The great algae flour fight: Solazyme wins again

Jim Lane

 

After the bizarre attempted heist detailed in The Great Algae Robbery, Roquette tries the US courts but comes up short, in its quest to get a hold of Solazyme’s (SZYM) algae tech.

On a slow news day just before Christmas, those of us on the industrial biotechnology beat have no need to stop by the firehouse to ask if there is a breaking story to report, because we always have the lively docket of Judge Sue Robinson, Federal District Judge for the District of Delaware.

This Christmas she did not fail us, for in our Christmas news stocking is a judgment for Solazyme and against Roquette, confirming an earlier arbitration award we covered last February in The Great Algae Robbery, here. Fans of lively intellectual property disputes will long remember another case in the Robinson files — the dispute between Gevo (GEVO) and Butamax over isobutanol IP which we compared to the saga of the Montagues and the Capulets as detailed in Romeo and Juliet.

The ruling

First, the news. Just before Christmas, Robinson ruled that “the court confirms the Award. More specifically, the court grants Solazyme’s motion for an order to confirm the Award and denies Roquette’s motion for an order to vacate the Award, as well as Roquette’s motions for summary judgment as to its declaratory judgment actions. Judgment shall be entered accordingly.”

The background

For those who have not yet read The Great Algae Robbery, the case revolved around the use of Solazyme’s intellectual property to create high lipid algal flour and an algal protein with attractive nutritional characteristics.

As we noted then:

“Think about the world “diabesity” crisis, an ominous combination of diabetes and obesity that is threatening to cause ballooning medical bills and shortened average life spans. The culprit? An excessive intake of carbohydrates, mostly, especially in the developing world. And especially from carbohydrate-rich bread and carb-loaded flour. And while there were many good healthy food choices available, not many of them tasted so good.

How do you get a good flavor, but with healthy fats (instead of transfats, for instance) and other nutritional benefits? That was the challenge. The company that could come up with a healthy and palatable flour — many saw a route to riches.”

Herein lay the promise of the Solazyme technology, which was contributed to a joint venture with Roquette Freres, called Solazyme Roquette Nutritionals. When the JV dissolved in 2013, arbitration was invoked to determine who owned what of the intellectual property.

In early 2015, arbitrators ruled comprehensively in favor of Solazyme, including ownership of “[a]ll Roquette patent applications filed on or after November 3, 2010 relating to microalgal foods, microalgal food ingredients, and microalgal nutritionals, as well as all methods relating to making and using the same, including but not limited to those” patents listed by the Panel. This, after the arbitrators determined tat Roquette had been secretly filing duplicate patent apps on the (then) SNR intellectual property, only filing for them as Roquette and omitting Solazyme’s ownership interest.

At which point, Roquette headed for Federal District court to overturn the arbitration ruling. Not an easy undertaking, as under the Federal Arbitration Act, a court’s role Under the Act, Judge Robinson noted that “a court’s function in reviewing a commercial arbitration award is “narrow in the extreme” and is “extremely deferential.”

I’m Not Dead Yet

For comic value and the sheer inventiveness of the Roquette legal team’s arguments, we have to look beyond the medieval traditions of Romeo and Juliet and the Montagues and the Capulets that we saw in the Gevo-Butamax dispute. Instead, we might look to Monty Python and the Holy Grail, where the Black Knight just can’t quite give up the fight against King Arthur even after all four of his limbs have been hacked off, shouting “Running away eh? You yellow bastard, Come back here and take what’s coming to you. I’ll bite your legs off!”

One of the Roquette team’s premises for overturning the arbitration ruling was so novel that Judge Robinson noted that there was “There is no case law directly on point.” The theory? Roquette challenges the Award as being so broad as to “curtail Roquette’s ability to compete in the manufacture or sale” of all microalgal food products, in effect granting Solazyme monopoly power in the microalgal food market and violating the public policy against monopolization.”

Solazyme, not surprisingly objected on the grounds that there is “no authority which stands for the proposition that a commercial arbitration award may be vacated on public policy grounds.” Solazyme goes on to point out that the “breadth of the relief awarded by the Panel is due to Roquette’s own failure to comply with the discovery ordered by the Panel; i.e., “[b]because Roquette refused to provide any discovery, the Panel was left with no way to delineate between the patent applications to which Solazyme was entitled (because they represented improvements to the intellectual property Solazyme contributed to SRN) and any patent applications that Roquette was entitled to retain.”

Monopoly vs patent

The idea that a limited-time monopoly on intellectual property — known as a patent — is forbidden under US law on public policy grounds that they create illegal monopolies is indeed a novel one. The framers of the Constitution may have thought that they dealt with this issue in Article I, Section 8, where they protected exclusive rights for inventions: “The Congress shall have Power To…promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries….”

