The co-founders who introduced San Diego-based Qualcomm’s wireless digital technology in 1989 envisioned from the early days that it would be ideal for the Internet. But Irwin Jacobs says now even he’s amazed at how many things a cell phone can do today.

A new generation of innovators is now using Qualcomm’s proprietary technology to develop new cellular devices and services in such fields as healthcare, transportation, and energy—and “None of that was quite obvious to us in the early days,” Jacobs said in a presentation at a wireless conference in San Diego yesterday. Yet the Qualcomm co-founder and his son, Qualcomm chairman and CEO Paul Jacobs, also say the wireless industry is pushing the limits of cellular networks by cranking out ever-faster wireless devices that feature more and more mobile data services. Many of the new products just over the horizon are driven by Qualcomm’s own advances in technology—including 4G smartphones, netbook computers, and palm-size wireless TVs.

Rapid changes in cellular technology and the potential for network constraints became part of a wide-ranging keynote address at the CTIA Wireless IT & Entertainment conference in San Diego. Unlike most keynotes, though, Qualcomm’s father-and-son dynasty appeared together onstage for what was intended to be a living-room discussion with CTIA president Steve Largent, the former Oklahoma Republican Congressman and Hall of Fame pro football receiver.

Irwin Jacobs

One of their most interesting revelations came while Irwin, who turns 76 later this month, was discussing the technology advances that led to the current generation of smartphones. Despite rapid technology advances, the market for mobile Web-based services was slow to develop, and Irwin observed, “The iPhone was really a major breakthrough, in terms of developing a simple interface.”

Paul added, “We always used to talk about developing the killer app, and the killer app ended up being a simple user interface,” and he says most advances in computing capabilities and graphics technologies are now focused on making the interface even simpler to use. Paul, who was named Qualcomm’s CEO in 2005 and chairman earlier this year, says he envisions a future in which wireless technologies are “increasingly embedded in everything,” enabling a homeowner to use their cell phone to remotely control their TV, stereo, and lights.

According to Irwin, wireless networks provide cellular coverage for roughly 80 percent of the world population today, and he estimates there are …Next Page »

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Against the backdrop of a broad decline in venture investing nationwide, some concerns have been raised about San Diego’s hometown VCs and whether they are continuing to actively invest. But San Diego remains a vibrant community for venture capitalists to invest.

We enjoy diverse industries including biotech, wireless, software, cleantech, and more. Good money follows good deals. Great companies find a way of getting funded. Recently the San Diego Venture Group hosted a cleantech panel that consisted of three eminent venture capital partners located in the Bay Area and Los Angeles who are investing in clean technology. Each one oversees a portfolio that includes promising companies in our region. They were astounded at the 600 people who registered for the San Diego event, and the quality of some of the entrepreneurs they spoke with afterward.

Currently, we simply face limited liquidity in our markets. As a result, many venture capital firms are focused on nurturing the existing companies in their portfolio so they can survive this challenging funding cycle. Those firms that have the capacity to invest are finding it’s a great time to do so, with valuations being more realistic.

I have a greater concern about fostering innovation in our region. We need an efficient technology transfer process in our university system to commercialize some of the exceptional intellectual property we have in this region. Stanford University has mastered this process. Innovation is one of the most critical components to economic recovery in our country. Improvements that drive productivity are critical, and technological innovation will play a major role in putting the financial stability of the nation back on the right track. History indicates that the countries and companies that invest in innovation and research and development during an economic downturn will be best positioned to benefit when the economy recovers. Innovation has been one of the leading drivers of economic growth for the past few generations. Technological advancements have helped create a global economy, raise average incomes in many countries and lifted millions of people into the middle class.

The Obama administration has an opportunity to boost U.S. economic competitiveness and spur broad-based economic growth through targeted reforms of our country’s patent system, scientific research-and-development, and workforce development programs. Our patent system and today’s federal programs were designed to address 20th-century problems, not the new challenges posed by globalization and worldwide economic distress.

Today, VC firms outside San Diego are funding the majority of new venture deals in the region. Many are delighted to come here to work with innovative companies. Our regional challenge is not necessarily the VC’s who live and work in San Diego. Our challenge is to stimulate more innovation that can be commercialized out of our IP-rich universities, companies and DoD environs. Highly innovative companies solving real problems with a large market opportunity will attract money. Money follows great deals.

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Burlington, MA-based Acme Packet (NASDAQ:APKT), which sells hardware and software for managing and securing communications over the Internet, reports today that it has acquired privately owned communications software firm Covergence, of Maynard, MA, for about $22.2 million in Acme common stock and $600,000 in cash to Covergence shareholders and tax withholding payments. Covergence executives Ken Kuenzel, Jim Donovan, and Marty Falaro will move to Acme packet in Burlington to work in similar roles. Acme plans to close Covergence’s offices in Maynard, and the acquirer is still deciding which other employees among the 60 workers at Covergence it will keep, says Richard Williams, a spokesman for Acme.

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San Diego wireless giant Qualcomm (NASDAQ: QCOM) and Irvine, CA-based Broadcom (NASDAQ: BRCM) said last night they have agreed to end their wide-ranging patent war and enter a broad cross-licensing deal.

