Stratagene and Invitrogen last week filed motions in a Texas court arguing over the amount of a supersedeas bond Stratagene intends to post in order to secure a $16.2-million judgment against the firm in a patent suit filed by Invitrogen.
The court, which is overseeing the patent-infringement suit that was decided in Invitrogen’s favor on Oct. 31, has yet to decide whether to accept or reject Stratagene’s request to post a supersedeas bond of $11.5 million — far less than the $16.2 million in damages that had been awarded to Invitrogen — while Stratagene pursues an appeal. The amount of the bond also falls far short of the $22.4 million total that Invitrogen believes it is due when other legal costs are factored in.
In the most recent filing, Stratagene argued that under Texas law it had requested an appropriate amount. The firm noted that it owns property in Texas, which could potentially become “subject to a judgment mortgage.”
Stratagene also reiterated in the filing that posting a bond in the full amount of the judgment would “impose an undue financial burden,” and called the litigation with Invitrogen “potentially bankrupting.”
The firm a few weeks ago initially asked the US Court for the Western District of Texas to approve the supersedeas bond in the amount of $11,496,912, while renewing a motion to invalidate Invitrogen’s patent at the center of the litigation (see BioCommerce Week 11/21/2006). Stratagene’s most recent motion, which it refiled this week due to an erroneous bond amount request, came in response to Invitrogen’s motion last week urging the court to reject Stratagene’s request for a smaller bond amount than the judgment.
According to Invitrogen’s filing, the full amount of the expected judgment, including pre- and post-judgment interest and attorneys’ fees, is $22,417,573.06. It said that the bond Stratagene is requesting should not be approved because it will leave nearly 50 percent of the court’s award unsecured.
Invitrogen offered three reasons in its filing why the court should reject Stratagene’s proposed bond amount: Stratagene failed to demonstrate that it owns property in Texas subject to a judgment lien by Invitrogen, the proposed bond amount does not include any prejudgment interest, and the bond amount would “leave Invitrogen seriously undersecured for the duration of the appeal.”
“Stratagene has made no showing that it even owns real property in the state of Texas, let alone that it has equity in such property to which a lien in favor of Invitrogen might attach or that the value of the real property is sufficient to satisfy the nearly $11 million difference between the total amount that should be bonded and the bond that Stratagene has posted,” said Invitrogen in its filing.
In response, Stratagene said that Invitrogen is “legally and factually incorrect.” Stratagene noted that Biocrest, the original defendant in the case which was purchased by Stratagene in June 2004, manufactured the E. coli strains at issue in the case on its property in Texas.
According to Stratagene, it owns nearly 40 acres in Cedar Creek, Texas, “with a fair market value, three years ago, of over $10.3 million, and encumbered with $3.8 million in debt.” It added, “If Invitrogen succeeds on appeal, that property as well as the personal property and receivables can become subject to a judgment mortgage.”
In its motion, Invitrogen also argues that prejudgment interest should be considered compensatory, just like post-judgment interest, and must be part of the bond amount. Stratagene reiterated its earlier view that prejudgment interest is not automatically considered compensatory, and the firm believes it followed Texas law in excluding prejudgment interest from its bond calculation.
Dickering Over Stratagene’s Net Worth …
The firms also clash in their interpretations of how Stratagene’s value should be calculated, which could be a factor in how the court determines whether or not to accept the bond amount. In its initial supersedeas bond request, Stratagene said that its current tangible net worth was roughly $17.7 million. Since the proposed bond is more than 50 percent of that amount, Stratagene had asked the court to consider reducing the amount of the bond to $8.85 million.
In response, Invitrogen claimed that Stratagene erred in calculating its “tangible net worth” rather than its “net worth,” as is required under Texas law. According to Invitrogen, Stratagene’s net worth is roughly $51.5 million. The judgment of $22.4 million is less than half of that amount, so “Stratagene’s net worth thus does not support a reduction in the bond under Texas law,” Invitrogen argued.
“The proposed bond places Invitrogen in the untenable position of holding nearly $11 million in an unsecured part of the judgment for the duration of the appeal,” Invitrogen further stated.
But Stratagene reiterated its belief that it had calculated its net worth correctly under the law, and if the court ordered the bond amount to equal the judgment, the firm would face an undue financial burden.
“Stratagene’s net worth, as it applies to a supersedeas bond and not its valuation for the marketplace, is approximately $17.7 [million], making the total expected judgment of approximately $22 million higher than Stratagene’s estimated net worth,” the firm said in its most recent motion.
… and Worrying Over Cash Deployment
Invitrogen also expressed concerns that Stratagene may choose to use its assets in a way that could jeopardize Invitrogen’s ability to collect on the judgment if Stratagene’s appeal fails.
It noted that shortly after a Wisconsin court ordered Stratagene to pay Third Wave Technologies $5.29 million in damages in a patent-infringement suit late last year — and was facing the possibility of triple damages, which it eventually was ordered to pay and has since appealed — Stratagene issued of a dividend of $.25 per share to shareholders (see BioCommerce Week 11/10/2005 and 12/22/2005).
Stratagene issued the dividend after it announced it would realize $14.6 million after taxes from a settlement with Cambridge Antibody Technology (see BioCommerce Week 10/27/2005).
“The proposed bond places Invitrogen in the untenable position of holding nearly $11 million in an unsecured part of the judgment for the duration of the appeal.”
According to Invitrogen, Stratagene Chairman and CEO Joe Sorge, who owns roughly 60 percent of the firm’s shares, would have received approximately $3.36 million from that dividend payout.
“If Stratagene were to declare another dividend or incur any significant financial obligations, Invitrogen would find itself in the position of holding a judgment that is only partially collectible,” said Invitrogen in its filing. It further stated in a footnote, “Stratagene’s involvement in extensive ongoing litigation involving numerous third parties raises questions concerning Stratagene’s supposedly poor financial condition and raises additional concerns regarding its financial commitments and potential inability to satisfy this judgment.”
In response, Stratagene asserted that those cases are not relevant to its net worth or ability to pay the bond. “All the cases that Invitrogen mentioned are stayed or temporarily suspended, pending the outcome of this, potentially bankrupting, litigation,” it said in a footnote in the filing.
One of the cases cited by Invitrogen is Stratagene’s recent suit against Bio-Rad Laboratories accusing the firm of willfully infringing certain patents covering thermal cycler and nucleic acid amplification technologies (see BioCommerce Week 11/29/2006). But Stratagene noted that the suit against Bio-Rad “was filed to preserve statute of limitation rights, but has not yet been served, and indeed will not be served until this litigation is settled.”
Invitrogen requested that if the court orders a bond amount less than the judgment, it should include three provisions, including ordering Stratagene to provide Invitrogen with a deed of trust in any real property owned by the firm or a letter of credit and execution of a stock escrow agreement for sufficient shares of Stratagene stock to secure the collectibility of the remaining portion of the award. Among the other provisions was a request that Stratagene be ordered not to pay any dividends.
Stratagene said these conditions suggested by Invitrogen are “onerous at best and highly invasive and inappropriate at worst.” It said such provisions would put the firm in the “wholly untenable position of providing private financial and sales information to both a competitor and a party against whom they are currently litigating.”