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Judge denies
Cyanotech patent
claim against rival

Aquasearch claims a victory
but its Kona neighbor sets its
sights on a September jury trial

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By Russ Lynch
Star-Bulletin

Aquasearch Inc. claimed a victory today in a trade-secrets battle with its rival in the Kona microalgae business, but Cyanotech Corp. countered that the fight is not over.

The two companies issued contradictory statements describing what happened in U.S. Judge Alan C. Kay's courtroom Monday. Aquasearch said its patent for the closed-system cultivation of microalgae was affirmed when Kay refused to grant a motion from Cyanotech seeking a ruling in its favor.

Aquasearch said it was the third time Kay ruled that the patented process belongs to Aquasearch and his denial of the Cyanotech motion affirmed his ruling a year ago that Cyanotech had infringed the Aquasearch patent, misappropriated trade secrets, and violated a 1994 agreement between the two companies.

"The court's ruling once again confirms the proprietary and valuable nature" of the patent, said Mark Huntley, Aquasearch chief executive officer.

In its own statement, however, Cyanotech said nothing will be decided until the case goes to a jury trial, currently set for September. "This action does not constitute a reconfirmation of the validity of the Aquasearch patent," said Gerald R. Cysewski, chairman, president and CEO of Cyanotech.

"Judge Kay ruled that there were questions of fact to be decided and, for that reason, denied our motion," Cysewski said. "We and our legal counsel are preparing for the next step in this litigation, which is the trial next year."

At issue is the use of methods to grow the microalgae that in turn are used to create high-value products for the nutrient and pharmaceuticals markets.

In the early 1990s, the companies worked together to develop new processes but later went their separate ways.

In December 1999, Kay granted a summary judgment in Aquasearch's favor. In January, Cyanotech filed a motion asking Kay to reconsider. In March, Kay denied that motion. Cyanotech filed again in late August, claiming that the patent should be invalidated because it covers a system like those that had already been developed.

On Monday, Kay denied Cyanotech's motion for a quick judgment.

Aquasearch's over-the-counter stock gained 2 cents today to close at 40 cents while Cyanotech's shares rose 6 cents to $1.06 on the Nasdaq.