It's tough to say that Palomar Medical Tech (NASDAQ:PMTI) gets no respect when it trades for nine times sales, more than 14 times book, and almost 41 times trailing earnings, and has risen more than 75% in the last year. But I'm tempted to make that very case, since rival Cutera (NASDAQ:CUTR) is also richly valued yet has a rather small short position relative to Palomar.

In what may constitute a more meaningful "dis," Palomar believes that Cutera is infringing on some of its intellectual property. As you may imagine, Cutera disagrees, and the legal fight is now under way. Palomar scored an early blow yesterday, though, as a court denied a motion from Cutera to invalidate the patent in question. As a result, Cutera fell 27% and Palomar rose about 3%.

I find that discrepancy interesting, actually. It would seem that nobody has really acknowledged that Cutera could be in some real trouble here. Not only might more of the company's revenue be at risk than management has suggested, but there's also the potential liability of triple damages to Palomar. Putting a nice cherry atop all of this, Palomar has already said it has no intention of licensing the IP in question to Cutera.

Making matters more interesting, the risk here is disproportionate. If Cutera loses, it's got a big problem: It can't sell products incorporating the infringing technology, and it'll have to pay those damages. But if Palomar loses, what's the harm? It might not be able to file subsequent patent infringement suits, but it's already doing OK in competing with many of the allegedly infringing products.

Better yet for Palomar supporters, the company boasts some serious R&D and a leadership position in light-based aesthetic technologies. And while projects with Johnson & Johnson (NYSE:JNJ) and Gillette (now part of Procter & Gamble (NYSE:PG)) for home-use devices might be long shots, they're at least no worse than lottery tickets -- potentially very large payoffs with minimal risks.

I'm not a patent lawyer, so I wouldn't dream of making any claims as to the legitimacy of Palomar's case or Cutera's defense. I will say, though, that every once in a while you find these sorts of asymmetrical risk stories where the worst seems to be assumed for one player while the other gets something of a pass. Should events keep moving in Palomar's favor, I think that represents a real upside for this fast-growing, albeit very pricey, little aesthetics specialist.

For more prettified Foolishness:

Fools, now is the time to open your hearts and wallets to worthy causes! Please support our five Foolish charities at

Fool contributor Stephen Simpson owns shares of Johnson & Johnson but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Fool has a disclosure policy.