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Legal Proceedings

6 Months Ended

Jun. 30, 2011

11. Legal Proceedings

As reported previously, on February 23, 2010, Caliper, its wholly owned subsidiary Xenogen, and Stanford University filed a complaint for patent infringement against Carestream Health, Inc. (“Carestream”) in the U.S. District Court for the Eastern District of Texas. Caliper, Xenogen, and Stanford University seek a judgment that Carestream induced infringement of seven United States patents that Caliper, through Xenogen, exclusively licenses from Stanford University. Caliper and its co-plaintiffs seek an award of compensatory damages, treble damages due to Carestream’s willfulness, a permanent injunction and attorneys’ fees against Carestream for its ongoing, indirect infringement of the patents-in-suit. The complaint was served on Carestream on February 26, 2010. On April 20, 2010, Carestream filed its answer to the complaint, denying it induced infringement of the asserted patents. Carestream also counterclaimed for declaratory judgments of non-infringement and invalidity of the asserted patents. Carestream also filed a motion to transfer the venue of the litigation to another District Court. Caliper and Carestream subsequently agreed to the transfer of this case to the U.S. District Court for the Northern District of California, where it is pending.

On June 8, 2010, the U.S. Patent and Trademark Office (“PTO”) issued U.S. Patent Number 7,734,325 (the “325 Patent”) to Carestream. The next day, Caliper filed a request for reexamination of all claims of the 325 Patent. On August 12, 2010, the PTO issued an order granting reexamination of all claims of the 325 Patent. On the same day, the PTO also issued an action closing prosecution of the reexamination of the 325 Patent. On September 29, 2010, the PTO issued a right of appeal notice notifying Caliper and Carestream of each party’s right to appeal the examiner’s determinations in the reexamination. Caliper filed a Notice of Appeal with the PTO on October 29, 2010, and filed its appeal brief on February 4, 2011. Carestream filed its reply to Caliper’s appeal brief on March 7, 2011.

On July 9, 2010, Carestream filed a complaint for patent infringement against Caliper in the U.S. District Court for the Western District of Wisconsin. Carestream’s complaint alleges that Caliper’s Lumina XR imaging system infringes the 325 Patent and that Caliper indirectly infringes the 325 Patent. Caliper filed its answer to Carestream’s complaint on August 2, 2010. Carestream’s allegations of infringement do not involve any of Caliper’s imaging products other than the Lumina XR. The Lumina XR system is a multi-modal imaging system with both optical and x-ray capabilities that Caliper first introduced in September 2009. Caliper believes that the 325 Patent is invalid and that the Lumina XR system does not infringe the claims of the 325 Patent. With its complaint for patent infringement, Carestream also filed with the Court a motion for preliminary injunction to prevent Caliper from selling the Lumina XR system during the pendency of this litigation. Caliper filed its opposition to Carestream’s motion for a preliminary injunction on October 20, 2010. The hearing on Carestream’s preliminary injunction motion was held on March 4, 2011. The Court issued its Opinion and Order denying Carestream’s preliminary injunction motion on March 31, 2011, finding that Carestream failed to establish either a reasonable likelihood of success on the merits of its infringement claim or any irreparable harm if the requested preliminary injunction were not entered. In its Opinion and Order the Court also denied both Caliper’s and Carestream’s cross-motions for summary judgment, but indicated that each party could file a new motion for summary judgment after additional discovery had taken place. The Court also conducted a claim construction hearing on March 4, 2011, but the Court has not yet issued its claim construction order.

On August 4, 2011, Caliper and Carestream entered into a settlement agreement (the “Settlement Agreement”) which resolves both Caliper’s and Stanford University’s complaint against Carestream in the U.S. District Court for the Northern District of California (the “California Litigation”) as well as Carestream’s complaint against Caliper in U.S. District Court for the Western District of Wisconsin (the “Wisconsin Litigation”). To settle these lawsuits, Carestream and Caliper have agreed (i) to dismiss their respective claims and counterclaims in the California Litigation and the Wisconsin Litigation; (ii) that Carestream will not market and sell in-vivo optical imaging systems for certain applications covered by patents licensed from Stanford University by Xenogen and Caliper; and (iii) that Carestream will not assert that Caliper’s Lumina XR system as currently configured and sold by Caliper infringes any of Carestream’s patents. Other terms of the Settlement Agreement were not disclosed.

On November 10, 2010, GenMark Diagnostics, Inc. (“GenMark”), a life sciences company based in Carlsbad, California, filed a complaint against Caliper in the U.S. District Court for the Northern District of California, seeking declaratory judgment that either (i) GenMark’s products do not infringe three microfluidic patents owned by Caliper (U.S. Patent Nos. 6,366,924; 6,399,025; and 6,495,104) and/or (ii) the claims of the three patents at issue are invalid. GenMark’s complaint was served on Caliper on November 11, 2010. The complaint filed by GenMark did not contain any other claims against Caliper, other than a claim for recovery of reasonable attorneys’ fees. Caliper had been in the beginning stages of license discussions with GenMark when it filed its complaint. On February 28, 2011, Caliper and GenMark entered an agreement under which Caliper agreed not to assert any infringement claims under certain specified patents against GenMark during the next six-month period and GenMark agreed to dismiss its complaint without prejudice. Caliper intends to continue its discussions with GenMark regarding a potential licensing arrangement during this six-month period.

From time to time Caliper is involved in litigation arising out of claims in the normal course of business, and when a probable loss contingency arises, records a loss provision based upon actual or possible claims and assessments. The amount of possible claim recorded is determined on the basis of the amount of the actual claim, when the amount is both probable and the amount of the claim can be reasonably estimated. If a loss is deemed probable, but the range of potential loss is wide, Caliper records a loss provision based upon the low end estimate of the probable range and may adjust that estimate in future periods as more information becomes available. Litigation loss provisions, when made, are reflected within general and administrative expenses in our statement of operations and are included within accrued legal expenses in the accompanying balance sheet. Based on the information presently available, management believes that there are no outstanding claims or actions pending or threatened against Caliper, the ultimate resolution of which will have a material adverse effect on our financial position, liquidity or results of operations, although the results of litigation are inherently uncertain, and adverse outcomes are possible.