In Washington, the U.S.
Supreme Court ruled in Gevo’s (NASD: GEVO)
favor and overturned an earlier Federal Circuit Court of Appeals
ruling on the interpretation of key patent claims.
On April 11, 2013, the Delaware District Court (District Court)
entered a final judgment of non-infringement in Gevo’s favor
following the acknowledgment by Butamax Advanced Biofuels LLC
(Butamax) that Gevo does not infringe Butamax’s asserted patents
under the District Court’s construction of a key claim term in
Butamax’s Patent Nos. 7,851,188 and 7,993,889.
At the time, Butamax appealed Gevo’s victory, and a US Court of
Appeals in February 2014 vacated the District Court’s prior
rulings, and ordered the District Court to reconsider issues
related to infringement and invalidity.
In turn, Gevo asked the Supreme Court to vacate the Appeals
Court’s de novo nterpretation of a disputed claim term.
Today, the Supreme Court granted Gevo’s petition and vacated the
decision of the Appeals Court.
According to Gevo:
“The result is that Gevo’s
victory in the Delaware District Court is reinstated, and that
the case has been remanded back to the Appeals Court for
consideration in light of the new standard of appellate review
that was decided in the Teva Pharmaceuticals USA, Inc., v.
Sandoz, Inc. (Teva) case last week.”
In Teva, the Supreme Court ruled 7-2 that the Appeals Court must
apply a more stringent “clear error” standard of review, rather
than a “de novo” standard of review. In Gevo’s case, the Appeals
Court must now apply the “clear error” standard of review and
cannot set aside the Delaware District Court’s (District Court)
findings of fact in Gevo’s favor (including interpretation of
patent claims) unless they were clearly erroneous.
And you might wonder, what has this to do with the advanced
bioeconomy and, in particular, the world of fuels and chemicals.
Turns out, a lot, particularly in the ongoing dispute between
Gevo and DuPont over intellectual property used to convert sugars
into isobutanol, a higher-density alcohol fuel that has immense
promise in circumventing the “blend wall” that bedevils renewable
fuels deployment. Not to mention isobutanol’s potential as a
Here’s the essence of the case. Teva holds a bunch of patens,
which it sued Sandoz over, claiming infrigement. It won a
judgement in District Court, but lost in the Court of Appeals when
the appellate judges threw out some key elements relating to
Teva’s case and the patent claim construction and conducted it’s
own “de novo” review, leading it to side with Sandoz.
Now, claim construction is a matter of law and is subject to
appelate review — but what about certain key elements that
underlie a claim construction? Are they a matter of law and
subject to higher review — or are they facts which are tried in a
lower court (either by judge or jury), not subject to review?
One of the most perplexing questions has been the reasonableness
of a patent claim — would someone skilled in the art understand
the claim as written? Is that a fact, not subject to apelate
review once found by the lower court or jury — or is that a matter
Well, the Supreme Court has ruled now. Those underlying elements
— they are facts. Not subject to de novo review by a Court of
Appeal. Meaning that biotech companies, once they have faced their
jury or judge on those facts, doesn’t have to worry that a Court
of Appeal might conduct a top-to-bottom wholly new review and
perhaps, without the benefit of expert witnesses, go another way.
The Supreme Court’s decision effectively reinstates Gevo’s
victory at the District Court where a final judgment of
non-infringement was entered in Gevo’s favor following the
acknowledgment by Butamax Advanced Biofuels LLC (Butamax) that
Gevo does not infringe Butamax’s Patent Nos. 7,851,188 and
Gevo and Butamax fell into the Teva orbit last February, when the
U.S. Court of Appeals, in a patent case involving Butamax’s Patent
Nos. 7,851,188 (‘188 Patent) and 7,993,889 (‘889 Patent). The
appeals court offered a new interpretation of a disputed claim
Gevo writes, “On remand, two issues remain to be determined: 1)
whether the patents are valid; and 2) whether Gevo infringes them
under the new claim interpretation. The claims of the two Butamax
patents at issue are currently under reexamination at the United
States Patent and Trademark Office (USPTO), which has declared
them unpatentable. Gevo believes that it does not infringe any
valid claims, and at this time maintains freedom to produce and
sell isobutanol worldwide and into all markets. “
In a filing for Supreme Court review, Gevo wrote:
“Indefiniteness calls into
question additional considerations of whether a claim is
‘insolubly ambiguous, Here the dispute is plainly and cleanly an
issue only of the proper construction of the disputed term.”
