products without ever obtaining licenses. As a result, the individual defendants were found to be jointly and severally liable for the corporate wrongdoing.
In 2006, China-based Biwin Technology Ltd. entered into a patent licensing agreement with SD-3C to manufacture and sell SD memory cards, largely to be used in digital cameras. SD-3C licenses intellectual property rights essential to SD memory cards. Under the terms of the contract, Biwin agreed to pay SD-3C a royalty on all SD card sales.
But over the next two years, Biwin underreported and concealed its SD card manufacturing operation, leading SD-3C to terminate the agreement in 2009. Later that same year, SD-3C agreed to a similar contract with Wintek Enterprises Ltd., while not knowing the company was owned and operated by the same four executives who controlled Biwin. Wintek similarly underreported and concealed its SD card sales; Wintek’s license was terminated in 2010. In 2012, SD-3C brought suit after discovering that these companies continued to claim to produce SD cards under valid license agreements.
In his decision, Magistrate Judge Paul Singh Grewal not only accepted SD-3C’s claim for damages, including past due royalties and interest, and attorney fees, but he also tripled the royalties based on the trademark infringement, accounting for the $69 million judgment.
SD-3C, LLC is a limited liability company established by Panasonic Corporation, SanDisk Corporation, and Toshiba Corporation (collectively “SD Group”). SD-3C LLC licenses intellectual property rights essential to SD Memory Cards and SD Host/Ancillary Products. SD Memory Cards are one of the most popular removable memory cards commercially available today. SD-3C LLC licenses companies that plan to manufacture and sell SD Memory Cards and/or Host/Ancillary Products. A prospective licensee that wishes to manufacture and sell SD Memory Cards and/or Host/Ancillary Products may obtain the rights to the essential patents, trademarks, copyrights and design patents from one source by executing an SD Memory Card License Agreement (“CLA”) and/or SD Host/Ancillary Products License Agreement (“HALA”) with SD-3C LLC.