Earlier this morning, the US Patent and Trademark Office (USPTO) issued a favorable decision for Neptune, confirming the validity of Neptune’s ‘351 patent (U.S. Patent: 8,278,351). This decision triggers the payment of ongoing royalties to Neptune by Aker and Enzymotec, based on their sales of licensed krill oil products in the US. Neptune started the day up 11%, but has since faded to 2%. The market is misinterpreting the news mainly due to a press release by rival Enzymotec.
Enzymotec’s Press Release Confusing Markets
Enzymotec released their own press release which stated that the USPTO determined that 26 out of 28 challenged claims in the ‘351 patent were unpatentable. The company intends to appeal the USPTO’s decision regarding the remaining 2 challenged claims. Enzymotec is up nearly 2% on this news. I fail to see why.
This is what was included in the press release:
“Enzymotec has a worldwide non-exclusive license to the entire 8,030,348 patent family of Neptune, which includes the ‘351 patent, for as long as any patent in that family exists, for all of the Company’s relevant current products and future anticipated products under development.
Neptune is not entitled to any royalty payments in North America under the agreement, unless the final outcome, following an appeal, of the IPR of Neptune’s ‘351 patent is unfavorable to Enzymotec.”
While it’s true that the UPTSO determined 26 out of 28 claims were unpatentable, the two remaining challenged claims held up. As long as one claim holds, opposing parties must pay royalties to Neptune. Due to this, Enzymotec is appealing the USPTO’s decision. The company has 60 days to file the appeal.
The length of the appeal process is not known, however, any royalties from North American sales during this time will go to escrow. If Neptune wins the federal court appeal, then the money owed by Enzymotec will be paid at the end of trial.
Odds Are USPTO Will Uphold Original Decision
Using historical proceedings, it is likely that the USPTO will uphold their decision and reject Enzymotec’s appeal. Throughout 2013 & 2014, Neptune reached settlements with all its competitors, including Enzymotec and Aker, to resolve infringement licenses. As part of the settlement, all competitors agreed to pay Neptune a one-time upfront payment.
While most competitors settled on royalty terms, royalty payments from Enzymotec and Aker were dependent on the outcome of USPTO, which was announced today. In all prior proceedings, Neptune has come out on top. Chances are this will continue with Enzymotec’s appeal.
Additionally, 2 out of 28 claims held-up in court. Neptune will receive royalties as long as at least one claim is patentable. Even if USPTO decides to hand Enzymotec a moral victory, it is very unlikely that both challenge claims are amended to unpatentable.
Today was a large legal victory for Neptune, validating their position as a pioneer. If anyone plans to sell krill oil products, they must first go through Neptune. Hence, Neptune will have their hands in every krill oil player’s pocket.