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Item 3. Legal Proceedings

2022-02-18 compared with 2021-02-26 · 13 added, 147 removed, 8 unchanged (95% of the section changed)

2 unchanged sentences

Our success depends in part on our non-infringement of the patents or proprietary rights of third parties.

Third parties have asserted and may in the future assert that we are employing their proprietary technology without authorization.

We have been involved in multiple patent litigation matters in the past several years and we expect that given the litigious history of our industry and the high profile of operating as a public company, other third parties, in addition to the parties identified herein, may claim that our products infringe their intellectual property rights.

In the past, third parties have asserted and may in the future assert that we are employing their proprietary technology without authorization.

We have been involved in multiple patent litigation matters and other proceedings in the past and we expect that given the litigious history of our industry and the high profile of operating as a public company, third parties may claim that our products infringe their intellectual property rights.

We have also initiated litigation to defend our technology including technology developed through our significant investments in research and development.

It is our general policy not to out-license our patents but to protect our sole right to own and practice them.

There are inherent uncertainties in these legal matters, some of which are beyond management’s control, making the ultimate outcomes difficult to predict.

Amongst other matters, we are currently involved in the following litigation matters:

The 2015 Delaware Action

In February 2015, Raindance Technologies, Inc.

(“Raindance”) and the University of Chicago filed suit against us in the U.S.

District Court for the District of Delaware (the “Delaware Court”), accusing the Company's legacy GEM products of infringing certain U.S.

patents owned by or exclusively licensed to Raindance (the “2015 Delaware Action”).

In May 2017, Bio-Rad was substituted as the plaintiff following its acquisition of Raindance.

A jury trial was held in November 2018.

The jury found that the accused legacy GEM products infringed U.S.

8,304,193, 8,329,407 and 8,889,083.

The jury also concluded that our infringement was willful and awarded Bio-Rad approximately $24 million in damages through June 30, 2018.

We appealed the jury verdict.

Post-trial, Bio-Rad moved for a permanent injunction, treble damages for willful infringement, attorneys’ fees, supplemental damages for the period from the second quarter of 2018 through the end of the trial as well as pre- and post-judgment interest.

The Court denied Bio-Rad’s request for attorneys’ fees and enhanced damages for willful infringement.

The Court awarded supplemental damages for the period from the second quarter of 2018 through the end of trial as well as pre- and post-judgment interest.

The Court entered final judgment against us in the amount of approximately $35 million in August 2019.

In the fourth quarter of 2018, we began recording an accrual for estimated royalties as a cost of revenue.

This accrual is based on an estimated royalty rate of 15% of worldwide sales of our Chromium instruments operating our legacy GEM microfluidic chips and associated consumables.

As of December 31, 2020, we had accrued a total of $44.2 million relating to this matter which includes our estimated 15% royalty for subsequent sales through that date.

In July 2019, the Court also granted Bio-Rad a permanent injunction against our legacy GEM microfluidic chips and associated consumables that were found to infringe the Bio-Rad patents, which historically constituted a significant amount of our product

However, under the injunction, we are permitted to continue to sell our legacy GEM microfluidic chips and associated consumables for use with our historical installed base of instruments provided that we pay into escrow a royalty of 15% of our net revenue related to such sales occurring after August 28, 2019.

We appealed the Court's judgment including the injunction to the Federal Circuit.

In August 2020, the Federal Circuit issued its opinion in our appeal of the 2015 Delaware Action.

The Federal Circuit (1) affirmed the judgment of the lower Court with respect to infringement of the '083 patent by our legacy GEM products and (2) vacated the judgment with respect to infringement of the '193 and '407 patents, which are remanded to the lower Court for a new trial on infringement.

The Federal Circuit affirmed the damages award including the 15% royalty with respect to our legacy GEM products.

The Federal Circuit vacated the injunction with respect to our Single Cell CNV and Linked-Read products but affirmed the injunction with respect to our other legacy GEM products.

In October 2020, we filed a petition for en banc rehearing with the Federal Circuit.

The Federal Circuit denied our petition for en banc rehearing on November 4, 2020.

We paid the $34.5 million judgment, plus approximately $0.8 million in post-judgment interest, to Bio-Rad on December 17, 2020.

The case was remanded to the Delaware Court for a determination of post-judgment royalties or other amounts, which we expect to be made around the second half of 2021.

Neither the lower Court judgment nor the Federal Circuit opinion in the 2015 Delaware Action implicate our Next GEM products.

We have dedicated significant resources to designing and manufacturing our Next GEM microfluidic chips which use fundamentally different physics from our legacy GEM microfluidic chips.

