Chinese storage company Netac’s Patent No. 99 survives 18th invalidation bid

The Patent Reexamination and Invalidation Department (PRID) of the China National Intellectual Property Administration (CNIPA) on May 25 issued a final decision upholding the validity of Chinese flash storage company Netac Technology Co., Ltd. (深圳市朗科科技股份有限公司)’s Patent No. 99117225.6, which had been challenged by Baiwang Jinfu Technology Co., Ltd. (百望金赋科技有限公司).


Netac in 2018 sued Baiwang Jinfu and its parent company Beijing Watertek Information Technology Co., Ltd. (北京旋极信息技术股份有限公司) in the Shenzhen Intermediate People’s Court of Guangdong province for infringing the challenged patent, seeking 10 million yuan ($1.5 million) in damages. The patent, which is directed to a flash electronic external storage method for the data processing system and an apparatus thereof, has given rise to rounds of litigation in China and abroad and been nicknamed as Patent No. 99.


Shenzhen city-headquartered Netac was founded in 1999 and became listed on the ChiNext, a NASDAQ-style subsidiary of the Shenzhen Stock Exchange, in 2010. Known as a leading OEM and ODM of storage devices, including solid-state drive, memory module, SD cards, USB flash drives, external hard disk drives, and peripherals, the company also produces and distributes its own branded devices and develops proprietary storage technologies, which over 400 patents cover. Netac obtained the grant of Patent No. 99 from the CNIPA in 2002 and the patent term expired in 2019. With this heavily-litigated one functioning as an anchor of its patent portfolio, Netac was one of the multiple individuals and/or entities in 1999 staking a claim to being the inventor of the USB flash drive, a small-sized removable data storage device that includes flash memory with an integrated USB interface. Finally, Singaporean company Trek 2000 International has been acknowledged to have sold the world’s first USB flash drive and Malaysian engineer Pua Khein-Seng has also been recognized by some as a possible inventor of the device.


Beijing municipality-based Watertek provides tax informatization products and services and other embedded systems for defense and military testing products. The company was founded in 1997 and became listed on the Shenzhen Stock Exchange in 2012. Prior to Watertek’s IPO, Netac sued it and its client Agricultural Bank of China Ltd. (ABC), one of the China’s “Big Four” banks, in the Nanning Intermediate People’s Court of Guangxi Zhuang Autonomous Region (GZAR), alleging that ComyiKEY220, a product ABC commissioned Watertek to develop to serve bank customers as a USB security key, had infringed Patent No. 99, seeking 60 million yuan ($9 million) in damages. The trial court ruled for Netac and awarded it 40 million yuan ($6 million) in damages. Watertek appealed the case. The Guangxi High People’s Court in 2019 handed down a final decision reversing the appellate court’s ruling in favor of Netac.


Netac in 2018 brought another action over Patent No. 99 against the same alleged infringer Watertek and its subsidiary Baiwang Jinfu, which provides enterprise-grade tax control equipment and solutions. Netac in 2021 amended the claim by increasing the requested damages of 10 million yuan ($1.5 million) to 98 million yuan ($15 million). Hence Baiwang Jinfu petitioned to invalidate the asserted patent before the PRID the same year. According to the regulatory information released by Netac, a total of 18 invalidation petitions, including Baiwang Jinfu’s 2021 petition, have been filed against Patent No. 99, 13 of which have been voluntarily dropped by petitioners and five of which have been subjected to the PRID’s decisions upholding its validity. The Supreme People’s Court (SPC) in February agreed to hear the appeal filed by Netac.


Netac sued the Wuxi city, Jiangsu province-based Chinese unit of Japanese tech conglomerate Sony Group Corp. for infringing Patent No. 99 in the Shenzhen Intermediate People’s Court in 2006 and was finally awarded $10 million in damages. Netac sued U.S. storage device manufacturer PNY Technologies, Inc. for infringing Patent No. 99 in United States District Court for the Eastern District of Texas in 2006 and was finally awarded $7.7 million in damages. Other big names on the long list of accused infringers of this patent include Lenovo, Acer, Aigo, Tai Guen Enterprise Co., Ltd.


Statistics show that Netac filed over 100 lawsuits over Patent No. 99 between 2011 and 2018, and by rough calculation the total damages it has been awarded from infringers of this patent have exceeded 500 million yuan ($75 million) so far.


In recent years, licensing royalties and infringement awards of its patents have been trending up in Netac’s revenue composition, as physical storage device makers have been gradually losing ground to cloud storage solution providers in market share globally. Rumors about Netac’s patent trolling are in the air, with the much-litigated Patent No. 99 taking the brunt of indignation. The dubious labeling seems to be reinforced by one more arrow in Netac’s quiver—another money-spinning patent. The Beijing Intellectual Property Court in April 2020 ruled in favor of Netac in a lawsuit lodged by it against U.S. storage device company Micron Technology, Inc.’s Chinese unit for infringing its Patent No. 1088218C relating to an electronic flash storage method and device for data processing system and awarded Netac 500,000 yuan ($75,000) in damages.


The incoming defeat of the 18th invalidation attempt by Baiwang Jinfu against Patent No. 99 has better primed Netac for the SPC’s hearing anytime soon.


The case docket no. is (2022)最高法知民终68号, whose English transliteration is 68, second instance (终), civil case (民), intellectual property tribunal (知), (2022) Supreme People’s Court ((2022)最高法).