It comes down to whether an
enzyme known as KARI is dependent on a co-enzyme. If yes, then
Gevo is in the clear. If not, then it could be found in
violation of a Butamax patent. The District Court ruled yes, the
Court of Appeals ruled no. Gevo said the Court of Appeals should
not have conducted such a broad de novo review.
“In this case, the district court
conducted a painstaking claim construction, carefully reviewing
voluminous evidence and testimony presented by the parties,
including detailed expert declarations, and held multiple days
of hearings. The Federal Circuit gave no deference to those
findings when it reviewed the district court’s construction de
novo, and issued a new construction that changed the outcome of
The Supreme Court’s docket for the case can
be found here.
was originally published.
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To this day, an estimated 1.3 billion people do not have access to electricity. That is over a billion people who struggle to refrigerate their food and medicine, study at night to further their education, or charge their mobile phones.
by Debra Fiakas CFA
The last time renewable
chemicals developer Gevo (GEVO:
Nasdaq) was featured in this forum in August 2014, the stock was
looking quite oversold around $0.50 per share. The stock had
recently taken a tumble after management sold 30 million shares of
the company’s common stock at $0.60 a share at the end of July
2014. The plan was to use the $19 million in new capital to
upgrade a production plant in Minnesota to better produce renewable
isobutanol along with ethanol fuel.
Isobutanol is a popular solvent used widely in industrial
applications. It is most commonly produced from by-products of
refined crude oil and users are keen to get their hands on renewable
sources to reduce their carbon footprints. At the time
Gevo out raising capital the company was aiming to get to a goal of
one million gallons in annual isobutanol production by the end of
2014, and then ramping to three million gallons in annual production
in 2015. The plant in Minnesota had already been producing eighteen
million gallons of ethanol each year.
Today GEVO appears even more oversold, having slipped to $0.29 per
share. Directly after the common stock sales, the company raised
another $26.1 million through the sale of a note to single
creditor. By the end of September 2014, only $14.0 million in
cash remained. If Gevo continued using cash to support
operations and capital spending at the same rate it had been
spending in the first nine months of the year, I estimate they used
another $11.0 million in cash by the end of December 2014.
If I am correct in my back of the envelope bank account balance,
things cannot be very comfortable at Gevo. The company is
still not selling either its ethanol fuel or isobutanol in bulk
despite new customer relationships such as Brenntag Canada, which is
buying Gevo’s renewable isobutanol for use in a range of solvents
and specialty chemicals. There are apparently no minimum
purchase commitments and the company was tight lipped about order
quantities except to say the orders can be filled with ‘truckloads’
Last week Gevo management issued a press release detailing its plans
to improve cash flow at the company. There will be a headcount
reduction by 40%. That will eventually save some hard cash in
the coming quarters. Gevo’s CEO is taking 25% of his pay in
stock rather than cash, a move which in the end is probably more
symbolic than anything.
Of course, the press release is also embroidered with the usual
Gevo-style promises of new technologies to use ethanol for various
end-products. As part of the plan to save in operations, the
company is planning to shift to ethanol-only production in all four
of the fermenters in its Laverne, Minnesota plant. Here is
apparently where the new technologies figure into the picture.
The company claims to have already filed patent applications to
cover new technologies for the use of ethanol as feed stock for
hydrocarbons, renewable hydrogen and other chemical
intermediates. Gevo appears poised to capitalize on the dearth
of renewable hydrogen for fuel cells and renewable polyprolylene for
packaging and automotive components.
The CFO claims they can bring the monthly use of cash for operations
down to $1.5 million to $1.8 million, compared to $2.8 million in
2014. This figure of $2.8 million per month in cash usage in
2014, differs from my calculation of $3.6 million in cash usage
noted in the paragraph above because I was using cash flow from
operations in the first nine months of 2014 as my gauge of how much
cash the company was spending each month to keep the doors open.
When Gevo was out raising new capital in the summer of 2014,
management had promised to achieve breakeven by the end of the
year. That goal may not have been realized. However in
the recent company update, management lays claim to having reached
its production goal for isobutanol of 75,000 gallons per
month. Now that seems to be a bit short of the one million
annual product capacity as that implies 83,333 gallons per
month. Most investors will probably not quibble over the 8,000
gallon shortfall if the company could produce more sales – even
sales by the truckload!
GEVO still looks more like a lottery ticket than a stock as we noted
in our last article on the company. What is worse, the balance
sheet now looks stressed. The company has let a number of
people go and along with them they have probably lost some important
process knowledge that at times can be even more vital for a company
than its patented technologies.
Debra Fiakas is the Managing Director of Crystal Equity
Research, an alternative
research resource on small capitalization companies in selected
Neither the author of the Small Cap
Strategist web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein.
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