Neither the jury verdict nor the injunction relate to our Next GEM microfluidic chips based on our new proprietary design and associated consumables which we launched in May 2019 for three of our single cell solutions – Single Cell Gene Expression, Single Cell Immune Profiling and Single Cell ATAC.

Since August 28, 2019, all Chromium instruments that we sell and have sold operate exclusively with our Next GEM solutions and we currently expect that our Chromium products utilizing our Next GEM microfluidic chips will constitute substantially all of our Chromium consumables sales by the end of 2020.

The ITC 1068 Action

On July 31, 2017, Bio-Rad and Lawrence Livermore National Security, LLC filed a complaint against us in the U.S.

International Trade Commission (“ITC”) pursuant to Section 337 of the Tariff Act of 1930, alleging that substantially all of our Chromium products infringe U.S.

9,089,844, 9,126,160, 9,500,664, 9,636,682 and 9,649,635 (the “ITC 1068 Action”).

Bio-Rad is seeking an exclusion order preventing us from importing the accused microfluidic chips, including (1) our legacy GEM microfluidic chip, (2) our gel bead manufacturing microfluidic chip and (3) our Next GEM microfluidic chip, into the United States and a cease and desist order preventing us from selling such imported chips.

An evidentiary hearing for the ITC 1068 Action was held in May 2018 and the presiding judge issued an Initial Determination in September 2018, finding that our legacy GEM microfluidic chips infringe the ‘664, ‘682 and ‘635 patents but not the ‘160 patent.

The judge further found that our gel bead manufacturing microfluidic chip and Next GEM microfluidic chip do not infringe any claim asserted against them (the “Initial Determination”).

The judge recommended entry of an exclusion order preventing us from importing our legacy GEM microfluidic chips and a cease and desist order that would prevent us from selling such imported chips.

On December 18, 2019, the ITC issued its final determination in the ITC 1068 Action (the “Final Determination”).

The Final Determination affirmed the Initial Determination that our Next GEM microfluidic chips and gel bead manufacturing microfluidic chips do not infringe any of the claims asserted against them.

The Final Determination also affirmed the ruling that our legacy GEM microfluidic chips infringe the ‘664, ‘682 and ‘635 patents but not the ‘160 patent.

The ITC issued (1) a limited exclusion order prohibiting the unlicensed importation of the legacy GEM microfluidic chips into the United States and (2) a cease and desist order preventing us from selling such imported legacy GEM microfluidic chips in the United States.

The ITC expressly allowed the importation and sale of the legacy GEM microfluidic chips for use by researchers who were using such chips as of December 18, 2019, and who have a documented need to continue receiving such chips for a specific current ongoing research project for which that need cannot be met by any alternative product.

The Final Determination was subject to a 60-day presidential review period.

During the presidential review period, we were permitted to continue importation and sales of the legacy GEM microfluidic chips subject to payment of a bond of three (3) percent of the entered value of the accused microfluidic chips.

We and Bio-Rad have appealed the Final Determination to the Court of Appeals for the Federal Circuit.

Bio-Rad has appealed the Final Determination with respect to non-infringement of our gel bead manufacturing chips, but not with respect to non-infringement of our Next GEM microfluidic chips.

We have appealed the Final Determination with respect to infringement of our legacy GEM microfluidic chips.

Oral argument is scheduled on April 7, 2021.

We expect a decision around the fourth quarter of 2021.

In order to allow our customers to continue their important research, we have dedicated significant resources to developing the capabilities to manufacture our microfluidic chips in the United States prior to the entry of the exclusion order or cease and desist order which took effect in February 2020.

Prior to the second quarter of 2019, all of our microfluidic chips were manufactured outside of the United States.

Our United States manufacturing facilities achieved volume production of certain of our legacy GEM microfluidic chips beginning in the third quarter of 2019.

The Northern District of California Action

On July 31, 2017, Bio-Rad and Lawrence Livermore National Security, LLC also filed suit against us in the U.S.

District Court for the Northern District of California, alleging that the Company’s legacy GEM products infringe U.S.

9,216,392, 9,347,059 and the five patents asserted in the ITC 1068 Action.

The complaint seeks injunctive relief, unspecified monetary damages, costs and attorneys’ fees.

This litigation has been stayed pending resolution of the Federal Circuit appeal of the ITC 1068 Action.

In July 2020, Bio-Rad moved to lift the stay with respect to the '059 patent and consolidate the '059 patent with the '115 patent transferred from the District of Massachusetts which is being asserted against our Next GEM products.

In August 2020, the Court denied Bio-Rad's motion to lift the stay with respect to both the '059 and '115 patents.

In October 2020, the Company filed two petitions for inter partes review (“IPR”) challenging the validity of the ‘115 patent.

The Company expects the Patent Trials and Appeals Board (“PTAB”) to issue a decision on institution of these IPR petitions in the second quarter of 2021.

