For all of the noise made about "helping mankind" or "building a better world for humanity," the health-care industry is every bit as litigious and profit-obsessed as any other. Patent litigation is part and parcel of the fabric of how companies do business today, as the recent squabbles between Johnson & Johnson (NYSE: JNJ) and Boston Scientific (NYSE: BSX) suggest.
Yesterday, a jury in a U.S. District Court ruled in favor of J&J, deciding that Boston Scientific's Taxus, Liberte, and Express stents did indeed infringe upon J&J's historic Palmaz stent patent. The jury also found that the Liberte stent infringed upon another J&J patent (the so-called Gray patent).
Anyone who has followed litigation knows what comes next -- a blizzard of motions from Boston Scientific's attorneys, as well as an appeal of the ruling. Boston Scientific, though, has already tipped its hand a bit with respect to how it might attempt to minimize the damages awarded in the case -- claiming that JNJ couldn't have supplied the market with enough stents on its own.
In any case, J&J is looking for something in the neighborhood of $1 billion in damages from the infringement related to the Taxus drug-coated stent. That's a lot of money, but it's probably going to take years before a check gets written.
More interesting is the fact that J&J is also likely to attempt to enjoin Boston Scientific from selling its new drug-coated Liberete stent in the United States. But, by a quirk of U.S. law, J&J can't really do anything until the stent is actually approved and commercially launched.
Just as one trial wraps up, another one begins. In this case, Boston Scientific is suing J&J -- claiming that J&J is violating a patent related to the polymer-coating technology that allows a drug-coated stent to do its thing.
Patent litigation is prolonged and intricate, and it's hard to say today what's going to happen with any sort of certainty. Should Boston Scientific prevail in its suit, the two companies might attempt to work out some sort of compromise or cross-licensing deal. Should Boston Scientific lose, though, I would expect J&J to press as hard as it can for monetary damages and the enjoinment of sales of a drug-coated Liberte stent in the U.S.
In the unlikely event that this occurs, it would certainly be a coup for both J&J and Medtronic (NYSE: MDT). While the Taxus is a good stent, the Liberte looks to be even better, and both competitors would certainly be happy to see Boston Scientific proscribed from selling it.
It should also be noted that Boston Scientific is still working on resolving litigation with a company called Medinol. This dispute is also related to the stent business and could end up costing Boston Scientific $1 billion or more.
To some extent, investors should not get overly worried about patent litigation in the medical technology industry. At the risk of oversimplification, it seems as though everybody sues everybody else sooner or later. Most often the cases are settled with cross-licensing agreements and/or monetary payouts -- and only rarely are products pulled from the market.
Investors in Boston Scientific must at least be cognizant of the risk that the new drug-coated Liberte stent could be blocked from the market, but that battle is far from over. Meanwhile, court rulings aside, Boston Scientific continues to have market-share leadership in drug-coated stents and makes quite a bit of money from it.
For more on stent companies:
Fool contributor Stephen Simpson owns shares of Johnson & Johnson. The Motley Fool has an iron-clad disclosure policy.
Terms & Conditions
RSS Headlines
Fool UK