Magnequench has patent policing troubles

For those who remember the Magnequench brouhaha, AMR Technologies has announced it will combine w/ Magnequench Inc. (MQI) of Indianapolis, Indiana though a reverse-takeover share swap that will leave MQI with effective control of the company. The National Post notes that the new company would have had combined revenues of US$138-million in 2004, versus the US$54.3-million AMR reported last year, but AMR will also see its long-term debt mushroom from US$351,000 to more than US$130-million as it assumes Magnequench's debt. Magnequench has been involved in a number of patent lawsuits against US sellers of magnets that use "unauthorized" magnetic powders. Also - their patents are scheduled to run out between 2006-2012.

In 1995, Beijing San Huan New Material High-Tech Inc. and China National Non-Ferrous Metals Import & Export Corporation partnered with investment firm the Sextant Group Inc. (led by Archibald Cox Jr.) to acquire Magnequench and established the new entity as Magnequench International Inc.

Recalling the moves by Bayh and Visclosky, you have to wonder why they waited 8 years -until August 2003 -to make their moves, including sending a letter to the U.S. Department of the Treasury demanding all the facts of its investigation of Magnequench's 1995 sale to a consortium that included Chinese interests and Magnequench's 2000 acquisition of the Valparaiso facility. The 1995 sale required approval from the Committee on Foreign Investments in the U.S., or CFIUS. The CFIUS is an inter-agency committee chaired by the secretary of treasury, tasked with conducting reviews of foreign acquisitions that might threaten national security.

Magnequench, a high-tech company created in 1986 by General Motors, pioneered the development and production of quenched neodymium-iron-boron (NdFeB) magnets used in the guidance system of "smart bombs." (Neodymium magnets in general have a wide range of commercial uses.) Beijing San Huan New Materials High-Tech Inc. is a holding of the Chinese Academy of Science Business Group and was established in 1985. China National Non-Ferrous Metals – previously described by the Wall Street Journal as a "high-flying state company" – operates under the control of the State Council, one of the major organs of the Chinese government.

In 1998, Magnequench moved on to acquire GA (gas atomization)Powders to capitalize on its breakthrough gas atomization process for making NdFeB powder. The technology was designed to create superior materials at lower costs. At the time, the Ames National Laboratory estimated the $250 million market for these bonded magnets was expected to grow by more than 20 percent annually into the next century.

GA Powders was in fact a spin-off innovation company created by the Idaho National Engineering and Environmental Laboratory, which was managed by Lockheed Martin Idaho Technologies Company. At the time, Ames said, "The new venture will strengthen the economy, create jobs and provide a return on taxpayer investment in government-sponsored research and development." (Uh-huh.)

After acquiring GA Powders, Magnequench opened a new powder plant in Tianjin, China, in June 2000, moving production closer to the source of raw materials and driving down the overall cost of the NdFeB magnets. (The lab retained the patent rights used by GA Powders.) The purchase of Magnequench by Beijing San Huan New Material High-Tech Inc. and China National Non-Ferrous Metals Import & Export Corporation and the Sextant Group Inc, included all the patents used by Magnequench.)

For any US university lab selling its start-up operation to a company which subsequently opens operations in China, it would be theoretically extremely difficult to track and prosecute misuse of American patents. (Okay, let's be frank. You may as well give the patent[s] away.) This is an ongoing and vexing problem currently faced by US labs that go that route. It's is also somewhat ironic and not at all surprising therefore that Magnequench itself is now engaged in lawsuits as part of policing its own patent rights.