Signed, settled, delivered

SANTA CLARA, Calif.—The lawsuits originally brought by Affymetrix against San Diego-based rival Illumina over patent infringement finally came to an end in early January—along with newer suits and countersuits.Under the terms of the settlement, Illumina agreed, without admitting liability, to make a one-time payment to Affymetrix of $90 million. For its part, Affymetrix agreed to dismiss with prejudice all lawsuits it had brought against Illumina, and Illumina in turn agreed to do the same with its counterclaims. Furthermore, in exchange for the payment, Affymetrix granted Illumina, its affiliates and customers a perpetual covenant not to sue for making, using or selling any of Illumina's current products, evolutions of those products and services related to them. Moreover, Affymetrix extended the covenant not to sue for four years for making, using or selling Illumina products or services that are based on future technology developments. Illumina's CFO, Christian Henry, calls that last aspect of the deal "something that was very interesting for us. We not only get protection from litigation for current products and products in development that were part of the disputed technology, but also new things we might develop in the next few years, which gives us freedom to operate in the marketplace."The only area not covered by the covenant not to sue is photolithography, the process by which Affymetrix manufactures its arrays and a field in which Illumina does not operate.The terms of the agreement are favorable to Affymetrix and should strengthen its licensing program going forward, says Andrew Noble, associate director of corporate communications for Affymetrix."Affymetrix's intellectual property is one of our core assets, representing the work product of many scientists and hundreds of millions of dollars of investment," he notes. The settlement figure, he says, "is financially substantial" and, more importantly, recognizes the value of Affymetrix's IP."The lump-sum payment provides Affymetrix with additional working capital and greater strategic financial flexibility, better positioning the company to capitalize on long-term growth opportunities—both organically through increased R&D investment and inorganically through acquisitions like the recent announcement with USB Corp.," Noble adds. "We also avoid costs and risks associated with long-term licensing arrangements."Predictably—and understandably—both companies put a positive spin on events. But DeAnn Smith of Foley Hoag LLP, a patent attorney with a focus on pharmaceuticals, biotechnology and chemical product applications, thinks Illumina probably came out on top in the settlement."You hear $90 million and that seems like a lot, but I think Affymetrix may have gotten the worse end of the deal to some extent," Smith says. "And I think that was shown by the fact that Illumina stock went up and Affymetrix stock went down after the settlement was announced."As for why this was the right time for the litigation—which started in 2004—to come to an end, a major determinant may have been the U.S. Patent Office's decision to re-examine four of five disputed Affymetrix patents that Illumina wanted re-examined."Following the May 2007 ruling on KSR v. Teleflex, the standard for 'obviousness' with patents isn't as strict as it used to be, and I suspect that Affymetrix was worried that any patents re-examined under new case law might be less likely to be found valid," Smith notes. There was pressure on Illumina to settle, as well, given that Affymetrix filed a second wave of lawsuits in late October 2007 in the United States, the United Kingdom and Germany. Those lawsuits claimed that all of Illumina's BeadArray products, as well as the genome-analysis and array technologies Illumina acquired when it bought Solexa, infringed various Affymetrix patents."We've been engaged in this litigation since 2004, and our position since then never had changed—we were always amenable to a settlement as long as it was a fair amount and would allow us to operate without fear of new lawsuits," Illumina's Henry says. "For a few years going back and forth, our companies had discussed various ways to do that. But we were never able to meet the necessary criteria to satisfy both sides until late December. That's when things really started coming together and both sides agreed that it really was time to put this all behind us." ddneditconnect: e020809