Toyota's Prius Faces Patent Challenge

It all centers around a patent owned by a small company, Paice, which feels Toyota is infringing on its technology. While its already bad enough that Paice has previously won judgments against Toyota, this week the U.S. International Trade Commission (ITC) decided to investigate the matter.

The ITC can stop any imports that infringe on U.S. patents. This would mean there is a potential for the ITC to ban all of Toyota's hybrids, including the hot-selling Prius.

In 2005, Paice won their initial case against Toyota claiming that the Prius, Highlander and Lexus RX400h used Paice inventions related to drive trains. The verdict was upheld on appeal, and a judge ordered Toyota to pay royalties to Paice based on auto sales. Fortunately for Toyota, that same judged rejected a Paice request to halt sales of Toyota hybrids.

That, according to a legal expert, is what Paice wants, because it would give the company huge leverage over Toyota, to negotiate a much better licensing deal. The current judgment gives Pace $98 per infringing car.

Is a Toyota hybrid ban possible? Yes. Is it likely? No. More likely is that, in the event of such a ban, Toyota would agree to a different licensing fee. However, if (and that's still an if) the case does go to the ITC, it could take as long as 15 months. That's a long time, and it's possible the two companies could come to an agreement before it concludes.

At any rate, Toyota doesn't need this distraction. Even the Prius's parent company is facing a tough road in this recession, and the company probably wishes this would all just go away.