The Germany Action

On February 13, 2018, Bio-Rad filed suit against us in Germany in the Munich Region Court alleging that our Chromium instruments, legacy GEM microfluidic chips and certain accessories infringe German Utility Model No.

DE 20 2011 110 979.

Bio-Rad seeks unspecified damages and an injunction prohibiting sales of these products in Germany and requiring us to recall these products sold in Germany subsequent to February 11, 2018.

An initial hearing was held on November 27, 2018, and a subsequent hearing was held on May 15, 2019.

The Court issued a ruling on November 20, 2019.

The Court ruled that our legacy GEM microfluidic chips, as well as certain Chromium instruments and accessories used with legacy GEM microfluidic chips, infringed the German Utility Model.

The Court issued an injunction with respect to such legacy GEM microfluidic chips, Chromium instruments and accessories used with such systems, prohibiting among other things the sale of these products in Germany and the importation of such products into Germany.

The Court found that we are obligated to compensate Bio-Rad for unspecified damages and required that these products be recalled from distribution channels in Germany.

The Court further found that we have to bear the statutory costs of the legal dispute in a minimum amount of at least 61,000 Euros.

The Court’s ruling did not address our Next GEM products, which were not accused in this action and which constitute substantially all of our Chromium sales in Germany.

The Company appealed the Court's ruling.

On April 6, 2020, the Munich Higher Regional Court (the “Higher Court”) issued a ruling staying enforcement of the ruling of the lower Court, including the injunction, subject to the payment of a bond by the Company.

The Higher Court found that the lower Court’s claim construction was not justifiable and that the facts did not provide a basis for a finding of infringement.

On April 16, 2020, we paid a 2.8 million Euro bond to the Higher Court to completely stay enforcement of the ruling.

The bond is refundable upon a favorable ruling on the merits by the Higher Court.

We expect the Higher Court to rule on the merits in 2021.

In August 2020, Bio-Rad filed its appeal response arguing for the first time that our Next GEM microfluidic chips and certain accessories infringe the utility model.

In its appeal response, Bio-Rad also attempted to add infringement allegations with respect to a new patent, European Patent No.

3 132 844, against our Chromium instruments and Next GEM microfluidic chips.

We believe it is procedurally improper to attempt to add these new claims at this stage, that our Next GEM products are not covered by the lower court's judgment and are not admissible in the appeal, and that the newly asserted '844 patent is not admissible in the appeal.

The Higher Court is not expected to rule on whether Next GEM products or the '844 patent are admissible in the appeal until 2021.

The 2018 Delaware Action

On October 25, 2018, Bio-Rad filed suit against us in the U.S.

District Court for the District of Delaware, alleging that substantially all of our Chromium products, including our legacy GEM products and Next GEM products, infringe U.S.

On May 6, 2021, we filed suit against Nanostring Technologies, Inc.

("Nanostring") in the U.S.

District Court for the District of Delaware alleging that Nanostring's GeoMx Digital Spatial Profiler and associated instruments and reagents infringe U.S.

10,472,669, 10,662,467, 10,961,566, 10,983,113, and 10,996,219.

Bio-Rad seeks injunctive relief, unspecified monetary damages, costs and attorneys’ fees.

In October 2019, we filed four petitions for IPR challenging the validity of both asserted patents.

On April 27, 2020, the PTAB instituted review on all four of these petitions.

A final written decision is expected from the PTAB in April 2021.

In June 2020, the Court completely stayed the District of Delaware litigation pending resolution of the IPRs before the PTAB.

The Massachusetts Action

On September 11, 2019, Bio-Rad filed suit against us in the U.S.

District Court for the District of Delaware, alleging that our Next GEM products infringe certain claims of U.S.

On November 5, 2019, Bio-Rad amended the complaint to additionally allege that our Next GEM products infringe certain claims of U.S.

On May 19, 2021, we filed an amended complaint additionally alleging that the GeoMx products infringe U.S.

11,001,878 and 11,008,607.

The ‘444 and ‘277 patents are exclusively licensed by Bio-Rad from Harvard University, which subsequently joined the suit as a party plaintiff.

Bio-Rad is seeking damages and an injunction against our Next GEM products amongst other remedies.

The ‘444 and ‘277 patents are projected to expire in October 2024.

On December 18, 2019, Bio-Rad dismissed this action in the District of Delaware and refiled it in the U.S.

District Court for the District of Massachusetts.

The case was assigned to Judge William G.

On January 14, 2020, the Court consolidated this case with a separate action, Bio-Rad Laboratories Inc.

Stilla Technologies, Inc.

(“Stilla”), in which Bio-Rad is asserting the ‘444 patent (among other patents) against Stilla’s droplet digital PCR product.

