Chiron Corporation announced that it has reached a settlement with F Hoffmann-La Roche (Roche) in a dispute over licensing fees and royalties that Chiron had asserted was owed to the company under a licensing agreement related to its US Patent No. 6,531,276 (the "276 Patent"). The patent, which was issued in the United States in March 2003, is directed to nucleic acid testing (NAT) methods for HIV.

Under the terms of the settlement agreement, which covers clinical diagnostics and blood screening, Roche irrevocably stipulates to the validity and enforceability of the patent. In addition, Chiron will retain all funds paid by Roche while the matter was in dispute. Chiron will also receive a lump-sum payment of $78 million in lieu of royalties beyond January 1, 2005.

Roche may elect under the terms of the agreement to obtain a partial refund and revert to paying royalties on the sales of its products in North America, a company release said.

The amount of such potential refund (initially $64 million) and the royalty rate that would be applicable (between 19 per cent and 11 per cent) depend on when any such election is made. The refund available and the applicable royalty rate each decrease in equal quarterly increments over the eight quarters of 2005 and 2006. As such, Chiron expects to recognize $64 million of the payment as revenue over those eight quarters. The remaining $14 million is non-refundable and will be recognized as revenue in the third quarter of 2004.

This settlement agreement leaves unaffected royalties that Chiron already receives for its HIV technology from Roche and other licensees under Chiron's ex-US patents. In November 2003, Chiron initiated an arbitration against Roche pursuant to the rules of the CPR Institute for Dispute Resolution. The arbitration was held in June 2004. The agreement between the companies concludes the arbitration process, the release added.

"This settlement attests to the strength of Chiron's intellectual property position," Ursula Bartels, Chiron's general counsel said adding, "Because of Chiron's pioneering science, many people around the world are more protected from infection by HIV and other life-threatening viruses. The terms of this agreement recognize the value of our HIV technology and the validity of our US patent."