As part of the global settlement, which terminates litigation in federal court as well as formal disputes before trade commissions in Europe and South Korea, Qualcomm has agreed to pay Broadcom $891 million over the next four years. Qualcomm says its first payment, for $200 million, will be paid to Broadcom before June 30.

That could put a ding in Qualcomm’s net income next quarter, but it seems doubtful shareholders will mind. A J.P. Morgan analyst said last week that settlement payments would have little impact on Qualcomm’s future earnings.

When Qualcomm announced Wednesday that it was postponing the release of its earnings for the second that ended in March (because it was in advanced settlement talks with Broadcom), the San Diego company added it would meet or exceed its prior guidance for quarterly revenue and operating income (excluding the cost of its deal with Broadcom.) In last year’s second quarter, Qualcomm reported operating income of $766 million on $2.6 billion in revenue—and the company said earlier this year it expected second-quarter revenue to fall between $2.25 billion and $2.45 billion.

The agreement also relieves both Broadcom and Qualcomm of substantial legal costs—in a battle where Qualcomm wasn’t faring particularly well. The company suffered its worst setback in mid-2007 when San Diego federal judge Rudi Brewster issued a blistering, 54-page ruling that found Qualcomm and its trial counsel had committed “gross litigation misconduct” by withholding tens of thousands of relevant documents from Broadcom during a patent infringement trial. That decision against Qualcomm was largely upheld by a federal appellate court last December.

Strategically, the benefits of reaching a comprehensive settlement with Broadcom would seem to far outweigh the financial impact on Qualcomm’s earnings—especially since Qualcomm said terms of the agreement “will not result in any change” to its licensing revenue model for its 3G and 4G wireless technologies. And Qualcomm’s licensing revenue is the central engine of its success.

After fighting for more than a decade to establish its CDMA (for Code Division Multiple Access) wireless digital standard, Qualcomm attained its first strategic breakthrough in 1999, when it settled a wide-ranging patent dispute with Sweden’s Ericsson. In that deal, Qualcomm agreed to sell its CDMA wireless infrastructure business to Ericsson and Ericsson agreed to support a single worldwide CDMA standard.

At that time, Qualcomm also settled on a corporate strategy that focused its business on wireless innovation, which enabled the company to generate enormous revenue through technology licensing deals.

In July, Qualcomm struck a surprise settlement agreement with Nokia, the world’s largest mobile phone maker, that ended a similar high-stakes licensing dispute. That deal enables Qualcomm and Nokia to share many more technology patents than they did before. Qualcomm also licensed its technology to Nokia and Nokia allowed Qualcomm to incorporate its technology within its mobile phone components; buyers of those components will pay Nokia’s royalty fees rather than Qualcomm’s.

Broadcom posed the last major challenge to Qualcomm’s licensing model.

“We believe that this resolution is positive for both Qualcomm and Broadcom, our customers, our partners and the overall industry,” Paul E. Jacobs, chairman and CEO of Qualcomm, and Scott A. McGregor, president and CEO of Broadcom, said in a joint statement.

“The settlement will allow us to direct our full attention and resources to continuing to innovate, improving our competitive position in this economic downturn, and growing demand for wireless products and services,” Jacobs said.

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We saw the proxy battle for control of San Diego’s Amylin Pharmaceuticals heat up last week, amid signs that wireless technology giant Qualcomm is in peace talks to settle a wide-ranging patent dispute with Broadcom, its Southern California chip-making rival. We also got some new insights into venture capital activity in San Diego, and in the emerging cleantech sector. Let Xconomy be your guide.

—All three factions in the proxy battle at San Diego’s Amylin Pharmaceuticals are appealing for shareholder support in advance of the company’s annual shareholder meeting on May 27. Billionaire investor Carl Icahn and Eastbourne Capital Management are trying to oust Amylin’s governing board by persuading shareholders to vote for their slate of candidates. Amylin’s management contends the dissident shareholders just want to sell the biotech. Talks to reach some kind of accommodation ended with no progress—and no peace—in the continuing battle.

—Two San Diego biotechs disclosed layoffs last week. Arena Pharmaceuticals said the company is laying off 130 of its 400 employees, after investors were disappointed in results from Arena’s mid-stage clinical trial of a new drug for treating obesity. In a separate announcement, Sequenom said it eliminated 30 jobs as it reorganized its genetics analysis business.

—San Diego’s Qualcomm (NASDAQ: QCOM) postponed its Q2 financial results last Wednesday. Qualcomm explained it is in advanced IP settlement discussions with rival chipmaker Broadcom of Irvine, CA. Qualcomm rescheduled its earnings release for today and said its revenue and operating income exceeded the company’s prior guidance, although that could change if Qualcomm agrees to pay Broadcom to end the acrimonious patent dispute.

—With venture investments in San Diego in retreat, Hans Swildens of San Francisco-based Industry Ventures told Bruce that San Diego’s homegrown VCs are “in transition,” which seemed to be a diplomatic way of saying many local venture firms …Next Page »

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Qualcomm (NASDAQ: QCOM) said today it is in advanced IP settlement discussions with rival chipmaker Broadcom of Irvine, CA, and the San Diego wireless giant postponed the release of its second-quarter financial results that was scheduled today.

“Hopefully, this is a good thing,” says James Brehm, an information and communications technologies analyst with Frost & Sullivan near San Antonio, TX. “I think they want to put as much water under the bridge as possible on this one.”

