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CombiMatrix Stands to Owe Nanogen $25M After Settling Patent Dispute

NEW YORK, Oct. 1 - Ouch.

CombiMatrix has agreed to pay Nanogen $1 million and cough up as much as $1.5 million a year for the next 16 years after settling a two-year-old patent dispute. The company will also issue Nanogen four million shares of its common stock--or around 17.5 percent of all outstanding shares.


The Acacia Research subsidiary will pay Nanogen $500,000 of the initial $1 million within 30 days, with the remainder coming within one year, the companies said. The $1.5 million maximum annual payout comes from a minimum of $37,500 CombiMatrix will pay Nanogen over one year beginning on Oct. 1, 2003.


After that initial period, CombiMatrix will pay Nanogen $25,000 every three months until the two patents at the center of the dispute expire--which isn't due for another 16 years. According to both firms, the maximum annual total is based on calculating 12.5 percent of the first $12 million CombiMatrix may earn in annual net revenues from product sales.


The dispute began in November 2000 when Nanogen filed a complaint in the United States District Court for the Southern District of California against CombiMatrix and Donald Montgomery, a former Nanogen employee now affiliated with CombiMatrix.

In its complaint, Nanogen alleged that Montgomery "misappropriated" Nanogen technology after he left the company "by disclosing trade secrets" to CombiMatrix and by filing patent applications on those trade secrets in his name. Nanogen's complaint sought "a correction of inventorship" on US Patents No. 6,093,302 and 6,280,595.


Nanogen's claims also included "breach of written contract" that related to a settlement agreement between Nanogen and Montgomery in February 1996, inducing "breach of a written contract, breach of the implied covenant of good faith and fair dealing, intentional interference with prospective economic advantage and unfair competition."


"We are extremely pleased with the terms of the settlement," said Howard Birndorf, executive chairman and chairman of the board at Nanogen. He added that the settlement will "compensate us for the litigation costs ... while the equity and royalty payments ensure that Nanogen will participate in any benefit resulting from CombiMatrix's further development and commercialization of this technology."


In a statement, CombiMatrix CEO Amit Kumar said the settlement "removes an impediment that has slowed our progress with potential business partners. We are now in a position to move forward with the development and sale of our products."

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