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Affymetrix Pays Incyte $4.5 Million as Part of December Patent Infringement Settlement

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Affymetrix has paid Incyte $4.5 million in cash as part of the settlement the companies reached December 21 in their four-year, multi-pronged patent infringement litigation, the companies disclosed in an 8-K filing with the US Securities and Exchange commission.

This settlement payment will appear as a charge on Affymetrix’s fourth-quarter earnings statement, which the company is expected to report on February 5.

This settlement could cut into Affymetrix’s fourth-quarter balance sheet, but analysts say the potential impact will depend on how much of the company’s R&D budget it set aside for legal expenses. Affymetrix is expected to report its fourth-quarter earnings on February 5.

If Affymetrix has in fact planned for this expense, the settlement result in turning Affymetrix profitable sooner, since it will not have to incur the legal expenses foreseen in the first and second quarters of 2001, said Banc of America Securities analyst James Reddoch.

While the settlement between the two companies seemed more like an even-sided truce — with both parties agreeing to give up their patent infringement suits and cross-license their technologies, Affymetrix agreed to pay this sum to Incyte “as past damages with respect to Incyte’s RNA amplification patents,” the filing stated.

The damages in the settlement arose over Affymetrix’s recommendation to its customers to use the Eberwine linear amplification protocols covered in the patents when they used the company’s GeneChips. Incyte also sued Gene Logic for patent infringement over this matter in 1999 and Gene Logic’s defense — showing that the protocol had in fact been recommended by Affymetrix — was damning for Affymetrix. (Gene Logic and Incyte settled in January 2000, with Gene Logic licensing the patents from Incyte).

In their filings, the companies both noted that the settlement did not cover a remaining piece of outstanding litigation, Incyte’s appeal of a US Patent and Trademark Office ruling rejecting their interference proceeding against Affymetrix’s Patents 5,800,992 and 5,744,305. These patents were among those that Affymetrix alleged Incyte had infringed in the lawsuit just settled. But Incyte and Stanford University still maintain that patent applications that Incyte licensed from Stanford render certain aspects of Affymetrix’s patents invalid.

Both Incyte and Affymetrix have played down this remaining dispute.

The settlement “ceases all hostilities” between Incyte and Affymetrix, said Incyte spokesperson Paul Chirrico.

“The main thing is that all of the infringement cases between Affymetrix and Incyte have been resolved,” noted Affymetrix spokeswoman Anne Bowdidge. “The only thing is an interference regarding our patent and Stanford’s patent application. It is a little bit different; it is not just an Incyte situation.”

Part of the reason for this new détente between the two Northern California genomics players is that Affymetrix would like to have Incyte as a customer for its microarrays — something both sides have openly admitted. Additionally, Incyte would like Affymetrix to license its gene content for its GeneChips.

While the companies are likely to be discussing some form of collaboration, both were mum on the state of negotiations.

Even if Affymetrix’s payment to Incyte does not turn into a business deal, however, the settlement has enhanced the company’s cachet in the investor community.

“The litigation issue and the competition issue were the two big clouds on the horizon,” said Reddoch. “The litigation cloud has mostly gone away now, and the competition cloud has dissipated a good bit by Corning dropping out and Motorola not being as present as investors had thought.”

— MMJ

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