Faced with a $55.8 million damage judgment in a patent infringement case, a small Los Angeles company has agreed instead to turn over one of its largest divisions to the winner of the case, pharmaceutical and chemical giant Pfizer Inc.
Ironically, however, the company, International Rectifier Corp., will be allowed to continue producing and selling the disputed product, an antibiotic known as doxycyclin, because Pfizer's patent on the drug expired last year.
The damage judgment, handed down yesterday by a federal district judge in Los Angeles, was the largest ever awarded in a litigated patent-infringement case.
But it would have financially strapped International Rectifier, which had sales last year of $119 million. Instead, in an unusual settlement, the company will give up to Pfizer its animal health and feed-additives division, which had sales of about $30 million last year.
"There is no $55 million in cash on our balance sheet," a spokesman for International Rectifer said. "It is a tremendous solution that I think will greatly enhance our cash flow." He said the deal also removes a capital-intensive and "marginally profitable" business from International Rectifier, allowing the company to concentrate on its equally-capital-intensive but more profitable semiconducter business.
Pfizer said in a statement that it believes the settlement, which is subject to approval from government antitrust regulators, is "the maximum recovery Pfizer could expect from International Rectifier given International Rectifier's financial condition."
The case dates to 1973, when International Rectifier's Rachelle Laboratories introduced its version of doxycyclin. Pfizer, which sold the product under the trade name Vibramycin, immediately sued, charging patent infringement. U.S. District Judge Martin Pence decided for Pfizer in 1980. International Rectifer lost an appeal last year, and the companies went back to court last winter for a hearing on damages, with Pfizer asking for more than $100 million.
After that hearing ended in January, the two companies began negotiating a settlement, "knowing that a large judgment was likely," Pfizer said. That settlement was the one announced yesterday after Judge Martin handed down the $55.8 million damage award.
Barring antitrust interference from the Federal Trade Commission or the Justice Department, Pfizer will acquire on Aug. 1 the operations of Rachelle that make a variety of products involved in the care and feeding of animals. A Pfizer spokesman said the businesses fit well with Pfizer's other agricultural-products operations.
International Rectifier had been considering selling the animal health business anyway, and might have had to if forced to raise cash to pay damages to Pfizer, the spokesman for the Los Angeles company said,
The remaining part of Rachelle Laboratories will account for about 10 percent of International Rectifier's total sales. Most of that will come from doxycyclin. Although it was barred by the court from selling the drug after Pfizer won the patent infringement case in 1980, Rachelle put the product back on the market last fall after Pfizer's patent expired.
As a result of the settlement, International Rectifier will take a net write-off of approximately $11 million on the operations in the year ended June 30, the spokesman said. Although International Rectifier has not yet made public its full-year financial figures, the company had losses of $$3.3 million on revenue of $94.5 million in the first nine months of its fiscal year.