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Cyanotech,
Aquasearch settle
feud over patents

The agreement ends a 2-year
fight between the Kona
biotech firms

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By Russ Lynch
Star-Bulletin

Ending a more than two-year court battle over alleged patent infringement, Kona-based microalgae businesses Cyanotech Corp. and Aquasearch Inc. said today they have reached a settlement that puts an end to all claims and counterclaims between the two.

Details of the settlement will not be made public, the companies said in a joint statement.

Cyanotech agreed not to use any Aquasearch-patented production system and to pay Aquasearch some royalties, but said the payments won't have a material effect on its finances.

In high-volume trading today, Aquasearch shares rose as high as 29 cents before ending down 2 cents at 23 cents. A total of 453,400 Aquasearch shares changed hands, more than double its six-month average of 189,158. Cyanotech closed up 13 cents at $1.09 with 57,500 shares traded, little different from it six-month average of 50,666.

The companies both have spent years and millions of dollars developing high-value nutrient and pharmaceutical products for what they see as a hugely lucrative future business, but have yet to show profits.

The intellectual-property dispute went to court in July 1998 after Aquasearch claimed Cyanotech had violated an Aquasearch patent for a closed-tube system for growing the microalgae used in both companies' products.

Aquasearch had installed its system on Cyanotech's property when the two had a joint venture in the early 1990s. The partnership later broke off and Aquasearch claimed Cyanotech was illegally using its patented system.

Cyanotech sued, seeking court backing for its position that it had not infringed the patent.

Aquasearch claimed a victory three months ago, when a federal judge denied a Cyanotech motion to dismiss the case. However, Cyanotech also claimed victory of a sort, saying it would prove in a trial that it was in the right. The trial was set for September but now will not be needed.

Aquasearch lost $4.6 million for the year ending Dec. 31 and Cyanotech, which has a March fiscal year, lost $384,000 in the last nine months. Both said they spent heavily on research and marketing, but their revenues were beginning to climb.