Star Scientific: No Mention of Big Cash Payment in RJR Earnings Report (Update)

Update: Reynolds American's 10-Q confirms a $5 million payment to Star Scientific as part of the patent litigation settlement:

"On September 26, 2012, RJR Tobacco paid Star $5 million pursuant to a confidential settlement agreement resolving Star I and Star II. RJR Tobacco withdrew its Supreme Court petition in Star I on September 21, 2012, and Star I and Star II were dismissed with prejudice on September 24, 2012."

GLEN ALLEN, Va. (TheStreet) -- Reynolds American (RAI) announced third-quarter earnings Tuesday absent a big cash payment to Star Scientific (STSI).

Star Scientific shares fell 8% to $3.05 in early trading.

The long-fought patent infringement case between Star Scientific and R.J. Reynolds, a division of Reynolds American, was settled on Sept. 24, but neither side has disclosed financial terms. Much of Star Scientific's $430 million market capitalization, however, is tied to expectations that R.J. Reynolds would be forced to pay hundreds of millions of dollars plus ongoing royalties on future tobacco sales.

On Tuesday, R.J. Reynolds said it was took a $5 million charge against operating income in the third quarter related to "other tobacco-related litigation." The company did specify if this charge related to the Star Scientific settlement.

An R.J. Reynolds spokesperson did not return a phone call seeking comment.

Any significant payment from R.J. Reynolds to Star Scientific would have been material and therefore likely disclosed in Tuesday's earning report. More details may be forthcoming when R.J. Reynolds files its 10-Q for the third quarter.

Star Scientific has said nothing about the financial terms of its R..J. Reynolds settlement.

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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