Monopolies, by definition, are markets controlled by a single actor — or, a group of shareholders acting as one. In this particular case, nothing prevents a patent-holder such as Solazyme from licensing its whole algal flour to 10,000 companies and creating a vibrant market for algal flour that has nothing to do with a monopoly. Zillions of technologies are widely licensed within highly competitive markets without destroying them.

We might add that the original agreement for Solazyme Roquette Nutritionals provided for the possibility that the company’s intellectual property could be licensed to third parties (should the SNR board, Roquette and Solazyme approve of it). Even 10,000 of them. It’s right here in Article 11.

Judge Robinson dispatched the whole idea into the dustbin of legal theory, thus:

“It is not surprising that Roquette’s public policy argument has either not been presented or has not prevailed in the context at bar, when commercial arbitration awards are reviewed with great deference and patents constitute exceptions to the general rule against monopolies. The court declines to create case law out of whole cloth under the circumstances at bar.”

In short, the novelty in this case is going to be firmly fixed around the know-how of making high lipid algal flour and algal protein.

Algility — the most innovative ingredient of the year.

You can buy it today. Algility that is, a Roquette product based on the SNR patents which have been awarded to Solazyme in arbitration and now confirmed in US District Court. Transformative for diets and the corporate fortunes of their makers — it is not hard to guess why the Food Ingredients “Europe Excellence Awards” for 2013 gave the nod to Algility as “the most innovative ingredient” of the year. And no surprise that Roquette values the patents and Solazyme wants them back. The products are very cool. Here’s a quick look.

Hello, Court of Appeals

With that kind of product appeal, we’ll be mighty surprised to read of anything less than a Roquette filing in the United States Court of Appeals for the Third Circuit to overturn the district court ruling. The Black Knight never gave up in Monty Python and the Holy Grail, and it looks like we’ll see a similar story arc with Roquette.

Roquette’s chances of success? We’ll offer them one thin line of gruel. In her ruling, Judge Robinson writes on page 13:

The court concludes that the Panel did not exceed its authority in reviewing the MTA in connection with its task of determining whether improvements were made to Solazyme’s intellectual property, pursuant to § 21.1 ( c)(i) of the JVOA, as the MTA shed light on that issue.

But then she writes on page 15:

Although the court has concluded that the Panel exceeded its authority by substantively reviewing the MTA and finding a breach thereof, it is not clear whether the Panel exacerbated that conduct by using the breach as a basis for the broad relief granted to Solazyme, and/or whether the relief itself is so broad as to be outside the scope contemplated by the JVOA.

Did the Panel exceed its authority or not? We’re left to wonder.

On the other hand, it probably doesn’t matter. Judge Robinson conclusively ruled that, even if it had exceeded its authority, the arbitration panel did not “base the Award (to any determined extent) on the breach of the MTA.” So, some inconsistency in the working of the ruling may not spell much relief for Roquette. But we’ll look forward to their appeal with the excitement usually reserved for the arrival of a new landmark Hollywood comedy.

The good news: powerful battles speak to powerful value

We are encouraged — as we were with the Gevo-Butamax case — in only one respect. The tussle of the parents over the custody of their offspring can be taken as a general indication of how powerful the technology will prove to be.

You see, no one argues over ownership of valueless inventions. Losers are consigned to the Land of Misfit Toys along with the train with square wheels, polka-dotted elephants, and Charlie-in-the-Box.

In this case, we have had some two years of expensive squabbling in the courts and arbitration halls over this one. The one parent shouts for “joint custody”. The other parent is shouting that the kid predates the marriage. It’s material that usually features a combination of Jenners and Kardashians and is related in the pages of The National Enquirer.

But instead of the Kardashians, we have Solazyme, Roquette, and a Memorandum Opinion of the US District Court. So, the discussion may be a tad more technical, and the kid in question may be a single-celled wonder organism instead of a batch of celebrity children.

What will happen to the flour?

So far, the arbitration panel and the US District Court could have not been more emphatic that what is being marketed as Roquette’s algility whole algal flour and algae protein is based entirely on Solazyme’s intellectual property. Whether Roquette will ultimately license the IP from Solazyme, or some other commercial arrangements will appear — that’s remains unclear.

But we’ll not forget for some time the theory that you can’t grant an inventor the right to his or her patent on the grounds that it would lead to a breach on public policy regarding monopolization. As innovative as Solazyme’s technology in the area is, or might become — nothing will challenge that laugher for sheer inventiveness for a long, long time to come.

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