Iridex, Synergetics square off to settle patent dispute

Key Points

St. Louis-After years of legal wrangling, Iridex Corp. and Synergetics USA Inc. are headed to trial to settle a patent dispute over the type of connector Synergetics used on its handheld probes for laser surgery.

Iridex claims that Synergetics relied on its patented technology to create a type of connector for handheld probes it sold between 1999 and mid-2006. Synergetics denies that it did anything wrong but changed its design based on the Iridex argument.

A judge ruled in late February that Synergetics' old design did infringe some claims of the Iridex patent, but a jury will be asked to decide whether the patent was valid and whether that infringement was "willful." A trial is scheduled for April 16 in U.S. District Court for the Eastern District of Missouri.

Iridex's chief business officer, Larry Tannenbaum, said his company notified Synergetics about 7 years ago that its connector infringed the Iridex patent. After what Tannenbaum described as repeated attempts to reach an agreement, Iridex filed its lawsuit Oct. 19, 2005.

The connector is the point at which the probe attaches to the "box" containing the laser technology.

"We have a way to make it nice and secure to make sure no light comes out," Tannenbaum said of his company's connector. "We feel comfortable that, using our connector, there are no errant emissions of laser light, and it forms a really good connection with the box. There are safety considerations as well as integration issues."

However, Pamela G. Boone, chief financial officer for Synergetics, disputed Tannenbaum's account of repeated efforts to notify Synergetics of any infringement.

"There were two letters that were sent," she said. Pointing to the legal terms of "laches and estoppel fraud," Boone said Iridex, by not filing its lawsuit until 2005, allowed Synergetics to build up its market. If Iridex had sued in 1999 or 2000, then Synergetics could have changed its connector design and avoided further potential liability, she said.

"They waited too long to bring this to trial," Boone said in an interview. "Six years is a fairly magic time frame in patent litigation. You can't sit on your patent and allow the other company to develop [its] market."

Once the lawsuit was filed, Boone said, the company redesigned the connector within several months, and the new probe was launched this past July. The judge agreed in late February that the new design does not infringe Iridex's patent.

The jury will be asked to evaluate a claim by Synergetics officials that the Iridex patent is invalid because it was an "obvious" invention based on existing technology, Boone said.

Although the sale of handheld probes for laser surgery accounts for only about 14% of the company's revenue, Boone said that shareholders are very concerned about this case. O'Fallon, MO-based Synergetics sells about 60% of its products for ophthalmology and 40% for neurosurgery.

Synergetics reported revenues of $12.6 million for sales related to all of its probes from 1999 through 2005. However, $3.3 million of that was related to probes not used with Iridex lasers, and another $2 million is related to international sales, for which the company says Iridex does not hold a patent.

"We believe we have an argument to disassociate the international revenues," Boone said.

Iridex's Tannenbaum believes his company has lost $8.3 million in sales because of the infringement. He hopes the jury will determine that infringement was "willful" and triple that figure.

"It's certainly clear they didn't change their style after we notified them, and they certainly had plenty of opportunity to do that," Tannenbaum said. Mountain View, CA-based Iridex has sold about 8,000 lasers worldwide since 1990.

After the millions of dollars that its founder spent to develop the smaller, VCR-sized laser box, and its probe, Tannenbaum said, it is unfair for another company to copy Iridex technology.

"I think our shareholders have been wronged by their actions," he said.

Synergetics' Boone said her company is equally anxious to resolve the dispute.

"It's a fairly large distraction for our management and our shareholders," she said.