Kinetic Concepts Inc. (NYSE:KCI) says it will exit any patent infringement cases involving intellectual property it licensed from Wake Forest University, after a federal judge ruled the patents invalid last year.
The San Antonio, Texas-based company also said it’s halted royalty payments to Wake Forest for the two patents, which are related to negative pressure wound therapy technology. KCI hasn’t made any payments at all to the school this year; last year it paid out $86 million to license the IP, according to a regulatory filing.
KCI has also pulled out of a case against rival Smith & Nephew (NYSE:SNN), according to the filing with the federal Securities & Exchange Commission, and "will not join Wake Forest in the continued enforcement of the patents in suit against alleged infringers. We intend to withdraw from each of the cases that involve the patents in suit, and have withdrawn from the appeal of the Smith & Nephew litigation."
Smith & Nephew and KCI have been trading claims and counter-claims since May 2007, when Smith & Nephew acquired Blue Sky Medical Group Inc., a California-based device manufacturer that had developed its own NPWT business line. KCI and Blue Sky had already been slugging it out in court for several years over the technology, which is touted to promote healing by gently removing fluids and infectious material from wounds using vacuum devices and tubes in the wound covering.
The financial stakes for both companies are high. In its 2010 annual report, KCI said NPWT products generated about $1.25 billion in worldwide sales during each of the past two years — or more than 60 percent of its overall business.
Smith and Nephew estimates it currently controls about 16 percent of the global wound management market, producing about $829 million in sales for the company during 2009, but did not specifically break out its NPWT numbers.
KCI’s decision on the NPWT patents doesn’t mean it’s out of the courtroom, however. After its board approved a $6.3 billion leveraged buyout by Apax Partners, four shareholders’ lawsuits were filed seeking to block the deal, according to the SEC filing. The company said it’s moved to dismiss the cases.
"KCI and our directors believe that the claims raised by these purported shareholders are without merit, and we intend to defend our position in these matters vigorously," according to the filing.