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Bitter Dispute over Trade Secrets Ends Partnership

Photonics Spectra
Oct 1999
Robert C. Pini

RICHMOND, British Columbia, Canada -- Xillix Technologies Inc. has filed in Tokyo for arbitration of a dispute with its former partner, Olympus Optical Co. Ltd. of Tokyo. Xillix, a developer of fluorescence-based endoscopy systems used to detect early lung and gastrointestinal cancers, is seeking damages and other remedies.

"We're seeking a significant amount of money and to clear up the issues around intellectual property," said Pierre LeDuc, president and CEO of Xillix. The company alleges that Olympus was secretly filing patents based on trade secrets obtained through their product development partnership.

The original agreement in 1994 provided Olympus with the worldwide marketing rights to Xillix technology. Olympus, a global optical and imaging company, has a 70 percent share of the international endoscopy market. The agreement was expanded in 1997 to include the development of technology. According to Xillix, Olympus provided financing and received marketing rights.

But Xillix discovered that Olympus had filed and been granted a US patent covering technology in the same area. Olympus has a similar patent pending in Japan. Although the two companies consulted regularly on product development, Xillix contends that patents for Olympus were never part of the deal.

A big blow

Meanwhile, Xillix announced it is laying off about 80 percent of its staff to preserve capital. The split leaves the company, which reported revenue of $7 million over the last year, without a marketing channel. Xillix will also halt further development on its subsequent-generation devices that promised white-light and fluorescence testing integrated into a more flexible endoscopic system for about $100,000.

LeDuc said it was extremely difficult to dissolve the core of employees that had developed the technology, including engineers, technologists and clinicians. Before the partnership unraveled, Olympus had sold 130 of the first-generation systems since they came on the market in 1993.

LeDuc said that first-generation sales of the $185,000 device fell within projected levels. He estimated a large potential market for the instruments, pointing to the $3 billion market for white-light-based instruments that are used in the diagnosis of gastrointestinal disorders.

Xillix claims the fluorescence technology has been clinically proved to be 171 percent better than white light. "We were the only people in fluorescence [with] a product out," he said. Pentax is expected to launch a similar system.


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