Federal Judge Dismisses Securities Fraud Class Action Over Patent Fight

Federal Judge Dismisses Securities Fraud Class Action Over Patent Fight - 3-5-2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

DISMISSAL NEWS:

Federal Judge Dismisses Securities Fraud Class Action Over Patent Fight
Zusha Elinson

http://www.law.com. March 5, 2009
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EXCERPT: A defunct San Francisco purveyor of invisible braces didn't hoodwink investors about its chances in a bet-the-company patent case, a federal judge ruled Friday.OrthoClear Inc. settled a patent case with Align Technology Inc. in 2006, agreeing to shut down its business in exchange for $20 million. But a cadre of angry orthodontists who'd invested in the company sued OrthoClear and its executives for misleadingly assuring them that Align's patent suit had no merit. U.S. District Judge Jeffrey White dismissed the class action once and for all, ruling that OrthoClear, a private company, had warned its investors about the risks of the litigation with Align. White cited a disclaimer sent to investors, stating that a negative result in the Align case could "have a substantial adverse effect on the company and on any investment in the shares." He also ruled that the OrthoClear execs didn't make intentionally misleading statements about the litigation. "It's not a violation of securities laws to be wrong about how a litigation is going to turn out," said Charles "Chip" Rice, a Shartsis Friese lawyer who represented OrthoClear along with Arthur Shartsis. Alan Sparer, of the Sparer Law Group in San Francisco, said the investing orthodontists he represents will appeal the final dismissal. "Obviously since they're boilerplate disclosures, it's not sufficient when you've also said there's no real issue," Sparer said. "You can't do both and claim you're protected." Even though patent cases can make or -- as in this case -- break a company, there are relatively few securities fraud cases filed because of negative trial outcomes. Securities litigators say that's because most everything about litigation is already out in the public, making it difficult to prove that the company is intentionally misleading investors.

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