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Troubled Waters: More Patent Lawsuits Threaten Company s Current Mass Specs

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The legal winds keep blowing Waters in the face: After losing a patent dispute to ABI/MDS Sciex earlier this year, the company is facing further mass-spec-related infringement lawsuits, both within the US and abroad, which might further impact its business.

On November 18, MDS, Applied Biosystems/MDS Sciex Instruments, and the University of Manitoba jointly filed a lawsuit in the US District Court of Delaware, claiming that Waters infringes on US Patent No. 6,331,702, “Spectrometer provided with pulsed ion source and transmission device to damp ion motion and method of use.” The patent, which MDS has exclusively licensed from the University of Manitoba, covers an o-MALDI ion source, according to an MDS spokeswoman.

In their complaint, MDS and its co-plaintiffs alleged that Waters and its wholly owned subsidiary Micromass UK “have infringed and continue to infringe the ‘702 patent by importing and offering for sale mass spectrometer systems, including mass spectrometer systems offered for sale under the name Q-TOF Ultima MALDI.” They also alleged that this infringement is willful — a claim that, if proven, could triple any damage award that MDS and its co-plaintiffs receive. MDS and its co-plaintiff are seeking not only damages, but an injunction to prevent Waters from continuing to sell the allegedly infringing instruments.

MDS also filed a patent suit against Waters in Canada and Japan last month, according to the MDS spokeswoman, extending a US lawsuit from earlier this year to these countries. The earlier dispute, in which a judge ordered Waters to pay MDS and Applera $52.6 million in damages, was over US patent No. 4,963,736, “Mass spectrometer and method and improved ion transmission” from MDS Health Group, which covers a front-end ion guide technology used in Micromass’ high-end triple quadrupole and Q-TOF instruments.

The new suits — if sucessful for MDS — could erode Waters’ mass spec business further, unless the company introduces non-infringing technology with similar performance soon. As a result of the earlier lawsuit, Waters pulled its Micromass Q-TOF Ultima line of instruments as well as its Quattro Ultima triple-quadrupole instrument off the US market. And although the company reintroduced a version of the Q-TOF API in the US shortly afterwards, it has not brought back the Quattro Ultima instrument.

Waters said it plans to introduce a non-infringing high-end triple quadrupole instrument next year, but meanwhile has seen a nosedive in its US mass spec business. In the third quarter of 2002, the company reported double-digit losses in mass spec revenues, compared to the same quarter during the previous year, which it attributed mainly to the unfavorable patent ruling, as well as to a manufacturing problem. “While we continue to see growth outside the US, the deficit from lost Q-TOF and Quattro Ultima sales in the US has proven to be a challenge,” remarked a company executive during a conference call in October.

Now that the patent suit has been extended to Canada and Japan, the company’s growth outside the US may also be in danger. According to Kenneth Goldman, a vice president and senior equity analyst for Lehman Brothers in New York, potential customers in Japan or Canada may be worried about Waters losing the lawsuit and having to withdraw or alter its instruments, even if a ruling on this matter may take some time. These concerns, Goldman said, might even extend to European customers, although they would not be directly affected by any of the current lawsuits. “The lawsuit itself is not going to be the major issue, but I think the response of customers, that’s more of a major issue,” Goldman said.

Waters, however, has no plans to remove further products from the market for now. “There is no planned action by Waters at this time for changing our selling strategy,” said Gene Cassis, the company’s director of investor relations.

Waters is also not concerned that the new lawsuits might affect its business further, he said, either within or outside of the US. “Given that we are early on in any legal proceeding and that we do have pretty extensive new product introduction plans for next year, I don’t look at this as having an effect on our business,” said Cassis.

— JK

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