Meanwhile, Broadcom (NASDAQ: BRCM) has been busy on several fronts. In addition to negotiating its IP case with Qualcomm, the Irvine company disclosed yesterday it’s making an unsolicited $764 million bid for Emulex Corp. (NYSE: [[ticker: ELX]]), a networking specialist in nearby Costa Mesa, CA. That news eclipsed the release of Broadcom’s first-quarter financial results as scheduled yesterday. The company posted a first-quarter loss of $91.9 million on sales of $853.4 million.

The two Southern California chipmakers have been locked in a wide-ranging patent dispute taking place in federal courtrooms in San Diego and Orange Counties, and the quasi-judicial International Trade Commission. Qualcomm says a global settlement of all its disputes with Broadcom—if an agreement can be reached—would have an impact on its financial results. The company rescheduled its second quarter earnings call to Monday.

Excluding the potential financial impact of a settlement with Broadcom, Qualcomm says in its statement that the company’s second-quarter revenue and operating income met or exceeded prior guidance. Qualcomm added that it remains in its quiet period and that its investor relations representatives will not be available until after Monday’s conference call.

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Back in February 2008, a Texas jury told Natick, MA-based Boston Scientific (NYSE: BSX) it would have to pay $431 million in damages to Dr. Bruce Saffran, who alleged that the company’s Taxus Express and Taxus Liberte drug-eluting stents infringed on patents he owns. Boston Scientific appealed the ruling, and a Federal Circuit panel reviewed the case in early March. In a late-afternoon filing with the SEC today, Boston Scientific said it settled the case with Saffran on March 16, and that as a result, it will record a pre-tax charge to earnings of $50 million this quarter.

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During the Internet revolution of the late ’90s, a well-known investor at a “Keiretsu Forum” boldly proclaimed that the division of the Internet landscape was akin to the great land grab of the 19th century. “In two years it will all be over,” he predicted. He was right, but for precisely the wrong reason. Two years later the dot-com bubble had burst, leaving in its wake a shattered economy.

Each of the last three decades has ended in significant recession. The ’80s ended in a downturn caused largely by the collapse of the commercial real estate market. The aforementioned collapse of the New Economy at the end of the twentieth century was spurred by wild speculation in technology companies. Now we have a worldwide recession caused in large part by the credit crisis. Each downturn feels somehow deeper and more troublesome than the last. Yet if history is a teacher this downturn too shall end. The question is how to survive, and even thrive, in this New New Economy. As with many complex problems, there is no simple or single solution. However, a careful analysis of the current landscape and developing a strategy around your company’s assets and liabilities is an important starting point.

Successful Management of Legal Issues in a Downturn
Tough economic times raise difficult legal issues, such as the increased risk of shareholder litigation. As more companies face financial uncertainty, officers and directors must clearly understand their obligations and act accordingly. Officers and directors owe a company and its shareholders due care, good faith and loyalty. Failure to uphold such duties can expose directors to personal liability for damages. This risk is particularly acute for venture capital and other private equity professionals.

In the last major downturn, the courts expanded their definition of creditors. The rationale was that in situations where a company is insolvent or on the brink thereof, such company’s equity is worthless and it is the company’s creditors that bear the risk of poor management decisions. Since many companies that were entirely solvent just months ago now teeter on the brink of insolvency, the risks of serving as a director have increased dramatically.

Directors need to be vigilant in the current environment. First and foremost they need to be candid with themselves regarding whether it is prudent …Next Page »

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Yesterday, I gave a few highlights from a lunchtime discussion with Intellectual Ventures’ global head of technology, Patrick Ennis. The Bellevue, WA-based firm, founded by Nathan Myhrvold and Edward Jung, is sometimes called an “invention company.” It has gotten a lot of attention—and stirred controversy—for buying up large numbers of technology patents worldwide. So I wanted to hear Ennis’s thoughts on intellectual property, patent reform, and venture capital, among other things. (He’s a physicist by training, and a former VC from Arch Venture Partners.)

But first, Ennis gave me a little taste of how invention sessions work at the firm. He was fiddling with the Saran Wrap on his sandwich, wondering about its material properties and how they might relate to thin-film coatings for medical stents, say. “Inventors see inventions everywhere,” he says. “Invention is not taught, except for kids. When you’re a little kid on the playground, you’re allowed to do this. But as an adult, this would be viewed as weird—’this person is not focused.’ But that’s what inventors do.”

He ran through a hypothetical thought process with his sandwich. “Before we go to bed, we’d know if there are opportunities to invent a better film for food. I suspect we’d find the only opportunities are to reduce a little bit of cost, and maybe to change the marketing of it. A lot of the times at IV [Intellectual Ventures], we look at things like this and it turns out—because it was boring, or viewed as pedantic or mundane—people missed something obvious,” Ennis says. “You want to do a realistic market study. If it turns out there’s only 5 million a year of this sold around the world, it’s not worth your time to invent it. We’d quickly get a number for how much Saran Wrap is sold around the world….Then, someone will raise a hand. ‘You’re just talking about food preparation. These thin films are used for insulation to cover houses.’ Hmm, that’s 100 times bigger than a hamburger…That’s how invention sessions go.”

