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Stratagene Posts $21M Bond to Secure Third Wave Damages; Files Notice of Appeal

Stratagene said last week that it had posted a $21-million bond to secure damages awarded to Third Wave as part of its patent-infringement suit against Stratagene, and has filed a notice of appeal in the case.

The bond, which was posted with the US District Court for the Western District of Wisconsin, is the latest development in a patent dispute between the firms that could drag on for another couple of years.

In September 2005, a federal jury found that Stratagene infringed two key Third Wave patents. It awarded Third Wave $5.3 million in damages, and prohibited Stratagene from making, selling, or offering to sell its FullVelocity QPCR and QRT-PCR products (see BioCommerce Week 9/8/2005).

Three months later, a federal judge overseeing the suit tripled the damages awarded to Third Wave to $15.9 million, and ruled that Stratagene must pay Third Wave's attorney fees (see BioCommerce Week 12/22/2005).

Stratagene filed a notice of appeal last week with the District Court in Madison, and is currently preparing the appeal filing, according to CFO Steve Martin. The firm also plans to file an appeal with the Court of Appeals for the Federal Circuit in Washington, DC, if it loses the appeal in the Madison Court. Stratagene said it would seek to have the damages amount reduced or eliminated.

In addition to the appeals, Stratagene filed a countersuit last May in the US District Court for the District of Delaware claiming that some of Third Wave's Invader products infringe its 6,528,254 and 5,548,250 patents. The firm is seeking monetary damages as well as a permanent injunction against further infringement by Third Wave.

Martin told BioCommerce Week via e-mail that the Delaware court is scheduled to hear that case in early 2007.

He declined to comment on whether Stratagene and Third Wave are engaged in any settlement talks.

The company said the bond, which is in the form of cash, "shall remain in place until the patent infringement matter is concluded and Stratagene and the surety holder are released from liability by the court or the amount of the final judgment, if any, is paid."

The firm currently has approximately $9.5 million in cash and cash equivalents which are not impacted by the bond, and its operations remain cash flow positive, it said. The company's total amount of outstanding long-term debt is approximately $4 million and final payments on such long-term debt are not due until 2022. Stratagene also noted that it has a $9-million revolving line of credit in place, which has a zero balance currently outstanding.

Stratagene said it will record a non-cash, pre-tax litigation expense charge against earnings in the fourth quarter of 2005 in the amount of $21 million. As announced in October 2005, Stratagene received a one-time royalty payment and recognized approximately $23.3 million pre-tax income in the fourth quarter of 2005, which will offset the $21 million litigation charge.

When it appeals the verdict, Stratagene said it intends to raise the question of why the District Court "prevent[ed] the jury from hearing evidence of Stratagene's patents on its FullVelocity technology and the determination by the US Patent and Trademark Office that Stratagene's patented technology was novel over the prior art (including technology described by Third Wave's patents). The company also plans to bring up the District Court's "rejection of Stratagene's position that Third Wave's patents are invalid if they are interpreted as broadly as the District Court interpreted them."

Stratagene also said it believes that "other embodiments" of its FullVelocity technology "do not meet the limitations of the patent claims asserted by Third Wave, and it believes that these embodiments can be applied effectively in both the research and molecular diagnostics marketplaces."

Despite the dispute with Third Wave, the firm has advanced its plans to participate in the molecular diagnostics market by penning an alliance in December with reference lab Focus Diagnostics, which will use the FullVelocity technology to develop and market diagnostic assays (see BioCommerce Week 12/8/2005).

— Edward Winnick ([email protected])

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