Back into the Cauldron: Patent Suit Renews Bitter Dispute Between Gasification Rivals Quantum Catalytics and Ze-gen

Boston clean-energy startup Ze-gen is building a pilot plant where waste materials are vaporized in a giant vat of molten iron, producing “syngas” that can then be burned to make electricity. When a federal judge in Texas dismissed a patent-infringement lawsuit against the company last month, Ze-gen had cause to hope that its recent legal hassles had also turned to vapor. But then, last month, its accusers filed a new complaint in federal district court in Boston. And with Ze-gen expected to file documents refuting the allegations soon, the case is likely to get a lot more complicated before it burns out.

Ze-gen’s plant, which I toured last year, is located adjacent to a waste-management facility in New Bedford, MA. Quantum Catalytics of nearby Fall River, MA—a company led by MIT’s former top technology-licensing officer, John T. Preston—says the design of the Ze-gen plant is based on patents and trade secrets owned by Quantum, intellectual property the company licenses exclusively to Texas Syngas, a Houston company that it co-owns. On August 22—the same day Ze-gen filed a motion to make Quantum pay its legal expenses in the dismissed Texas case—Quantum and Texas Syngas filed a complaint in the U.S. District Court of Massachusetts that repeated and expanded upon the Texas suit’s allegations of patent infringement and misappropriation of trade secrets.

Ze-gen, founded in 2004, hasn’t yet filed a response to the Massachusetts suit. But CEO Bill Davis calls the case “frivolous” and says that Ze-gen will “respond forcefully” in documents that could be submitted to the court as soon as this week.

It all adds up to an interesting case study in the tussles that can spring up between early stage technology companies as potential rivals seek to head one another off, even in industries such as clean energy that supposedly occupy a moral high ground. And a review of the available court records suggests that Ze-gen may have a tougher time fighting back against Quantum’s accusations in Massachusetts than it did in Texas. There, the courts didn’t rule on the substance of the patent-infringement allegations, but merely said that the dispute between the two Massachusetts companies was outside their jurisdiction.

Quantum’s side of the story—which stretches back to the late 1980s, when a Fall River company called Molten Metal Technology began developing methods for breaking down waste in a superheated metal bath—can be read in detail in the complaint it submitted to the Massachusetts court and in the welter of documents filed in the Texas case.

Davis, for his part, will only say that, “It’s a classic kitchen-sink case where people are trying to essentially extort money from other companies.” But parts of Ze-gen’s side of the story, too, can be extracted from the paperwork it filed in the Texas case.

Molten Metal Technology, where Quantum CEO Preston was a director and major shareholder, was formed in 1989 around technology developed at MIT that promised an environmentally friendly way to dispose of hazardous wastes. The company raised $80 million in a 1993 IPO, and at one point was called “a shining example of American ingenuity, hard work and business know-how” by Vice President Al Gore. But the company filed for bankruptcy in 1997 after anticipated commercial contracts and government grants failed to materialize. Allied Technology Group, a radioactive waste handling company, purchased the remains of the company in 1998 for $10.5 million. As part of the bankruptcy proceedings, Quantum Catalytics obtained the rights to 14 of Molten Metal’s patents, including methods for dissolving waste and controlling chemical reactions inside a molten metal bath.

In its complaint, assembled by prominent Boston intellectual-property law firm Brown Rudnick, Quantum alleges that Ze-gen gained access to the confidential information and trade secrets embodied in these patents by hiring a string of former Molten Metal employees, beginning with a man named Vick Gatto, who joined Ze-Gen in 2004. Quantum says Gatto advised Davis to approach Quantum and Texas Syngas about licensing the companies’ molten bath technology. Davis did meet with Preston, who refused to grant the license, according to Quantum’s complaint. But Ze-gen got the proprietary information it needed anyway, according to the complaint, both through Gatto and by hiring Eugene Berman, former in-house patent counsel for both Molten Metal and Quantum Catalytics. Quantum says Ze-gen also contracted with a consultant named Scott Fraser, who was part of a team at Houston engineering firm MPR Associates that had conducted a review of Texas Syngas’s technology. (Quantum is suing Fraser separately in Texas.)

Quantum’s broad lawsuit—which names Ze-gen investors Flagship Ventures and VantagePoint Venture Partners, partner company New Bedford Waste Services (which owns the waste transfer station where Ze-gen’s pilot plant is located), and even the company’s intellectual property counsel, David Judson, as co-defendants—also asserts that Ze-gen’s own patent applications are fraudulent, since they are allegedly based on Quantum’s intellectual property.

Pending a jury trial, in which Quantum says it would seek unspecified monetary damages, the complaint asks the court for a preliminary injunction preventing Ze-gen from infringing on its trade secrets and patented technologies.

A very different story, unsurprisingly, emerges from documents Ze-gen’s attorneys filed in the Texas case. But because Ze-gen’s ultimately successful motion to dismiss the Texas suit did not directly address the patent-infringement allegations, those documents may not provide much of a preview of Ze-gen’s defense strategy in the Massachusetts case.

The motion to dismiss the Texas suit, written by Judson, mainly argued that the federal courts in Texas lacked jurisdiction over the case, since Ze-gen is a Massachusetts company and Davis and the other defendants are Massachusetts residents. In passing—in a footnote, actually—Judson’s motion denied any infringement on Quantum’s patents. But in the course of presenting his argument about jurisdiction, Judson provided background information that challenges the validity of Quantum’s patents. Judson also described the licensing discussion between Preston and Davis as a “shakedown operation” against Ze-gen.

In early 2006, according to Ze-gen’s motion, Preston told Davis that Ze-gen would have to license Quantum’s technology if the company wanted to use liquid metal baths to recover syngas from waste. Davis did not agree that Ze-gen needed a license in order to proceed, but the two men pursued a discussion anyway. “The negotiations failed,” in the words of the motion.

Later that year, according to the motion, Ze-gen discovered that most of the patents that Quantum had sought to license were actually expired—not because they had run out, but because Quantum had failed to pay the required maintenance fees to the U.S. Patent and Trademark Office. “After Ze-gen came to understand the deceptive nature of the proposed license, it terminated all negotiations,” the motion stated.

The two companies didn’t communicate again until Quantum filed the Texas suit in August, 2007, according to Ze-gen. There’s nothing in Ze-gen’s filings from the Texas case pertaining to Quantum’s allegations about Gatto, Berman, or Fraser—but those allegations weren’t part of Quantum’s original complaint, which was far less detailed than the new Massachusetts complaint.

Judging from its strategy in Texas, Ze-gen might be expected to argue in the Massachusetts case that Quantum doesn’t legitimately own the allegedly infringed patents, or that the patents themselves are no longer in force. But Quantum’s Massachusetts complaint asserts pointedly that the 14 patents at issue are “valid and subsisting”—so the case might ultimately come down to complex questions about whether the technologies behind Ze-gen’s gasification facility are different from those originally patented by Molten Metal.

No hearings or deadlines have yet been scheduled in the case, which has been assigned to U.S. District Court Judge Judith G. Dein. We’ll publish updates as events warrant.

Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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