What happened

Shares of Veeco Instruments Inc. (NASDAQ:VECO) are plummeting today, down 18.9% as of 1:30 p.m. EDT, after the process equipment solutions company announced an unfavorable development in its ongoing patent infringement suit brought by Chinese rival Advanced Micro-Fabrication Equipment (AMEC) this past July.

Veeco revealed that that on Dec. 7, 2017, the Fujian High Court in China issued a ruling requiring the company "to stop importing, making, selling and offering to sell" its Veeco EPIK 700 model MOCVD systems, which contain a mechanism covered by an AMEC utility model patent and wafer carriers used as supplies for the systems. 

Judge ready to strike gavel


So what

Veeco noted that the court's ruling came without notice or hearing Veeco's position on the alleged infringement. In addition, the company says it only applies in China, doesn't apply to systems previously shipped to customers in the country, and that Veeco is working on potential alternative designs that don't violate the patent asserted by AMEC.

Veeco Chairman and CEO John Peeler elaborated:

Veeco continues to believe this lawsuit is without merit. We plan to appeal this ruling, to vigorously defend against this matter and to enforce Veeco's IP rights. Veeco remains committed to its customers in China and to supporting its installed base of MOCVD systems.

Now what

Perhaps more importantly, the ruling also doesn't cover Veeco's newer EPIK 868 system, which was only just released in the third quarter, and -- as Peeler noted in last quarter's earnings report -- represents a lower-cost, higher-productivity solution for Veeco's customers.

Nonetheless, this litigative setback in China certainly isn't ideal, and it's no surprise to see Veeco Instruments stock plunging in response.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.