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Illumina, Syntrix Biosystems Reach Settlement in Ongoing Array IP Infringement Case

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This article has been updated to include the terms of the settlement, which were not publicly disclosed until after the initial publication of this article.

NEW YORK (GenomeWeb) – Illumina and Syntrix Biosystems have agreed to settle a four-year-old IP dispute related to Illumina's BeadChip microarrray products, according to court documents.

In a joint Nov. 3 emergency motion filed with the US Court of Appeals for the Federal Circuit, the companies said that they have "reached agreement on the terms of a settlement," and that they expect to file another joint motion with the court once the settlement agreement is finalized in order to obtain the "appropriate final disposition."

Under the terms of the settlement, San Diego-based Illumina will pay Syntrix, an Auburn, Wash.-based biopharmaceutical company, $70 million. Representatives for both companies did not return emails seeking comment. But the agreement should end the ongoing litigation, which to date has cost Illumina more than $115 million in damages and royalties.

Syntrix first filed suit against Illumina in the US District Court for the Western District of Washington for IP infringement in 2010, alleging that Illumina based its BeadChip microarray products on technology developed originally by Syntrix, which said it had provided confidential information to Illumina a decade and a half ago while the two firms were discussing a possible business relationship.

At the heart of the dispute is US Patent No. 6,951,682, awarded to Syntrix, and entitled "Porous Coatings Bearing Ligand Arrays and Use Thereof." 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 has argued that its BeadChips are based on technology developed in the lab of David Walt at Tufts University and protected by licensed IP that describes two-dimensional arrays with a single layer of beads that sit separately in individual wells on the substrate.

Syntrix disagreed though, and even accused Illumina of copying the name for its Sentrix Array Matrix product from Syntrix's name, a charge that Illumina denied.

During the course of the case, the court dismissed several of Syntrix's claims, including that Illumina had appropriated its trade secrets, and that Illumina's infringement had been willful. A jury however sided with Syntrix in March 2013, and the court in June 2013 ordered Illumina to pay Syntrix $115.1 million in damages and set a 6 percent royalty rate on Illumina's BeadChip products sold from March 15, 2013, until Sept. 16, 2019, when Syntrix's '682 patent is set to expire.

Last December, Illumina appealed the case to the US Court of Appeals for the Federal Circuit, challenging the judgment, and the same month, Syntrix cross-appealed the district court's dismissal of its trade secret and willfulness claims.

In a July 7 brief with the appellate court, Illumina said that it never felt compelled to license Syntrix's IP because the San Diego company was "already going in a different direction," noting that "none of the 10 other companies that Syntrix approached at the same time as Illumina chose to license the patent, and no one else is accused of infringing."

Illumina also took issue with the 6 percent royalty rate, arguing that both companies agreed at the start of the litigation that the appropriate starting point for a potential rate was 3 percent, based on the rate set in a 1998 license between Tufts and Illumina for the beads-in-wells patents that name Walt, an Illumina co-founder and its scientific advisory board chair, as the inventor.

However, Syntrix managed to adjust the rate to 6 percent during the US District Court proceedings, citing Walt's Illumina stock holdings, which are valued at about $92 million, as well as a study that found universities generally accept half the royalty rate a commercial entity would demand.

Illumina countered in the July 7 brief that Walt obtained the stock because he co-founded Illumina, not in connection with the Tufts licenses, and that the study was non-peer-reviewed and "arbitrary, unreliable, and irrelevant."

Based on its issues with the way the royalty rate was constructed though, Illumina argued in the July 7 brief that even if the court affirmed its liability, "a new trial on damages is nevertheless appropriate, as is vacatur of the ongoing royalty based on the faulty damages award."

According to last week's emergency motion with the federal appellate court, there will be no such trial. What remains to be seen, however, is the nature of the settlement between Syntrix and Illumina.

Illumina has continued to put aside money related to the suit since last June. In its most recent 10-Q filing with the US Securities and Exchange Commission, Illumina said that it had recorded a legal contingency accrual of $148.8 million as of Sept. 28, which includes damages and interest awarded to Syntrix.

During the nine months ended Sept. 28, Illumina said that it had recorded a related charge of $15.8 million related to the 6 percent royalty rate. In its most recent 10-Q, which was filed on Oct. 29, just days before the emergency motion informing the court of the settlement, Illumina said that during the three months leading up to Sept. 28 it reclassified the legal contingency accrual to short-term liabilities because a decision by the appellate court was "reasonably expected to be made within one year."

Illumina said that judgment amount has been secured by a supersedeas bond, and as of Sept. 28, $28.3 million was deposited with the court for the accrued post-judgment ongoing royalty amounts. In its 10-Q, Illumina said it would continue to deposit with the court ongoing royalties on future sales at the royalty rate stated in the June 2013 judgmenet during the appeal process. Illumina has been reporting funds deposited with the court as "restricted cash in prepaid expenses and other current assets," the company said.

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