Japanese court sides with Toshiba over flash patent

The ruling may give a boost to Toshiba in the fast-growing memory product market.

But Hynix said it planned to appeal the ruling, which would affect sales of some of its NAND flash memory products in Japan. Following the court decision, Hynix's shares briefly fell as much as 3.7 percent.

A representative of the Tokyo court also said it had ordered the Hynix unit to pay $66,550 (7.84 million yen) in damages to Toshiba, the world's second-largest maker of NAND-type flash memory chips behind Samsung Electronics.

Toshiba filed the suit against Hynix at the district court in 2004 for what it said was the infringement of patents on NAND flash memory chips, which are seeing explosive growth as they are widely used in digital cameras and portable music players such as Apple Computer's iPod Nano.

Hynix, the world's second-biggest maker of dynamic random access memory (DRAM) chips, has been shifting its production capacity from DRAM, memory chips used mainly in PCs, to more profitable NAND products. Samsung is the largest maker of DRAM chips as well as NAND products.

Hynix's share in the $11 billion NAND market rose sharply in the last three months of 2005, threatening Toshiba's position as the No. 2 NAND flash supplier.

Daewoo Securities analyst Chung Chang-won said the potential effect on Hynix's NAND flash operations should be limited.

"The impact can be ignored, as this is about 512-megabyte chips using 110-nanometer technology, which Hynix rarely produces nowadays," Chung said. "Hynix sells only about 10 percent of its NAND flash memory chips to Japanese companies, and not all of the amount is sold in Japan."

However, a Toshiba representative said the ruling affected a wider range of Hynix's memory products, without elaborating.

Chung added that an upcoming U.S. ruling could be more crucial to Hynix, and the South Korean company may try to resolve its patent spats with Toshiba through negotiations before the ruling in the United States.

Besides the lawsuit in Tokyo, Toshiba in 2004 filed another suit against Hynix in the United States over seven patents: three related to DRAM chips and four related to NAND flash memory products.

Research firm iSuppli expects the NAND market to expand 140 percent to $26.1 billion by 2009, far outshining an expected 11 percent growth in the DRAM chip market.

These strong growth prospects have lured industry heavyweights such as Intel into the market in recent months, further stoking the white-hot competition.

Analysts are concerned, however, that if Hynix is forced to pour NAND flash chips intended for Japan into the spot market elsewhere, already weak NAND prices would come under further pressure.

"If Hynix turns to the spot market, that could create disarray in the broader NAND market. That is the outcome that no one hopes for," Macquarie Securities analyst Yoshihiro Shimada said.

The court ruling is Hynix's second major setback in Japan so far this year.

Japan in January imposed a 27.2 percent duty on DRAM imports from the South Korean chipmaker. That decision came after Elpida Memory and the Japan unit of Micron Technology asked the Japanese government in 2004 to impose duties on Hynix's DRAM imports, saying they believed Hynix had received subsidies from the South Korean government.

Shares in Toshiba closed down 0.15 percent at 659 yen, in line with the Tokyo stock market's electrical-machinery index. Hynix shares ended down 2.39 percent, while the broader market was up 0.68 percent.