A lot of people – more than one million – who needed their teeth straightened have opted in the last decade for a clear, removable orthodontic device sold by Align Technology (Santa Clara, California) rather than the old-style wire braces.

But Align's hot-selling orthodontic device, Invisalign, has been the subject of a patent dispute brought on by Ormco (Orange, California), a subsidiary of Danaher (Washington), which claimed that Invisalign infringed on a key Ormco patent.

On Monday, the companies reported a settlement agreement in which Align will make a cash payment of about $13 million to Ormco and issue approximately 7.6 million shares of Align's common stock to Danaher that's equal to a 10% ownership interest in Align. Based on the closing price of Align's stock on Friday, the value of those shares is approximately $77 million.

Align and Ormco not only settled their intellectual property dispute, but they also agreed to join forces in a seven-year collaboration to develop and market an orthodontic product that combines the Invisalign system with Ormco's Insignia orthodontic brackets and arch wires system to treat the most complex orthodontic cases. Both companies will retain ownership of pre-existing intellectual property, and each will be granted licenses in for the jointly-developed combination products.

"We are pleased to resolve this ongoing litigation with Ormco and to begin a new relationship that meets our shared goals of providing innovative products and excellent service to our orthodontic customers," Thomas Prescott, Align Technology president/CEO, said in a statement. "This collaboration with Ormco, a fellow innovator in digital orthodontics, gives us the ability to compete for a segment of the market that is difficult to treat with Invisalign alone, and accelerates our long-term plan for a combination product."

In June, a jury in the U.S. District Court for the Central District of California ruled that the Invisalign system infringed on Ormco's 6,616,444 patent. Align claimed non-infringement, invalidity, as well as unenforceability of the patent. That verdict gave Ormco the right to block sales of Invisalign and demand a royalty on all U.S. sales of the Invisalign aligners since January 2003. At the time, Align said it would seek to overturn the verdict and appeal to a higher court (MDD, June 29, 2009).

That jury, however, only determined liability. Any monetary damages were to be determined in a later trial sometime in 2010.

Apparently both parties preferred to settle the dispute rather than pushing it into another year and more court review.

The issuance of a portion of the shares is subject to clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

According to documents filed with the SEC, the following terms of the deal apply:

Ormco will release all past claims asserted by it against Align based upon Ormco's U.S. Patent Number 6,616,444 ('444 patent). Ormco agreed not to assert against Align any claim of infringement based upon the patent as a result of Align's activities relating to removable aligners.

Align will release any and all past and future claims that claims 37, 38, 39, 40, and 69 of the patent are not infringed by Align, that claims 37, 38, 39, 40, 45 and 69 of the patent are invalid, and that the '444 patent is unenforceable. Align waived any right to appeal from or contest any of the findings, judgments, rulings or orders made by the court in the litigation.

A covenant by Align will not, anywhere in the world, initiate or cause to be initiated against Ormco any claim of infringement of any patent owned or controlled by Align that is existing as of August 16, 2009, or that issues from any patent application having a filing date, or claiming priority to any patent application having a filing date, no later than August 16, 2009, for any activities relating to those products being manufactured and/or sold by Ormco, including any enhancements to those products. That's provided those removable aligner products are created without using a computer or other digital means to create the physical model of the teeth on which the aligners are formed.

Align also agreed that, on Danaher's request, Align would file a shelf registration statement after August 16, 2010 covering the public resale of all shares subject to certain conditions.

Representatives from both companies did not return calls from Medical Device Daily for an interview.

Lynn Yoffee, 770-361-4789; lynn.yoffee@ahcmedia.com