OK, on to the other highlights from Ennis:

—On patent rights and reform: “Everyone’s whining about there’s too many patent lawsuits, which isn’t true if you look at the numbers,” he says. “You can make a case that stealing someone’s intellectual property is a really bad thing. A lot of patents, people didn’t know they were infringing. Part of the reason they don’t know they were infringing is they’re told not to look. When I was at AT&T in the old days, you were taught as an engineer not to look. Because if you looked, and then it turned out you were …Next Page »

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A federal appellate court agreed that San Diego’s Qualcomm (NASDAQ: QCOM) should be punished for hiding its work from industry groups developing a new video technology standard. But the three-judge panel ruled that a San Diego trial judge went a step too far by invalidating Qualcomm’s patents on the video compression technology it had concealed.

Qualcomm’s misconduct emerged in a January 2007 trial that was the culmination of a patent infringement lawsuit the San Diego wireless giant filed two years earlier against Broadcom (NASDAQ: BRCM), a rival chipmaker in Irvine, CA.

In its ruling yesterday, the U.S. Court of Appeals for the Federal Circuit upheld much of the punishment that San Diego federal Judge Rudi Brewster imposed on Qualcomm in his August 2007 opinion. The panel agreed, for example, that Qualcomm must pay Broadcom’s attorneys’ fees in the case, which totaled more than $8.5 million. Instead of stripping Qualcomm’s video patents, however, the appeals court said Qualcomm cannot assert its patents in connection with what’s known as the H.264 standard, an upgrade to MPEG 2 and MPEG 4 video technologies.

Perhaps more importantly, the appellate opinion clarifies the proper legal course that technology companies should follow in disclosing their internal technology development to standards setting organizations.

The appeals court agreed that Qualcomm was legally required to disclose its intellectual property rights as a participant in an industry group called the Joint Video Team that was developing a standard for video compression technology in 2003. That’s because a patent holder is in a position to “hold up” other participants in the group from implementing a new standard by claiming its patents take precedence. Instead, Qualcomm withheld the fact it had established two key patents in the area in 1995 and 1996.

Qualcomm then sprang its patent “ambush,” citing its key patents in a 2005 lawsuit filed against Broadcom. Throughout the case, Qualcomm and its lawyers insisted the company had not participated in the 2003 standard-setting meetings, which would have precluded the company from filing its suit. Broadcom lawyers uncovered emails during the trial, however, that showed Qualcomm had participated and its engineers were closely following the technical progress of the standards setting organization.

A federal magistrate in San Diego later sanctioned six lawyers representing Qualcomm for withholding tens of thousands of emails in a “monumental” violation of the legal rules for pre-trial discovery.

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A federal judge in Santa Ana ruled yesterday that San Diego’s Qualcomm is in contempt of an order he issued in December to prevent Qualcomm from infringing on two patents held by rival Broadcom of Irvine, CA.

The ruling is the latest salvo in a continuing legal battle that involves at least four lawsuits between the rival Southern California chipmakers over patents covering various chip designs.
In a statement issued this morning, Broadcom’s David Rosmann pounced on the implications of the ruling, saying, “This is the second time that Qualcomm has been found in contempt of the same federal court injunction.”

U.S. District Judge James Selna issued a similar contempt order in August, declaring there was “clear and convincing evidence” showing that Qualcomm had defied his Dec. 31 order.

In his statement, Rosmann, Broadcom’s vice president for intellectual property litigation, said provocatively that “Qualcomm’s ongoing contempt reflects a remarkable disregard for a system meant to protect intellectual property rights.”

But in his order, Selna notes that he did not impose monetary sanctions on Qualcomm “in light of remedial efforts” Qualcomm has undertaken. Just the same, Selna rejected Qualcomm’s continuing legal argument, which is that the company should only be held liable to pay royalties to Broadcom where Qualcomm’s patent-infringing chips were installed in a radio unit, i.e., a wireless phone. Selna says Qualcomm is liable for the chipsets, period.

The judge ordered Qualcomm to pay Broadcom its gross profits within 60 days on any infringing chips that cannot be recovered or destroyed. Selna also ordered Qualcomm to pay Broadcom’s attorneys fees in the matter.

The injunction Selna issued in December prohibits Qualcomm from making, using, selling, importing, and developing certain next-generation chips capable of operating on CDMA2000 and EV-DO networks. The injunction also provides a sunset period that allows Qualcomm to continue to sell legacy EV-DO chips to certain customers through January 31, 2009, provided that it pays a royalty to Broadcom.

In its statement today, Broadcom says Judge Selna found that Qualcomm violated both provisions of the injunction by selling and offering to sell the prohibited EV-DO chips and by failing to pay royalties on legacy EV-DO chips..

The dispute arises from an infringement suit that Broadcom filed against Qualcomm in 2005. A Santa Ana federal jury determined in 2007 that Qualcomm had infringed on three fundamental patents held by Broadcom and awarded $19.64 million in damages for past infringement.

Qualcomm has appealed that case and in a statement issued this afternoon, Qualcomm’s seems to take the defiant position that—despite the 2007 verdict—the company can’t be found in contempt if did not infringe on Broadcom’s patents.