On January 23, 2020, we filed a motion to dismiss the case and to transfer the ‘115 patent to the Northern District of California, where the related ‘059 patent is stayed.

On January 24, 2020, we filed antitrust counterclaims against Bio-Rad alleging violations of (a) Section 7 of the Clayton Act, (b) Section 2 of the Sherman Act and (c) California unfair competition laws, for illegally acquiring Raindance and illegally monopolizing or attempting to monopolize markets relating to droplet digital PCR products, droplet single cell products and droplet genetic analysis technology.

On February 19, 2020, Bio-Rad moved to dismiss, or alternatively to stay and sever, our antitrust claims.

On February 5, 2020, we filed additional counterclaims against Bio-Rad alleging that Bio-Rad’s single cell ATAC-seq products infringe U.S.

9,029,085 and 9,850,526 that are exclusively licensed to us from Harvard University.

On February 26, 2020, Bio-Rad moved to sever and stay the patent counterclaims.

On March 6, 2020, the Court denied the motion to stay and deferred the motion to sever until prior to trial.

On March 25, 2020, the Court held a hearing with respect to (a) our motion to dismiss Bio-Rad’s patent claims, (b) our motion to transfer the ‘115 patent and (c) Bio-Rad’s motion to dismiss our antitrust counterclaims.

On April 30, 2020, the Court denied our motion to dismiss with respect to Bio-Rad’s patent claims and granted our motion to transfer the ‘115 patent to the Northern District of California.

In August 2020, the Court granted Bio-Rad’s motion to dismiss (i) our Sherman Act and Clayton Act counterclaims with respect to droplet single cell products and (ii) our Sherman Act counterclaims with respect to droplet genetic analysis technology.

The Court denied Bio-Rad’s motion to dismiss (i) our Clayton Act counterclaims with respect to droplet genetic analysis technology;

(ii) our Sherman Act and Clayton Act counterclaims with respect to droplet digital PCR products;

and (iii) our California unfair competition counterclaims.

Discovery is ongoing.

A Markman hearing was conducted in September 2020.

In December 2020, the Court ordered the parties to be ready for trial for Bio-Rad’s patent claims and our patent counterclaims in July 2021 and for our antitrust counterclaims in September 2021.

In June 2020, we filed two petitions for IPR challenging the validity of the '444 patent.

In August 2020, we filed two petitions for IPR challenging the validity of the '277 patent.

On January 13, 2021, the PTAB denied institution of IPRs for the '444 patent.

On February 22, 2021, the PTAB denied institution of IPRs for the '277 patent.

The ITC 1100 Action

On January 11, 2018, we filed a complaint against Bio-Rad at the ITC pursuant to Section 337 of the Tariff Act of 1930 alleging that Bio-Rad infringes our U.S.

9,644,204, 9,689,024, 9,695,468 and 9,856,530 (the “ITC 1100 Action”).

The judge issued an Initial Determination on July 12, 2019 finding that Bio-Rad’s ddSEQ products infringe the ‘024, ‘468 and ‘530 patents.

The judge also found all of our asserted patents to be valid and rejected Bio-Rad’s claim of ownership in all of the asserted patents.

On February 12, 2020, the ITC issued its Final Determination affirming the judge’s findings with respect to Bio-Rad’s violation of the ‘024, ‘468 and ‘530 patents, including the judge’s findings for those patents with respect to infringement, validity and ownership.

The ITC issued an exclusion order prohibiting Bio-Rad from importing into the United States infringing microfluidic devices, components thereof and products containing same, including the ddSEQ products.

The ITC also issued a cease and desist order preventing Bio-Rad from selling such imported products in the United States.

The ITC’s remedial orders do not identify any ddSEQ assay as exempted from their potential scope.

The ITC orders do not prohibit the importation or sale of microfluidic consumables imported into the U.S.

for use by researchers who are using such consumables as of February 12, 2020, and who have a documented need to continue receiving such consumables for a specific current ongoing research project for which that

need cannot be met by any alternative product.

On April 29, 2020, Bio-Rad appealed the Final Determination to the Court of Appeals for the Federal Circuit.

We expect appeals to be completed in mid-2021.

For further discussion of the risks relating to intellectual property and our pending litigation, see the section titled “ Risk Factors—Risks related to litigation and our intellectual property ” under Item 1A below.

On July 1, 2021, Nanostring filed a motion to dismiss.

On November 17, 2021, the Court held a hearing and dismissed without prejudice our claims for pre-suit indirect infringement and willful infringement.

Discovery is in progress.

A Markman hearing is scheduled for October 2022 and trial is scheduled for June 2023.

Mine Safety Disclosures.

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Item 3. Legal Proceedings