Naples entrepreneur's company wins $124 million verdict from Mitsubishi Electric

— Ronald Hofer finds himself at the center of a high-stakes, only-in-Silicon-Valley lawsuit, one involving a foundering start-up, corporate thievery and billions in electronics.

And so far, Hofer's team is winning. Big.

"It's the perfect example of a very small company that was put upon by a large multinational," said Hofer, of North Naples.

In a decision that could bring millions of dollars to Collier County, a California jury last week awarded a $124 million verdict to Grail Semiconductors Inc., of which Hofer is CEO.

The jury found Mitsubishi Electric, a Japanese tech conglomerate that posted $45 billion in sales last year, stole semiconductor designs from Hofer's three-person company in 2001 and massively profited off it. Grail Semiconductors officials estimate about $4 billion worth of electronics were sold last year with the swiped semiconductor technology in it.

As of last week, the jury award was the seventh-largest in the U.S. this year, according to Bloomberg.

Raymond P. Niro Sr., a Chicago-based lawyer who argued for California-based Grail Semiconductors, said the case likely will be "in the top-five intellectual property cases all year."

If the verdict and award stands, Collier County likely will benefit. Hofer plans to move Grail Semiconductors to Naples, taking advantage of Florida's friendly tax laws.

Hofer envisions a local office where five or six engineers develop the next generation of semiconductors, fingernail-thin devices that go into cars, computers and countless other electronic devices. Hofer envisions partnering down the line with a major tech company — Intel, AMD, maybe IBM.

"It'll take about $10 million to develop it," Hofer said.

An unlikely couple

Hofer ended up in the middle of the multimillion-dollar case through a chance business partnership with a Kentucky inventor at the helm of a fledgling company.

A University of Wyoming graduate, Hofer spent about three decades compiling an eclectic résumé of business interests — insurance in London, tourism in Algeria, fusion technology in the U.S., drilling in Nigeria. Four years ago, Hofer settled in North Naples, buying foreclosed homes as investment properties.

A University of Wyoming graduate, Hofer spent about three decades compiling an eclectic résumé of business interests — insurance in London, tourism in Algeria, fusion technology in the U.S., drilling in Nigeria. Four years ago, Hofer settled in North Naples, buying foreclosed homes as investment properties.

While Hofer traveled the world, Donald Stern found himself on the cutting edge of U.S. technology. He worked for Cisco, started several electronics companies and accumulated dozens of patents. Perhaps his most visible invention: the technology that makes a CD automatically start when it's inserted into a computer.

After co-founding Grail Semiconductors, Stern went through several executives and accrued $7 million in debt.

"Inventors have a tendency to be creative but lousy at business," Niro said. "He's not an exception."

In 2010 when Hofer already was living in North Naples, he met Stern through mutual business acquaintances overseas. Hofer became the company's CEO and oversaw the lawsuit, working from his condominium in the Vineyards.

The company went through several law firms, racking up huge bills. One firm is suing for about $2 million in unpaid fees. Another is seeking more than $2.3 million.

Grail Semiconductors latched on with Niro's widely known patent law firm, which brought the case to trial. Hofer had doubts that Grail Semiconductors would win, but after three-and-a-half weeks in a California courtroom, a jury came back last week with a verdict favoring Hofer and Stern.

"It's really difficult to absorb," Hofer said. "We felt we would get something along this line, but we actually have it."

An appeal

The money isn't quite in the bank just yet.

Mitsubishi Electric and its affiliates likely will appeal, a process that probably will take about 18 months.

"We believe that the decisions on liability and damages are fundamentally flawed and that Mitsubishi Electric and Electronics USA Inc. will be fully vindicated," Mitsubishi Electric said in a statement.

"We believe that the decisions on liability and damages are fundamentally flawed and that Mitsubishi Electric and Electronics USA Inc. will be fully vindicated," the company said in a statement.

Mitsubishi Electric officials declined further comment.

Grail Semiconductors also could be in line for an even bigger payday — in the hundreds of millions of dollars.

A judge will decide whether to grant an injunction stopping Mitsubishi Electric and its affiliates from selling electronics that have Stern's semiconductor technology. If the injunction is ordered, Grail Semiconductors could receive a settlement, or a licensing agreement could be hammered out.

"It could dwarf the size of the jury award," said Bob Pearl, a Naples-based lawyer handling the legal side of Grail Semiconductors' business operations.

Hofer compares the situation to a legal battle between Research In Motion, maker of BlackBerry, and NTP, a patent-holding company. In that case, NTP won its patent infringement suit, and a judge granted an injunction that threatened to shut down service to BlackBerry users, setting off a global frenzy.

The two sides settled in 2006 for $612.5 million.

'Good for Naples'

If Grail Semiconductors ever receives the award and any future millions, it's unknown how the money will be divided.

"It will go into the company, but how it gets split after that is something beyond me," Niro said. "It's a convoluted mess. … If this ever gets deposited in an account, everybody and their grandmother will make a claim for it."

Said Pearl: "It's hard to know how complicated it would become, and it's still early. The good thing is Mitsubishi can afford to pay."

Greg Kahn/Staff 
 Ronald Hofer, the CEO of Grail Semiconductors, a three-person company that Hofer runs from his home in North Naples, recently won a $124 million lawsuit, alleging patent infringement against multinational conglomerate Mitsubishi Electric.

Photo by GREG KAHN, Naples Daily News

Greg Kahn/Staff Ronald Hofer, the CEO of Grail Semiconductors, a three-person company that Hofer runs from his home in North Naples, recently won a $124 million lawsuit, alleging patent infringement against multinational conglomerate Mitsubishi Electric.

Hofer said the company's board of directors has been meeting about the issue. First, lawyers would be paid. Then the money would be invested locally to develop new semiconductor technology, with the possibility of acquiring new companies. A small dividend could go out to Grail Semiconductors' 22 shareholders, but the rest would be put in the bank for now.

"It's a great boost to the local economy that these kinds of resources will be available," Pearl said. "It's not often that you get a situation where a company has a large influx of cash and no current commitments. It's really a matter of strategic planning now."

Any investment likely would start in Collier County, where Hofer plans to set up shop. It'll take three years to get any Grail Semiconductors operation up and running, Hofer said.

If the verdict stands, they'll have money to spare.

"We're going to have to staff up," Hofer said. "And that's going to be good for Naples."

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