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Illumina Appeals $115M Decision in Syntrix Suit; Claims Flawed IP Interpretation, Royalty Rate

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Illumina is seeking the reversal of a US District Court ruling that determined that the San Diego vendor infringed IP held by Syntrix Biosystems and awarded Syntrix $115 million in damages based on a 6 percent royalty rate, according to court documents.

Auburn, Wash.-based Syntrix sued Illumina in the US District Court Western District of Washington for IP infringement in 2010. It alleged that Illumina based its BeadChip products on technology developed originally by Syntrix, which had provided confidential information to Illumina a decade and a half ago while the two firms were discussing a possible business relationship.

Last June, the same court ordered Illumina to pay Syntrix $115.1 million in damages for infringing US Patent No. 6,951,682, held by Syntrix, and in November, the US District Court denied Illumina's motion for a new trial.

At the end of 2013, Illumina appealed the case to the US Court of Appeals for the Federal Circuit, and the company recently laid out its arguments in favor of overturning the lower court's verdict in a March 12 opening brief.

At the heart of Illumina's appeal are two arguments: that certain claims of the '682 patent were incorrectly constructed in the US District Court case, and that the royalty rate upon which the damages were based was improperly calculated.

"This appeal seeks to correct a $115 million judgment that Syntrix obtained by stretching a narrow patent on a particular way of solving a particular problem to sweep in Illumina’s wholly different solution to a wholly different problem," Illumina's lawyers wrote in the brief.

The '682 patent, entitled "Porous Coatings Bearing Ligand Arrays and Use Thereof," is related to synthetic matrices and arrays. According to Illumina's brief, the inventors "criticized prior art arrays as having insufficient surface area for attaching ligands, which generated a weak signal and thus required costly scanners to analyze, and presented their approach as a solution to these issues."

The patent describes the use of a porous coating made of a three-dimensional network of particles on the substrate, through which ligands are attached, Illumina wrote. It also stated that the '682 patent "emphasizes that the porous coating must be formed from many layers of small particles to adequately increase surface area and teaches that particles larger than 1,000 angstroms are too large" to be useful in the invention.

In contrast, Illumina presented its BeadChip products as solving a different problem.

"It was difficult to attach ligands for millions of genetic mutations to a single prior art
array," Illumina argued. The company tackled that problem by creating a two-dimensional array with a single layer of beads with sizes of 12,000 or 20,000 or 31,000 angstroms that sit separately in individual wells on the substrate. In addition, Illumina developed expensive scanners to read the optical signal from each bead rather than strengthening it with a porous coating, the company maintained.

"Syntrix’s patent is either not infringed because it does not cover a single-layer structure, invalid because it describes neither large particles nor a single layer, or both," Illumina concluded.

According to the brief, Illumina believes the appellate court should reverse the US District Court's decision, or "at a minimum, remand for further proceedings under the correct claim construction and free from error on damages."

Royalty rate

Illumina is also disputing the royalty rate set by the US District Court last year.

According to the opening brief, both Illumina and Syntrix agreed that the appropriate starting point for a potential royalty rate was 3 percent, based on the same rate set in the 1998 license between Tufts University and Illumina for the beads-in-wells patents that list Illumina co-founder David Walt as the inventor. BioArray News interviewed Walt, who chairs Illumina's scientific advisory board, about the origins of Illumina's technology several years ago.

While Illumina and Syntrix had started their negotiations from a royalty rate of 3 percent, Illumina said in the brief that Syntrix adjusted that rate to 6 percent during the US District Court proceedings, "and applied it to both the BeadChip and other products sold with it, even though Illumina only pays Tufts royalties on the BeadChip alone."

Syntrix based its doubling of the rate on the fact that Tufts and Walt had also received stock in Illumina that grew in value to $100 million. In its brief, Illumina claimed that Walt's stock was valued slightly less at $92 million, and that he obtained the stock because he co-founded Illumina, not in connection with the Tufts licenses, as he had no rights to the patents when Tufts licensed them to Illumina.

"Nothing suggested the stock grant to Dr. Walt was a condition of Tufts licensing the patents," Illumina stated.

Another argument Syntrix made for doubling the rate was based on a study that said that universities generally accept half the royalty rate a commercial entity would demand, Illumina wrote. However, that study "had no tie to the parties, industry, or patent here," the company argued.

Illumina made similar arguments in US District Court concerning the royalty rate issue. However, that court determined the 6 percent rate to be "reasonable" based on Syntrix's expert testimony that concerned the difference between a commercial license versus a license with a university, and different bargaining positions when technology is commercialized versus a situation where the licensee does not have a product on the market yet.

Illumina has asked the appellate court to revisit and potentially lower the royalty rate, even if it upholds the lower court's IP infringement verdict.

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