Star Scientific Silent on Tobacco Patent Settlement

GLEN ALLEN, Va. (TheStreet) -- Star Scientific (STSI) remains mum on the financial terms of a Sept. 24 settlement with R.J. Reynolds Tobacco in their long-fought patent infringement case.

It's been 10 days since the settlement. You'd think the company would be shouting from the mountaintop had R.J. Reynolds, a division of Reynolds American (RAI) agreed to fork over a substantial cash penalty and ongoing royalties on future tobacco sales.

Perhaps Star Scientific won nothing from the settlement? That would be a big disappointment for bulls. They've speculated for months that hundreds of millions of dollars, perhaps as much as $1 billion, might flow from R.J. Reynolds' deep pockets into Star Scientifics' bank account.

Star Scientific closed Wednesday at $3.23 per share. Much of Star Scientific's $470 million market capitalization is tied to expectations for a lucrative financial settlement with R.J. Reynolds. Sales of the company's Anatabloc dietary supplement totaled just $2.7 million in the first six months of the year. Star Scientific is not profitable.

A Star Scientific spokeswoman did not return a phone call seeking comment but the company has reportedly told some shareholders privately that a confidentiality agreement covers the R.J. Reynolds settlement. How any confidentiality agreement could usurp SEC regulations regarding the disclosure of information material to the company and investors isn't clear.

Star Scientific has not yet filed an 8-K disclosing the settlement agreement with R.J. Reynolds. The company is expected to file its next 10-Q covering the third quarter in November.

An order of stipulated dismissal was filed with the U.S. District Court for the District of Mayland on Sept. 24. According to the court document, Star Scientific and R.J. Reynolds Tobacco "reached a settlement" in the case. Both parties agreed to dismiss all claims and counterclaims with prejudice, and neither party acknowledged liability.

Star Scientific sued R.J. Reynolds for violating patents covering a tobacco curing technology. The case has wound through multiple courts, decisions and appeals by both sides, ultimately landing at the doorstep of the Supreme Court, where R.J. Reynolds was seeking to invalidate Star Scientific's patents.

The Sept. 24 settlement was reached before the Supreme Court announced whether it would consider R.J. Reynold's appeal.

-- Reported by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.