Stratagene posts $21 million bond to stay payment of Third Wave judgment

By E. Janene Geiss

Philadelphia, Jan. 27 - Stratagene Corp. said Friday that it has posted a $21 million civil supersedeas bond to stay payment of the judgment of the U.S. District Court for the Western District of Wisconsin previously announced in December in the matter of Third Wave Technologies Inc. vs. Stratagene.

Stratagene said it intends to file an appeal with the U.S. Court of Appeals for the Federal Circuit, according to a company news release.

Stratagene said it has deposited $21 million in cash in a restricted account for the benefit of a surety company to fully collateralize the bond. The bond shall remain in place until the patent infringement matter is concluded and the company and surety holder are released from liability by the court or the amount of the final judgment, if any, is paid, officials said.

The company said it has about $9.5 million in other cash and cash equivalents that are not impacted by the bond arrangements and its operations remain cash flow positive.

The company said its total amount of outstanding long-term debt is about $4 million and final payments on such long-term debt are not due until 2022.

Stratagene said it also has a $9 million revolving line of credit in place that has a zero balance outstanding.

Stratagene said it believes the jury's verdict and the damages awarded were not supported by the facts of the case or the law.

The company said it has appealed the decision to the Court of Appeals for the Federal Circuit in Washington, D.C.

In addition to appealing the verdict, Stratagene said it will be seeking to have the damages amount reduced or eliminated.

Among the issues that Stratagene intends to raise on appeal are the District Court's decisions to prevent the jury from hearing evidence of Stratagene's patents on its FullVelocity technology and the determination by the U.S. Patent and Trademark Office that Stratagene's patented technology was novel over the prior art.

Also, the company said it will raise the issue of 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.

They also plan to appeal the jury's damages finding of $15.9 million when there was only about $400,000 in relevant product sales by Stratagene. Stratagene said it believes a damages award should, as a matter of law, be reflective of a reasonable royalty.

Stratagene said it also believes it has other embodiments of its FullVelocity technology that 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.

The company has previously announced that it has a pending lawsuit against Third Wave for infringement of Stratagene's patents covering its proprietary FullVelocity technology for the quantitative detection of nucleic acids.

The suit was filed in the U.S. District Court for the District of Delaware and seeks monetary damages as well as a permanent injunction against continued infringement by Third Wave for the sale of its Invader Plus products.

While the final outcome of this case and any resulting damages award remains difficult to estimate, with the entry of the judgment by the court and the establishment of the bond in the amount of $21 million, the company 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, Stratagene said it also received a one-time royalty payment and recognized about $23.3 million pre-tax income in the fourth quarter of 2005, which will offset the $21 million litigation charge.

Stratagene is a LaJolla, Calif., developer, manufacturer and marketer of specialized life science research and diagnostic products.

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