Decision Reached in Magnetek v Nilssen Patent Arbitration

May 04, 2005 by Jeff Shepard

Magnetek Inc. (Chatsworth, CA), a manufacturer of digital power products for communications, information technology, alternative energy, power generation, transportation and commercial fuel cells, announced that a decision has been reached in a long-standing patent dispute between the company and Ole K. Nilssen.

In April 1998, Nilssen filed a lawsuit alleging infringement of patents pertaining to certain types of electronic ballasts previously sold by Magnetek, and seeking unspecified damages and injunctive relief. The company denied that the products, which it no longer manufactures, infringed any valid patent and filed a response asserting affirmative defenses, as well as a counterclaim for a judicial declaration that its products did not infringe Nilssen's patents and also that the asserted patents are invalid.

In April 2003, Nilssen's lawsuit and the counterclaims were voluntarily dismissed with prejudice, and both parties agreed to submit limited issues in dispute to final and binding arbitration. The arbitration process commenced on November 8, 2004, and ended May 4, 2005, when Magnetek learned that the arbitrator had awarded damages to Nilssen totaling $23.4 million. While it was unexpected, the decision is final, binding and not subject to appeal or explanation by the arbitrator.

Magnetek had only $3.3 million in cash on its books as of March 31, 2005, and it has entered into discussions with its advisors, and with Nilssen and his advisors regarding various available options. The company's contingency reserve for the case is "not anywhere near" the amount awarded, although company representatives declined to provide a figure. Magnetek may seek to pay the award by selling stock or assets or borrowing. Magnetek's stock dived after the announcement, falling $1.77, or 45%, and closing at $2.19 on the New York Stock Exchange.