Item 1. Legal Proceedings
ITEM 1. LEGAL PROCEEDINGS
U.S. District Court Proceedings
On September 26, 2019, Personal Genomics of Taiwan, Inc. (“PGI”) filed a complaint in the U.S. District Court for the District of Delaware against us for patent infringement (C.A. No. 19-cv-1810) (the “PGI District Court matter”). The matter from this complaint is based on PGI’s U.S. Patent No. 7,767,441 (the “‘441 Patent”). The complaint alleges that our Sequel systems and Sequel II systems infringe the ‘441 Patent. The complaint seeks unspecified monetary damages and an order enjoining us from infringing the ’441 Patent. On November 20, 2019, we filed our answer to the complaint, denying infringement and seeking declaratory judgments of non-infringement and invalidity of the ‘441 Patent.
On June 22, 2020, we filed a petition requesting institution of an inter-partes review ("IPR") to the Patent Trial and Appeals Board (the “Board”) at the United States Patent Office (IPR2020-01163) requesting the Board to find a set of claims in the ‘441 Patent invalid. On June 27, 2020, we filed a second petition (IPR2020-01200) requesting institution of an IPR requesting the Board to find another set of claims in the ‘441 Patent invalid. The two petitions (the “PacBio IPR Petitions”) together asserted that all of the claims relevant to the PGI complaint are invalid. On January 19, 2021, the Board ordered that both PacBio IPR Petitions be instituted on all grounds presented. On January 18, 2022, the Board issued decisions on the two IPRs. In one IPR, all challenged claims were found unpatentable, including PGI’s core device claims. In the second IPR, the Board did not find the disputed claims unpatentable. PGI and PacBio each appealed to the U.S. Court of Appeals for the Federal Circuit, which affirmed both IPR decisions on January 9, 2024.
On August 25, 2020, the court ordered a stay of the PGI District Court matter based on a joint stipulation by the parties pending a final written decision on the IPRs. Following the final written decisions on the IPRs described above, on February 2, 2022, the judge ordered that the PGI District Court matter be reopened. However, in a subsequent order dated September 15, 2022, the judge stayed the PGI District Court matter pending a final decision by the U.S. Court of Appeals for the Federal Circuit regarding the appeal described above. On February 26, 2024, we moved to transfer the case from the District of Delaware to the Northern District of California and that motion was granted on June 18, 2024. On March 18, 2024, the parties filed a joint status report in which PGI requested the court set a revised scheduling order and we requested grant of our motion to transfer and proposed an alternate scheduling order. A case management conference was held on October 10, 2024 and the court set a trial date of October 5, 2026.
On March 5, 2026, the Company entered into a license and settlement agreement with PGI in connection with the PGI Settlement pursuant to which the Company receives a worldwide, royalty-free, non-exclusive license under U.S. Patent No. 7,767,441 and its related patent family, and a five-and-a-half year covenant not to sue under any patents owned or controlled by PGI, and resulted in the dismissal of all claims and counterclaims asserted by the Company and PGI against each other in the litigation. The covenant not to sue runs with the patents and binds PGI’s successors and transferees. The settlement also provides for the release of claims for damages arising from activities occurring prior to and during the covenant term. Under the fixed payment structure, the Company paid PGI $8,000,000 in the second quarter of 2026, and will pay $5,000,000 in the first quarter of each of 2027, 2028 and 2029, with the payment in 2027 increasing by $1,000,000 if the Company’s 2026 revenue is at least $165,000,000 and another $1,000,000 if it is at least $180,000,000. On May 4, 2026, the court dismissed all claims and counterclaims between the Company and PGI based on a joint stipulation by the parties.
Other Proceedings
From time to time, we may also be involved in a variety of other claims, lawsuits, investigations, and proceedings relating to securities laws, product liability, patent infringement, contract disputes, employment, and other matters that arise in the normal course of our business. In addition, third parties may, from time to time, assert claims against us in the form of letters and other communications.
We record a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We currently do not believe that the ultimate outcome of any of the matters described above is probable or reasonably estimable, or that these matters will have a material
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adverse effect on our business; however, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation can have an adverse impact on us because of litigation and settlement costs, diversion of management resources, and other factors.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.