Gevo vs Butamax: Butamax heads for appeal after court setback

March 21, 2013 |

montaguesAh, advanced biofuels’ Montagues and Capulets are at it again, gentle reader.

Two households, both alike in dignity

In fair Digestville, where we lay our scenes,

From ancient grudge break to new enmity,

As IP woes drive civil suits re: genes.

From forth the fatal loins of these two foes 

A pair of star-cross’d processes are in strife

Whose misadventured piteous overthrows 

Do with their conflict absorb their parent’s life

Of KARI, GIFT and others you will hear

And the continuance of their parents’ rage, 

Which continueth forever, we lately fear

And is some two years’ traffic of our stage;

To Gevo, Butamax we now attend,

And their legal record, we now amend.

The Federal judge overseeing the complex patent infringement litigation between Gevo and Butamax has issued a series of pre-trial rulings and orders, days before the expected start of the first patent trial on April 1st. The result — if you take it from equity analysts and the stock market — a significant win for Gevo, on the whole, though Butamax disputes that (vigorously).

The rulings? “First on claim construction, the court agreed with Gevo on the wording of the claim that is in dispute,” observed Piper Jaffray’s Mike Ritzenthaler. “Second, [the court granted] Gevo’s request for summary judgments on non-infringement and the invalidity of key claims within Butamax’s patents.”

Butamax CEO Paul Beckwith: Zero infringement is our goal

Despite tough news from the courts, Butamax CEO Paul Beckwith was pugnacious and confident yesterday in reviewing the results, vowing to set back the April trial date by up to another 18 months by taking the case to Federal Appeals Court in an attempt to overthrow the pre-trial orders, and dismissing hopes that a negotiated settlement is in the offing.

Settlement? “If it’s possible, we’re not opposed to settlement, but we are not going to allow [our patents] to be infringed,” Beckwith told the Digest. So, zero infringement would be a must-have for any settlement?

“Yes, I’d say that’s right,” Beckwith said. “any scenario where are patents are not being infringed, we’d be happy to agree to [a discussion].”

Butamax has decided to appeal this case immediately,” Butamax CEO Paul Beckwith said. “Butamax strongly disagrees with the Court’s claim construction.  We do not believe it is consistent with either the patent, rules for patent claim construction or statements made by the Federal Circuit.  We have therefore decided to appeal immediately to resolve this matter before going to trial.  We are confident the Federal Circuit will determine this matter in our favor.”

Beckwith said that he expected the Federal Appeals Court process to take up to a year, and then require the case to be rescheduled in District Court — at which point a trial would be held on the facts, and a verdict announced. Think 15-18 more months.

Gevo’s Take

Gevo said — in a statement emailed this morning — that “a judgment of non-infringement will be entered for Gevo following the acknowledgment by Butamax Advanced Biofuels LLC (Butamax) that Gevo does not infringe Butamax’s asserted patents under the Court’s construction of a key claim term in Butamax’s Patent Nos. 7,851,188 and 7,993,889.  As a result of this victory, a judgment of non-infringement will be entered in Gevo’s favor and the trial scheduled for April 1st will no longer take place.”

“This is an outstanding victory for Gevo,” noted Brett Lund, EVP and General Counsel for Gevo.  “We have consistently maintained that we do not infringe any Butamax patents and Butamax’s concession resoundingly validates our position.”

The judgment of non-infringement comes on the heels of the Court’s important claim construction determination which held that Butamax’s Patent Nos. 7,851,188 and 7,993,889 require the use of an “NADPH-dependent” KARI.  Butamax conceded that it could not establish that Gevo’s KARI is NADPH-dependent.

“Gevo continues to demonstrate that it does not infringe Butamax’s patents because Gevo created an NADH-dependent KARI enzyme that enables Gevo’s yeast strains to produce isobutanol at much greater efficiencies than strains using the NADPH-dependent enzymes claimed by Butamax,”  “We fully expect Butamax will appeal to the Federal Circuit,” said Lund, but we are confident in the merits of our case.”

In addition to granting a judgment of non-infringement, Gevo said that the Court invalidated Butamax’s patent claims for the deletion of PDC.  PDC is the enzyme responsible for making ethanol and its deletion is required for the commercially viable production of isobutanol.  Gevo’s patents covering the deletion of PDC and the use of AFT are set for trial in August of this year, where Gevo is suing Butamax for patent infringement.

More litigation ahead

Plus, this is only a suit against Gevo by Butamax for infringement on two patents. In August, there’s a trial on Gevo’s suit against Butamax. And Butamax is preparing to press forward with action on six more patents which it expects to come before the courts between July 2014 and July 2015.

Thumbs up for Gevo: analysts.

Yesterday, analysts from RW Baird, Cowen & Company and Piper Jaffray issued favorable reaction, and the stock rose more than 7 percent for the day.

From Piper Jaffray’s Mike Ritzenthaler:

“We maintain our Overweight rating and $9 price target on shares of GEVO following two very favorable orders from the Delaware District Court yesterday.

“District court orders yesterday are a significant step forward for Gevo. Yesterday afternoon, the District Court issued a series of orders ahead of the pre-trial conference today. The court agreed with Gevo on their proposed claim construction, which now reads ‘an enzyme … [that] is NADPH-dependent.’ Gevo’s pathway uses NADH and Butamax’s uses NADPH.

“Therefore, the case comes down to almost a semantic argument of whether a microbiologist (someone skilled in the art) would know the difference between enzymes that are dependent on different cofactors. Academic and trade literature, as well as subject experts, support Gevo’s position.

“The summary judgments also fall Gevo’s way. In addition to the claim construction, Judge Robinson also issued her rulings on the summary judgment motions. While all of Butamax’s summary judgment motions were denied, Gevo’s were both partially granted.

“Of particular interest are claims 12 and 13 in Butamax’s ‘889 patent, which have been ruled to be invalid. These claims pertain to genes that are deactivated to improve flow of carbon through the metabolic pathway, enabling isobutanol production at ‘commercial’ yields.

“Without these two claims, Butamax will not be able to use this technology to produce isobutanol with any meaningful efficiency. What is notable, however, is that Gevo has these claims in their biocatalyst patents.”

The commercial impact

Beckwith said that the legal efforts would continue in parallel at Butamax with the commercialization activity. The appeal process, he said, would not impact Butamax’s commercialization timeline. “In this case, it is our suit against Gevo for infringement — so there isn’t really any change for ourselves or our customers on our own activities.”

Beckwith said that the company expects to break ground on its first isobutanol facility by the end of this year, and complete the first commercial plant in 2014.

The bottom line

Settle in for a long, cold, hard winter, pilgrims. The Montagues and Capulets are going to be at it, and at it, and at it — for some time to come.

Expect that commercial activities will continue — but the depressive impact of the litigation on Gevo’s stock price is going to matter in Gevo’s capital-raising activities — current shareholders may well be in the doldrums for some time if the company is forced into highly-dilutive share issues in order to form expansion-stage capital.

Or, into some highly-creative financing structures for the next few commercial projects, including work at the company’s own Luverne plant and its next proposed project at Redfield, SD.

As Steve Perry wrote in “Don’t Stop Believin‘:

“Some will win, some will lose
Some were born to sing the blues
Oh, the movie never ends
It goes on and on and on and on.”

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