“As the court recognized, the outcome of this issue turns on a legal question of whether there can be a violation of the court’s injunction in the absence of an infringement or acts leading to infringement,” Qualcomm said. “We respectfully disagree with the court’s conclusions. We are analyzing our options.”

In a separate ruling yesterday, Selna granted Qualcomm’s request to amend counterclaims it has filed against Broadcom in the case. And so the battle rages on.

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Qualcomm says the U.S. Court of Appeals in Washington D.C. has vacated a finding by the International Trade Commission that the San Diego wireless company induced other companies to infringe a Broadcom patent that helps reduce power consumption. The case is among several patent disputes between the two companies. A San Diego Union-Tribune report on the ruling says a 2006 U.S. Supreme Court decision has changed the standard for determining if patent infringement was induced.

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Overall, the news from Boston-area life sciences firms this past was not as much of a bummer as the first part of the headline might imply, but this first one isn’t great either…

—Cambridge, MA-based Idera Pharmaceuticals (NASDAQ:IDRA) reported that its experimental drug, IMO-2055, failed to have the desired effect on tumor size in a Phase 2 clinical trial among patients with a recurrent form of kidney cancer. Further studies will show whether the drug is effective in combination with other therapies.

—Ironwood Pharmaceuticals, a Cambridge, MA-based biotech whose irritable bowel syndrome treatment linaclotide is poised for Phase 3 clinical trials, raised $50 million from Morgan Stanley Investment Management, which led the deal, and many of its previous investors.

—Susan Froshauer, CEO of New Haven, CT-based Rib-X Pharmaceuticals, told Ryan about her seven-year-old firm’s platform for developing new antibiotics and about her plans to forge partnerships with pharma. Rib-X is testing its lead drug candidate, radezolid, head to head with Pfizer’s blockbuster linezolid.

—Shares of Cambridge, MA-based CombinatoRx (NASDAQ: CRXX) plummeted after the company reported that its lead drug candidate failed to reduce pain for patients with osteoarthritis of the knees in a mid-stage clinical trial.

—Luke visited with healthcare venture behemoth MPM Capital in Boston and learned about some of its most interesting recent investments, as well as its strategy for keeping its portfolio balanced between early stage innovation and firms with late-stage product candidates that promise short-term payoffs.

—Clarus Ventures of Cambridge, MA, led a $60 million Series D financing for Pittsboro, NC-based Biolex Therapeutics, which has a hepatitis C treatment in Phase 2 clinical trials. OrbiMed Advisors, Intersouth Partners, Quaker BioVentures, Johnson & Johnson Development Corporation, Investor Growth Capital, Polaris Ventures, Mitsui & Company, The Dow Chemical Company, JP Morgan Securities, the North Carolina Economic Development Fund, and others joined the deal.

—Billionaire philanthropist Hansjörg Wyss gave Harvard University $125 million–reportedly the largest gift in its history–to build a new institute for “biologically inspired engineering.”

—Cambridge, MA-based RNAi-based drug developer Alnylam (NASDAQ: ALNY) earned a $20 million milestone payment as part of an arrangement forged in May with Japan-based Takeda Pharmaceutical.

—The U.S. Supreme Court declined to hear an appeal from Boston Scientific (NYSE: BSX) of the $703 million verdict against the Natick, MA-based device maker in a patent-infringement case brought by Johnson & Johnson.

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We were lucky enough to have both Luke and Ryan in town for a couple of days this week, so there was a bumper crop of up-close, in depth stories on local life sciences firms. Enjoy!

—Luke caught a glance of Lexington, MA-based Pulmatrix as the startup emerged from stealth mode. Drawing on the expertise of co-founder Robert Langer of MIT and David Edwards of Harvard, and with backing from Polaris Venture Partners and 5AM Ventures, Pulmatrix is working on an aerosol-based technique for protecting the lungs from a host of bacteria and viruses.

—Ryan checked in with Christoph Westphal, CEO of Cambridge, MA-based Sirtris, which was acquired by pharmaceutical giant GlaxoSmithKline (NYSE: GSK) in June for $720 million. Westphal explained the steps Sitris is taking to retain its autonomy and its employees—chief among them Westphal himself.

—John Maraganore, CEO of Cambridge, MA-based RNAi pioneer Alnylam Pharmaceuticals (NASDAQ: ALNY), told Luke about a potential side effect of Massachusetts’ 10-year, $1 billion life sciences initiative. Because of a pre-existing IP agreement between the University of Massachusetts Medical School lab of Nobel Laureate Craig Mello and Worcester, MA-based RXi Pharmaceuticals (NASDAQ: RXII), Maraganore says, other companies (including Alnylam) could be blocked from getting a shot at licensing the discoveries funded by the state money. Alnylam has had “excellent conversations” with Susan Windham-Bannister, the newly hired CEO of the Massachusetts Life Sciences Center, on whose shoulders it will fall to clarify the IP implications of the new bill.

—Luke explored the strategy of Cambridge, MA-based Targanta Therapeutics (NASDAQ: TARG) in developing a single-shot version of its high-potency antibiotic oritavancin to challenge the likes of cubicin from Lexington, MA-based Cubist Pharmaceuticals (NASDAQ: CBST). The FDA expects to complete its review of what would be the first approved version of the drug—which requires a three-to-seven day course of treatment—by December 8.

