A patent battle for Ceravision has created a legal loophole that could threaten UK technology start-ups

It's not been the easiest of beginnings for UK lighting firm Ceravision. After "six years in a dark shed" at the company's Bletchley Park offices, the company has pioneered new bulb technology, which it claims provides lighting at half the cost and twice the efficiency. But the product's entry onto the market was threatened by a costly patent dispute with a rival lighting firm. The case dragged on for four and a half years, burning vital start-up funds.

Back in 2000, while researching the technology alongside development partner Digital Reflection Inc (DRI), Ceravision hired a team of consultants to help engineer a power supply device. Those consultants went on to form Luxim, a rival lighting company, which filed a patent that Ceravision had claimed as its own. Ceravision sued, believing the patent was central to the product's development. 

Ceravision fought the case in-house. The start-up's chairman, Dan Murphy is a lawyer, and the team also has its own General Counsel, Milan Patel. "All the donkey work we did internally," says chief executive Tim Reynolds. "Instead of using lots of people who charge 300 quid an hour, we did 90 per cent of the litigation ourselves, which means we could afford to fight it for so long. Most companies probably couldn't afford to defend it for as long as we did."

While Ceravision is backed by private investors, Luxim could at least call on the deeper pockets of Sequoia Capital to bolster its case. Reynolds says that Luxim's larger arsenal meant that having the case referred from the Patent Office to the High Court, enabled it to leverage its size advantage. "They spent hundreds of grand making representations to inform the Patent Office they weren't smart enough to deal with the dispute, just to prolong it," says Reynolds.

Justice Warren agreed, setting a precedent for transfer of jurisdiction in cases where the dispute falls outside the realm of patent law, for example in cases of fraud, or breach of fiduciary duty. But the precedent is bad news for UK start-ups, says Patel, because the Patent Office has "effectively lost control". It is now "very easy for a large company to cite [Luxim Vs Ceravision] and request a transfer to the High Court and all the attendant cost consequences this brings," he says.

This is partly true, says Nicholas Wallin, a patent lawyer at Withers & Rogers. In cases where there was no question over the inventor of the technology, but questions concerning the owner, "then that would likely raise legal questions that are more properly the province of the Court," says Wallin. But a case with more technical than legal questions, "would likely stay with the Office." But says Wallin, "one tactic may be to try and invent a 'legal' question to try and have the case transferred, but whether this is actually going to be possible will depend on the circumstances of the case. It won't be possible in every case."

Reynolds believes the precedent is dangerous for the development of UK technology. "Now every time a small company has an issue with a big company, all the big company has to do is say the case is too complex and they have won another two years." Fighting in the High Court "puts another £1m of costs" on the case, he says. "The whole patent system in this country is a shambles. It's all in favour of the guy with the money regardless of how good their case is."

Ceravision won the case, but even before it was finally settled, the company discovered a new technology breakthrough. "Halfway though the dispute we decided this wasn't the optimum approach and came up with a whole new family of patents," says Reynolds. "We thought of dropping it, but we wanted to get [the dispute] recognised, [to publicise] what these people had done."

Ceravision's niche is in the kind of high power lighting used in warehouses and factories. "We are good at anything from 100 watts to five kilowatts," says Reynolds. Ceravision bulbs are "anywhere between 50-65 per cent more efficient than the best in show," he adds. As well as "cash and carbon" savings, the company doesn't use mercury. "We haven't found another lamp that doesn't use mercury. With our products there are no disposal issues."

An assembly and manufacturing plant should be ready to go this month. "We want to set up the best possible process and the only way we can do that is to do it ourselves," says Reynolds. "We really do want to stay UK based." Reynolds says it's been fascinating controlling the company's growth from concept through to delivery. "The transformation has been like watching a child evolve. We are now customer driven instead of research driven."

Ceravision sees part of its future in providing street lamps. "We are a lot more efficient than incumbents, we can save a hell of a lot of power," says Reynolds. The company's technology allows it to control its street lamps from "anywhere in the world". It's not just the functionality of the device it's the interaction too, says Reynolds. "You can control a million lamps from a single source. You also get a live feedback report, which will tell you how each individual bulb is behaving and when it is likely to fail, so you can actually schedule your maintenance in advance."

Posted 14 December 2009 : Director.co.uk