Wednesday, October 7, 2009

Toyota's Prius threatened by probe

Could the Prius and other Toyota hybrids be banned from the U.S.? It seems unthinkable, but that's one possible ending to a patent investigation launched this week.

This case centers around Paice, a tiny Florida company that has patented a way to apply force to a car's wheels from the electric motor or the internal combustion engine.

Paice thinks that Toyota (TM) is infringing on its technology, and is going after the automaker in court. The legal spat became much more serious for Toyota this week, when the U.S. International Trade Commission decided to investigate the matter.

Bing: How do hybrid cars work?

The problem is that the ITC can stop any imports that infringe on U.S. patents. So in the worst-case scenario for Toyota, the commission could ban the hybrid Camry, third-generation Prius, Lexus HS250h sedan and Lexus RX450h SUV, according to Bloomberg.

And that could potentially be devastating for Toyota, which Bloomberg says has sold more than 1.1 million hybrids in the U.S. in the last decade -- most of them Prius cars.

Paice won a 2005 patent suit against Toyota in federal court in Marshall, Tex. And you might snicker at that, because Marshall is notorious for granting all sorts of wacko patent cases. But still, the verdict was upheld on appeal, and a judge ordered Toyota to pay royalties to Paice based on car sales.

Paice has more lawsuits against Toyota in the Marshall court, and some may go to trial in January.

So can't Toyota just throw a little licensing money at Paice and make it go away? It's not that easy, according to one lawyer familiar with the case. Paice wants the cars banned.

"As soon as Paice wins an exclusion order from the ITC, Toyota’s in trouble," the lawyer, Michael Murphy, told "It doesn’t matter that Toyota can appeal that decision. And it doesn’t matter that Toyota might eventually have that decision overturned. For some indeterminate period of time, perhaps months, Toyota is stuck without any ability to bring these new vehicles into the United States and sell them. Think of the cost. Toyota would lose millions of dollars."

Realistically, the chances that Toyota hybrids will be banned are slim. Paice likely would accept big money -- not puny licensing payments -- from Toyota in return for dropping its complaints, so there is a way out for Toyota here.

At any rate, this isn't helping Toyota in the U.S. The automaker saw its sales drop 29% through August in the U.S., its largest market, and is struggling to revive its business here.

Toyota is still blazing ahead with its hybrids, and plans to add one or two more versions of the Prius, according to Reuters. Toyota also plans to spend $1 million in a marketing blitz in the fourth quarter -- about 30% to 40% more than it would normally spend to promote its cars.

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