Canon/Toshiba SED Venture Collapses Amid Litigation

SED (Surface-conduction Electron-emitter Display) displays were supposed to be the brightest, most energy efficient TVs to hit the market, so Canon and Toshiba created a joint venture in 2004 to capitalize on the emerging technology.

The resulting SED Inc. is now being sued by Nano-Proprietary, a company that licensed SED technology to Canon in 1999. The company says that a $5.6 million deal it signed with Canon doesn't extend to Toshiba. Rather than fight the lawsuit and prolong SED even further, Canon has decided to buy out Toshiba's stake in SED Inc.

Canon currently is the majority shareholder in the enterprise, called SED Inc., with 50.002% ownership to Toshiba's 49.998%

On completion of the purchase, SED Inc. will become a wholly owned subsidiary of Canon, effective January 29, 2007.

Canon had planned to exploit Toshiba for its "mass-production technologies," among other things, the company said back in 2004. Toshiba was expected to build a $1.5 billion factory in Japan to crank out the sets.

In a press release, Canon said, "SED television sets are to be introduced in Japan in the fourth quarter of this year as originally scheduled, although Canon will reassess its future mass-production plans for SED panels."

Mr. Kazunori Fukuma, the current president of SED Inc. appointed from Toshiba, will resign from Toshiba, after which he will be hired by Canon and continue to serve as SED Inc. president. Also, plans call for Toshiba engineers on loan to SED Inc., in accordance with the terms of a new agreement to be entered into between SED Inc. and Toshiba, to continue their assignments for the transition period during which Canon will independently establish the SED panel business.

About SED

SED TVs are said to produce brighter pictures, achieve more accurate color, offer better motion response and consume less energy than other flat-panel TVs.

Toshiba and Canon showed a prototype at CES 2006 with a 50,000:1 contrast ratio, and then upped that later in the year with a 100,000:1 unit. Toshiba was set to show a 55-incher this year. It wasn't to be.

When SEDs were first being discussed, they were supposed to have been less exensive than LCDs and plasmas in higher volumes. Now that flat panels are dropping so dramatically in price, can SED ever catch up?

The Legal Mumbo Jumbo

The following is a status report from the Nano-Proprietary Web site. Shall we assume the lawsuit will be dropped?

In April 2005, we filed suit against the Japanese camera and copier manufacturer Canon, Inc., and its wholly-owned U.S. subsidiary Canon USA, Inc., in the U.S. District Court for the Western District of Texas, Austin Division, seeking a declaratory judgment that new SED color television products being developed and manufactured by a Canon/Toshiba joint venture are not covered under a non-exclusive 1999 patent license agreement that we granted to Canon. We assert that the Canon/Toshiba joint-venture – SED, Inc. – is not a licensed party under that agreement. The original complaint asserted additional claims related to whether the Canon/Toshiba joint venture's television panels constituted excluded products under the 1999 license, as well as breach of covenant of good faith and fair dealing, tortious interference and a Lanham act violation by Canon. Last year, Canon moved to dismiss Canon U.S.A. from the litigation, and moved to dismiss several of the counts asserted. The court denied the motion, in part, by ruling that Canon U.S.A. was an appropriate defendant and refusing to dismiss our claims for breach of the covenant of good faith and fair dealing. Our tortious interference and Lanham Act claims were dismissed, without prejudice.

After initial discovery, in April 2006, we amended the complaint to drop one count related to the definition of excluded products in the 1999 license, and add two counts for fraudulent inducement and fraudulent non-disclosure related to events and representations made during our negotiations on the license, including Canon's failure to disclose an ongoing relationship with Toshiba. Canon moved to dismiss the fraud claims, and the Court denied Canon's motion in May 2006. The suit is now proceeding under the amended complaint. Discovery was completed in August 2006. Upon completion of discovery, Canon filed a motion for summary judgment seeking to dismiss the claim that SED is not a licensed party under the agreement and we filed our reply brief in opposition to the motion. Canon did not file a motion for summary judgment seeking to dismiss either of the fraud claims or the breach of covenant of good faith and fair dealing. The parties are currently awaiting the Court's ruling on Canon's motion; however timing of that ruling is entirely within the discretion of the Court. Regardless of the Court's ruling on the motion for summary judgment on the subsidiary claim, the case will proceed – either based on the remaining three claims, or the entire amended complaint. A trial date has been set for March 2007.