Palomar Medical Burns Another Rival

The list of companies folding under Palomar Medical Technologies' (Nasdaq: PMTI  ) patent infringement lawsuit onslaught is growing.

Privately held Alma Lasers meekly acquiesced to Palomar's charge that it infringed on patents for which Palomar has an exclusive license from Massachusetts' General Hospital Corp. Alma will pay a 9.5% royalty to Palomar for sales of its products going back to 2003, and an 8.5% royalty on sales from now through the end of 2007. That fee will drop to 7.5% for future sales, beginning next year.

Palomar has sought to punish the aesthetic laser industry for violating its intellectual property, accusing basically anyone and everyone of infringing on its holdings. Companies already paying Palomar royalties include Cynosure (Nasdaq: CYNO  ) , Cutera (Nasdaq: CUTR  ) , and Iridex (Nasdaq: IRIX  ) subsidiary Laserscope.

Palomar admits that it's taking a tough stand on violators. "As in the past, when forced to litigate," noted the company's lawyers, "we will seek higher royalties than when competitors take a license on a voluntary basis."

One company not buckling under to Palomar's aggressive tactics is Candela (Nasdaq: CLZR  ) . While he long denied that Palomar had even advised his company of alleged patent infringement, Candela CEO Gerard Puorro finally admitted that his firm had gotten some "flyers" from the laser maker. He still insists his company is not breaching Palomar's patents. The two companies' steel-cage death match has gotten nastier with time; Candela filed its own patent infringement suit against Palomar, and both say they won't allow the other to license their technology if they prevail.

If you read the '844 patent, you have to wonder whether Candela has much to fear from Palomar's suit. While laser technology is beyond my ken, the patent specifically says it protects applicators that come in direct contact with the skin and, among other things, cool the skin in the process.

Candela's GentleLase and GentleYAG lasers -- the two lasers specifically mentioned by Palomar -- don't have applicators that come in contact with the skin, and their dynamic cooling technology is licensed through the Regents of the University of California. While he may have been disingenuous about whether Palomar ever notified Candela, Puorro certainly appears on the mark when he suggests that his company's lasers don't infringe on Palomar's patents.

With more than $40 million in cash, Candela also has the resources to defend itself if necessary. Cutera and Cynosure didn't have such bankrolls, and Candela's cash hoard may have been more than Palomar bargained for.

It's brought a number of industry players into its fold, but Palomar's claims have not yet been tested in court. That may change soon enough.

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Fool contributor Rich Duprey owns shares of Candela but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.