—The U.S. District Court in Delaware ruled against Cambridge, MA-based Ariad Pharmaceuticals (NASDAQ: ARIA) in its patent lawsuit against Amgen, the world’s largest biotechnology company. Amgen’s Enbrel doesn’t infringe on Ariad’s patent on reducing NF-(kappa) B activity, the court said.

—Underwriters of a stock offering from Cambridge, MA-based Vertex Pharmaceuticals (NASDAQ: VRTX) exercised their over allotment option, bringing the overall size of the deal to 8.6 million shares worth a total of $220.0 million.

—Luke visited one-year-old Third Rock Ventures in Boston and learned all about the firm’s strategy of investing in unconventional approaches to disease and its “back-to-basics” approach to nurturing nascent companies. “In 20 to 30 years from now, we think we’ll be the fund you think of when you think of great life sciences venture funds. We think about pursuing big ideas and new frontiers,” said Third Rock co-founder Kevin Starr.

—U.S. Genomics, a developer of single-molecule technologies for biodefense and diagnostics in Woburn, MA, raised $4.5 million in private equity funding from, and formed a strategic partnership with, Becton, Dickinson & Co.

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It’s an impressive and even intimidating group. Two world-renowned professors, one from MIT, the other from Harvard Medical School; MIT itself; and the lawyers who won a $612 million settlement from Research in Motion, the Blackberry folks. They’ve joined forces in a patent lawsuit, filed without fanfare last week in federal court, against one of biotech’s pioneers: Santa Clara, CA-based Affymetrix. No dollar amount was named in the suit. But analysts and the plaintiffs, who are seeking treble damages, say the technology in question is vital to much of Affymetrix’s business—an indication that many millions of dollars are at stake.

What may also be at stake is a long-standing relationship that MIT has with Affymetrix (NASDAQ: AFFX)—a maker of microarrays and associated tools for analyzing genes—through the Broad Institute, a Cambridge, MA-based biomedical research institute jointly run by MIT and Harvard. The collaboration, focused in part on the very technology at the core of the patent suit, could put MIT in a bind—or at least create the appearance of a conflict—as the case progresses.

The named plaintiffs in the lawsuit, filed on July 1 in U.S. District Court in Massachusetts, are MIT and a newly formed company called E8 Pharmaceuticals. The firm is the brainchild of MIT biologist David Housman, a pioneer in forensic DNA analysis whose co-invention is at the nub of the litigation, and Richard Mulligan, a MacArthur Prize-winning biologist formerly at MIT and now at Harvard Medical School. (Mulligan, an Xconomist, serves on ImClone’s board and was nominated, but not elected, to Biogen Idec’s board as part of billionaire investor Carl Icahn’s attempted takeover of the company.) The plaintiffs’ lawyers are from Wiley Rein, the Washington, DC-based law firm that represented patent-holding company NTP in its infringement suit against RIM; that suit ended with in the BlackBerry firm settling in 2006 for $612 million.

At issue in the suit against Affymetrix is U.S. patent No. 6,703,228. In their complaint, E8 and MIT hail the technology covered by the patent as a pioneering discovery in genotyping and DNA analysis that “enables users to perform accurate, reproducible and cost-effective genetic analysis, using minute amounts of sample DNA and a small number of reactants to generate results that were previously impossible, even in specialized high throughput centers using many thousands of different reactants.” The patent was awarded to MIT in March 2004, with Housman and his group named as the inventors.

The lawsuit alleges that some of Affymetrix’s GeneChip (the firm’s trade name for microarray) products infringe the ‘228 patent, and that by selling these products Affymetrix is causing its customers to also infringe the patent. Neither Mulligan nor Housman would discuss the suit in detail, but they did explain to me that the products at issue are those designed for analyzing a certain type of genetic analysis, called SNP (pronounced “snip”) genotyping. “The issued patent, which is public record, describes the Affy SNP chip genotyping methodology,” says Housman. “It is what it is. Anyone who wants to compare the Affy SNP chip manual to the issued patent is welcome to do so. They are one and the same thing.”

There’s a history here. According to the complaint, in September of 2004, some six months after Housman’s patent was issued, Affymetrix filed its own U.S. patent application claiming the priority date of an earlier 1994 application. Then, in March 2005, Affymetrix added new claims that in effect “asserted the patentability of and ownership of the methods claimed in what is now the ‘228 patent.” An interference was initiated in April 2006 as the U.S. Patent and Trademark Office tried to sort out which group was first to develop the methods at issue, and on May 2, 2007—again according to the complaint–the PTO ruled “that the Housman group at M.I.T. was the first to invent the claimed methods and was therefore entitled to the patent.”

E8 and MIT allege that Affymetrix nevertheless kept on using the methods—and directed its customers to use them—in direct infringement of MIT’s patent. E8, meanwhile, now holds an exclusive license to the patent.

Housman and Mulligan are former MIT colleagues and longtime friends. Mulligan was not …Next Page »

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Electrics Cars Coming to America

Think, a Norwegian company that makes cars that run only on electricity, has opened a North American division and hopes to start-selling its autos in the U.S. in 2009, Business Week reports. The Think Ox is about the size of a Prius, runs for 125-155 miles per charge on rechargeable lithium ion batteries, and goes from 0 to 60 mph in 8.5 seconds. One wonders if the Ox name, presumably designed to evoke clean air, will have the same effect on sales that the Chevy Nova—”no go” in Spanish—legendarily had on sales in Latin America.

