A Medical Device Daily

Stratagene (La Jolla, California), a manufacturer of research and diagnostic products, said that in the matter of Invitrogen Corporation vs. Stratagene, heard in the U.S. District Court for the Western District of Texas, a jury ruled that it infringed a U.S. patent (No. 4,981,797) held by Invitrogen (Carlsbad, California) by making and selling its competent E. coli cell products.

The jury decided to award Invitrogen a 15% royalty rate on sales between the years 1997 and 2004 – for $7.8 million in damages – and found that Stratagene willfully infringed the patent only between the years 1997 and 2001. The jury ruled that Invitrogen was not entitled to lost profits because Stratagene has had a non-infringing manufacturing process for competent cells. Invitrogen had been seeking $32 million in damages, based on lost profits.

Stratagene has the option to appeal the verdict.

Other details concerning the final judgment are being considered by the presiding judge. Stratagene said it had previously modified its process for manufacturing competent E. coli cell products and, as a result, Invitrogen has agreed that Stratagene products sold in recent years and currently offered for sale will not be affected by the verdict.

The action was initiated by Invitrogen in 2001, and the district court then found that Invitrogen's patent was not infringed by Stratagene. An appeals court reversed the decision in part and remanded the case to the lower court.

In January 2004, the district court granted partial summary judgment to Invitrogen based on the determination that Stratagene's then-existing manufacturing process infringed Invitrogen's patent, but also determined that Invitrogen's patent was invalid. Stratagene then changed its manufacturing process to a non-infringing method.

Invitrogen appealed the decision again, and in late 2005 the Federal Circuit Court reversed the district court's findings in part. The case was remanded to district court, resulting in the jury's determination handed down on Tuesday.

Endocare (Irvine, California) has agreed to settle charges of accounting fraud and making false and misleading public statements about the results of an internal investigation, the Securities and Exchange Commission (SEC) said. At the time, Endocare developed and distributed medical devices for use in the treatment of various types of cancers and urological ailments.

To settle the charges, filed in U.S. District Court for the Central District of California, Endocare will pay a $750,000 civil penalty and be permanently enjoined from future violations, without admitting or denying the charges.

The SEC said that the company's senior vice president of sales, Kevin Quilty, and Jerry Anderson, the former president of an Endocare subsidiary, agreed to settle charges of recordkeeping and internal controls violations and in the case of Quilty, for aiding and abetting Endocare's violations.

Quilty agreed to pay $23,749 in disgorgement and interest and a $25,000 penalty. Anderson agreed to pay a $35,000 penalty. In a separate administrative proceeding, Endocare's former director of sales for the Southeast, L. Michael Hart, agreed to desist from causing Endocare's reporting and recordkeeping violations.

None were required to admit or deny the allegations.

The complaint charges that Endocare engaged in improper revenue recognition, ranging from false sales to undisclosed side agreements, and improperly understated or deferred expenses to inflate earnings. Endocare allegedly reported a history of “record” revenue growth quarter-over-quarter, reporting $2.8 million for 1Q01 to $11.4 million for 2Q02, and overstated revenue by at least 33% for 2Q02. Endocare further allegedly understated a pre-tax loss for 2001 by 20% and falsely reported pre-tax earnings for the first two quarters of 2002, rather than its actual substantial losses.

Quilty was charged with entering into undisclosed side agreements containing contingent terms and parked product shipped to Endocare-controlled warehouses, and that Anderson created fictitious customers purchasing $1.2 million in product in September 2002.

Endocare committed additional violations in the course of investigating allegations of improper accounting raised by its acting controller. In late 2002, after receiving the controller's charges, the company's audit committee retained a law firm to perform an investigation. Endocare's auditors at the time, KPMG, suggested that the audit committee hire independent counsel and an independent forensic accountant to conduct the investigation.

In November 2002, after reviewing the work of a forensic accountant that the audit committee had retained, KPMG said it was not prepared to complete its quarterly review until an expanded internal investigation had been performed. In December 2002, KPMG concluded that it could no longer rely on the representations of Endocare's management, and that it was withdrawing its report on Endocare's financials for the last fiscal year.

Endocare subsequently issued a press release in which it reported that an “independent review and investigation” had found “no indication of fraud or intentional wrongdoing by management.” The complaint alleges that Endocare had not conducted this investigation, and that an internal review had revealed substantial evidence of fraud.