UPDATED Oct. 15, 11:20 a.m with new analyst’s take
A jury trial is set to begin today in a patent infringement lawsuit filed by St. Jude Medical (NYSE:STJ) against Volcano (NSDQ:VOLC) over fractional flow reserve technology.
St. Jude sued Volcano in July 2010 in the U.S. District Court for Delaware, accusing it of violating a quintet of patents St. Jude acquired in its 2008 buyout of Radi Medical Systems AB, a Swedish guidewire maker.
The patents cover STJ’s PressureWire system, which uses a sensor to measure arterial blood pressure by calculating fractional flow reserve associated with stenosis in patients with coronary artery disease, according to court documents. The lawsuit alleges that San Diego-based Volcano’s PrimeWire system violates the patents. St. Jude wants a jury to decide whether it’s due a judgment of infringement, a permanent injunction barring further infringement, damages, pre- and post-judgment interest, royalties on any infringing sales and legal fees.
A 2nd trial over Volcano’s countersuit is scheduled for Oct. 22, according to court documents.
Judge Richard Andrews shot down a motion for summary judgment by St. Jude and issued a series of orders denying several motions by Volcano, but ruling that 1 of its patents does not infringe St. Jude and that the company can’t invalidate another VOLC patent, according to the documents. Andrews also ruled that St. Jude can’t present certain evidence, barring it from mentioning in its opening statement today a video presentation from a Paris conference in 2001 and the proposed testimony of an expert witness. St. Jude immediately asked Andrews to reconsider, prompting Volcano to ask the judge not to change his mind, the documents show.
Although Leerink Swann analyst Danielle Antalffy initially gave the edge to St. Jude, because its patents are older and more detailed than Volcano’s, today she’s walking that assessment back after speaking with a patent specialist familiar with the case who now gives the edge to Volcano.
"This specialist expects a ruling within 1-2 months. But without a settlement – which he notes is still possible but at this point unlikely – this litigation could ultimately drag on for several years before being fully resolved," Antalffy wrote today in a note to investors. And Andrews’ decision to exclude the Paris video blocks a big win for STJ.
Still, the long-standing STJ/VOLC grudge – the companies have been wrangling for years over optical coherence tomography imaging technology – might preclude a settlement. Antalffy wrote that a deal is still possible but unlikely.
"We continue to believe that any settlement will ultimately include a cross-licensing agreement, with some monetary flow – if any at all – going to the ‘winner.’ Both parties continue to adopt a ‘scorched earth’ approach in their filings and communications, which makes finding common ground more tenuous," she wrote, citing the specialist. "After initially giving STJ the slight edge prior to the Sept. 7th Markman hearing, this patent specialist now views VOLC as having the stronger position based on the claims construction ruling in which VOLC won a few more important arguments than STJ.
"If both parties read the claims construction in the same way, and they construe 1 side to have an upper hand, then there is more incentive to settle. However, the perceived winner may also dig in their heels, thinking they have an advantage, and hope for the best at trial. The specialist did note, however, that if taken in front of a jury, the case becomes even more difficult to call due to the highly technical and complicated nature of the patents under litigation," Antalffy wrote.
The potential downside for Volcano is manageable based on a rough-cut analysis with Volcano ponying up a 7.5% royalty on U.S. FFR sales, according to the analyst, who predicted a 5¢-7¢ per share hit in 2014 and 2015.
"But we’re inclined to think VOLC could in part offset such a royalty with some cost-cutting initiatives elsewhere, making any potential impact more manageable," Antalffy wrote.