Changing MPG Standard Could Save Fuel

The way we think about fuel efficiency could be undermining our ability to actually figure out how much a car can save us in gas costs, researchers at Duke University suggest. New Scientist reports that a study found that people think doubling the miles per gallon of a compact car has the same effect on overall fuel consumption as doubling it in an SUV: that is, going from 10 to 20 mpg saves five gallons per 100 miles, while going from 25 to 50 mpg saves only two. The scientists want to flip the Environmental Protection Agency’s standard on its head, from miles per gallon to gallons per (100) miles, which they say would make the picture clearer

Big Business Wants a Climate Plan

Ninety-nine large businesses from all over the world, including ALCOA and Shell, want global leaders to get together on greenhouse-gas targets and an international carbon market, Bloomberg says. The statement, prepared by the World Economic Forum, was presented ahead of next month’s meeting of the Group of Eight industrialized nations. The U.S. has said it won’t agree to any binding targets unless China and India do also.

DARPA Not Underperforming, Director Says

Following on a report that the Department of Defense took away $32 million from the Defense Advanced Research Projects Agency because the agency was having a hard time allocating the funds, DARPA’s director says the Pentagon doesn’t understand how the agency works. According to Wired, director Tony Tether says there was unspent money because of his heightened supervision of projects. Some finished early, before all the money was spent, and some were cancelled because of poor performance, he says.

Court Debates the Meaning of “Infringement”

A federal judge may grant a mistrial in a file-sharing case after conceding he may have given the jury the wrong information about whether an action was a copyright infringement, Ars Technica reports. The judge had told the jury that merely making a copyrighted song available on a peer-to-peer network counted as infringement. But a friend-of-the-court brief from nine professors of copyright law argue that “making available” isn’t the same as “distributing” someone else’s property. The case could help define the line between stealing and fair use.

Heart Imaging Drugs Can Cause Death, FDA Warns

The continued use of certain drugs, known as contrast agents, to improve ultrasound images of the heart is leading to deaths, the Food and Drug Administration says. An AP story on Forbes.com reports that the FDA put out a warning in October, but since then has received four reports of patients dying after being injected with Definity, a drug formerly marketed by Bristol Myers Squibb. Researchers have been developing agents that are easier to see on ultrasound or MRI scans as a way to spot hard-to-find defects.

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Mine-detecting robots, Delorean-driving trade-secret-swiping engineers, dumpster-diving detectives. Ring any bells? When last we wrote about the iRobot-Robotic FX case, just before Christmas, Burlington, MA-based iRobot (NASDAQ: IRBT) was riding off into the sunset with a $286 million Army contract, a bunch of assets handed over by its vanquished Alsip, IL-based rival, and a promise that the firm’s founder, Jameel Ahed, wouldn’t set foot in the industry for five years.

We had been following the twists and turns of the case—and believe me, there were many—ever since last August, when iRobot filed suit against Robotic FX in two separate courts charging, essentially, that the Illinois firm’s Negotiator robot was a knock-off of iRobot’s PackBot and that Ahed—a former iRobot employee—had stolen key elements of the military robot’s design. To be perfectly honest, by the time the cases were settled in iRobot’s favor by consent decree, Bob, Wade, and I were all ready for a break from the espionage and legal wrangling—and the thousands of pages of court filings we had to pore through to piece together a story about which, understandably, few sources were willing to talk on the record.

But just because we had our fill of the story doesn’t mean it’s not still a page-turner. And for those of you looking to turn a more manageable number of pages than we did, the latest issue of Wired has a recap that’s well worth a gander. (And I’m not just saying that because its writer, Noah Shachtman, graciously credits the daily reporters who covered the story at the time, including Bob and Wade.)

Many of the details are familiar (and I’m not just saying that because in his gracious mention of Xconomy Shachtman included the guys but not me), but entertaining nonetheless. Shachtman recounts, for example, how Ahed was going head-to-head with his former employer in the “xBot” competition—the prize for which was the biggest-ever Army robot contract—while at the same time shredding evidence and playing laptop hide-and-seeks with the U.S. marshals sent to help enforce a temporary restraining order. (Despite the pending litigation, the Army would go on to initially award the contract to Robotic FX, which had bid just $6.1 million less than iRobot in the reverse-auction phase of the xBot process.)

Shachtman also sheds new light on a couple of the questions that nagged at us throughout the case: Why the Army was putting so many of its eggs in such a small, sketchy-seeming basket (Robotic FX was really just a handful of people working out of a basement under Ahed’s dad’s dental practice), and why Ahed thought he’d get away with appropriating iRobot designs and trashing evidence.

Shachtman explains that some military officials, including Ed Ward, the Marine colonel who oversaw the xBot competition, had long been fans of the Negotiator—particularly because it cost only a fraction of what iRobot was charging for the PackBot. He writes: “In meetings with robot makers, military officials liked to bring up the Negotiator—and its price. ‘They absolutely used it as a club against us,’ a former iRobot employee says. When the xBot competition came along, that club turned into a sledgehammer. The xBot specs essentially asked for a smaller, lighter, stripped-down PackBot—in other words, a Negotiator. The reverse auction put a premium on low cost. It was as if the specs had been written for Ahed.”

And Shachtman was able to track down (though not name) the defense contractor that had promised to buy Robotic FX and manufacture the thousands of robots it would take to fulfill the xBot contract if Ahed’s firm won it. (The firm teamed up with Robotic FX after what from Shachtman’s description sounds like were some less-than-subtle hints from Ward.) Though the contractor knew that iRobot would accuse Robotic FX of patent infringement, “We were prepared to spend hundreds of thousands to defend ourselves,” an executive for the firm told Shachtman.

As the dust was settling, iRobot said it spent some $2.9 million to litigate and settle its cases against Robotic FX. So in the end, it seems, smaller price tags lost all around.

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3Com of Marlborough, MA, said today that a federal jury in California awarded it $45.3 million in its patent infringement lawsuit against Realtek Semiconductor Corporation of Hsinchu, Taiwan.

3Com charged in the suit that Realtek’s network controller chips appropriated aspects of parallel processing technology 3Com developed for its own network interface devices. A jury in the U.S. District Court for the Northern District of California found that Realtek had infringed on four 3Com patents, three of them willingly.

The company said it is pursuing a larger award as part of a final judgment in the case. “We are extremely pleased that the jury has found in favor of 3Com in this important case and recognized the damage caused to 3Com by Realtek’s willful actions,” 3Com executive vice president and chief administrative and legal officer Neal Goldman said in a press release issued today. “3Com has a very broad portfolio of networking technology patents and an active licensing program. We will continue to aggressively protect our valuable patents against any and all infringements.”

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Repligen (NASDAQ: RGEN) of Waltham, MA, will collect $5 million from Bristol-Myers Squibb (NYSE: BMY) as part of the settlement, announced today, of a patent suit that the Massachusetts firm filed in 2006. Repligen will also collect royalties on BMS’s arthritis drug, Orencia, which Repligen and co-plaintiff the University of Michigan charged violated a patent owned by the university and the Navy and licensed exclusively to Repligen. All told, the royalties could be worth up to $117 million, according to a report in Mass High Tech.

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Harvard has taken a bit of a bashing over the years on the tech transfer front. After all, MIT, the champion of university technology transfer and licensing, is right down the river, and at least some business leaders and alumni feel the school should be doing more to match its neighbor in commercializing its pioneering research.

Isaac Kohlberg agrees—and he’s on it. Kohlberg, whose official title is senior associate provost and chief technology development officer, heads Harvard’s Office of Economic Development. In just two full years on the job, he has worked to overhaul almost everything about the office, from its staff to its organization. He’s helped grow industry-sponsored research for the university at a 70-percent annual rate or higher, and has put in place several changes—with more in the wings—to up the dollars Harvard takes in from royalties and licensing deals.

But, as you’ll see, the point of his actions isn’t simply to bring in dollars to an already flush institution. (Harvard’s endowment, at $35 billion and rising, is the nation’s largest.) It’s also about doing more to move Harvard innovations—chiefly in the medical arena—out into the world where they can help people in developing nations, and Kohlberg is willing to do royalty-free deals to bring that about.

“That’s a major piece of our strategy and our mission,” Kohlberg said of this loftier goal, which isn’t exactly common in technology licensing offices, when I visited him earlier this week at his Harvard Square office to learn more about his plans. Turns out, he has a lot of them—and in fact, he’s already set in motion far more than I had realized. It typically takes years for the seeds of tech transfer to bear fruit, so it’ll be a while before Harvard catches up to MIT in its tech transfer efforts. But it seems likely the gap will soon be narrowing, if it hasn’t already.

Kohlberg came to Harvard as a change agent in summer 2005 after turning around technology transfer activities at Tel Aviv University in Israel and building New York University’s efforts almost from scratch. But he says it was really his experience in Israel that shaped much of what he is doing at Harvard. Israeli research institutions, he says, pioneered tech transfer in the 1950s, back when there was really only one major effort at a U.S. university, the Wisconsin Alumni Research Foundation associated with the University of Wisconsin. (The blood thinner Warfarin, also known as Coumadin, was originally developed under the foundation’s sponsorship—and so was Vitamin D.) It wasn’t until 1980, when passage of the Bayh-Dole act allowed U.S. universities to keep the IP rights to technology spawned from federally funded research, that tech transfer efforts really took off in the U.S., he says.

Kohlberg was recruited to Harvard in 2005 by then president Larry Summers and current provost Steven Hyman. He got right to work overhauling operations, bringing two tech transfer offices—one at Harvard Medical School, and one on the main campus—into a single university-wide program. He then reoriented the entire professional staff, which had previously been focused on technology licensing, to full-blown business development. To that end, Kohlberg says, “We have hired a new team of directors of business development” whose job is to engage university faculty and outside firms to find, nurture, and develop research for commercialization, as well as to license existing technologies. And to symbolize this broader, more active mission, he changed the name of the organization itself—from the Office of Technology Licensing to the Office of Technology Development.

The office was reorganized according to areas of practice. Life sciences, the primary focus, has five full-time directors of business development, three based at the medical school in Boston and two in Cambridge. Kohlberg also set up a three-person engineering-materials-information technology team. Complementing them come a basketball squad-sized …Next Page »

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