Nanotechnology Now - Press Release: Neuftec Statement regarding Oxonica Dispute

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Abstract:
Following a press statement issued by Oxonica on 12 July 2007 Neuftec Limited [1] ("Neuftec") seeks to clarify the position in respect of the events surrounding the ongoing dispute between Oxonica Energy Limited ("Oxonica Energy ") and Neuftec.

Neuftec Statement regarding Oxonica Dispute

Dominica and UK | Posted on July 18th, 2007

Neuftec, a research and development company, registered in the Commonwealth of Dominica, is currently party to an ongoing dispute with Oxonica Energy Limited, the energy division of Oxonica Plc ("Oxonica"), an AIM listed nanotechnology company.

Termination of the Licence Deed by Neuftec

The primary issue in dispute between the parties is in relation to the definition of "Licensed Products" in the Licence Deed entered into between Oxonica and Neuftec on 7 December 2001, Oxonica contend that only products falling within the scope of claims in the Neuftec patent attract royalties. Neuftec, relying on the plain and ordinary meaning of the words used in the Licence Deed, contend on the other hand that a product is a "Licensed Product" as long as it falls within the scope of claims of either the Licensed Application or the Licensed Patent.

As a result of Oxonica refusing to pay royalties which Neuftec say are due under the terms of the Licence Deed (which was drafted by Oxonica's lawyers), that license to market or sell Envirox™ using Neuftec's intellectual property was terminated by Neuftec in February 2007.

Oxonica subsequently commenced legal proceedings in the High Court seeking a declaration in respect of the intellectual property rights. In response, Neuftec filed a Defence and Counterclaim. One of Neuftec's counterclaims at the time was for a declaration from the court that the provisions of a non-compete restriction, that Oxonica had sought to enforce following termination of the contractual arrangements between the parties, did not apply.

The Second Source Product

In October 2006, Oxonica first informed Neuftec that it had produced a 'second source product', which had been successfully tested and worked as well as the technology licensed from Neuftec. In January 2007, Oxonica stated that the coating on the product was different from the one which was claimed in Neuftec's granted European patent. It further stated that "…the Envirox™ manufactured by the alternative supplier falls outside the scope of the Licence so that royalties are payable to Neuftec in respect of the ANO supplied product only…".

The fact that a simple change in the coating of the product would disentitle Neuftec to royalties under the Licence Deed came as a surprise to Neuftec. From the outset of the Licence Deed, Oxonica and Neuftec were jointly involved in further developments of the technology and were experimenting with, amongst other things, different coatings. Such further work and testing on the product were fully supported by Neuftec as this was seen as a positive effort to improve the product and enhance the intellectual property owned by Neuftec and licensed to Oxonica.

In order for Neuftec to ascertain that the 'second source product' did indeed fall outside the scope of the Neuftec patent, Neuftec made repeated requests for further information to Oxonica. They received the following reply: " Oxonica does not know the detailed composition of the second source product…".

Despite Neuftec's efforts in early 2007 to try and reach a resolution to the escalating dispute, without notice to Neuftec, Oxonica commenced legal proceedings in the London High Court.

After almost 5 months of protracted correspondence between the parties' lawyers, Neuftec finally learned the composition of the 'second source product' which fell outside the scope of the Neuftec patent but nonetheless seemed to derive from part of the know how licensed from Neuftec.

Notwithstanding this, it has always been Neuftec's primary case that the 'second source product' still came within the definition of a Licenced Product as this was the understanding of the parties. Furthermore, it is Neuftec's case that it was the plain effect of the wording in the Licence Deed and that accordingly royalties were still payable by Oxonica for its sale.

Infringement of Neuftec's Patent

The primary issue is whether the 'second source product' attracts royalties payable by Oxonica. The premise of the dispute between the parties was never about infringement of the Neuftec patent. >From the outset, infringement of Neuftec's European patent was a secondary issue for Neuftec.

Infringement of the Neuftec patent was never a central feature largely due to the fact that Neuftec did not know what the composition of the 'second source product' was.

Over a month ago and shortly after finally receiving the composition of the 'second source product', Neuftec informed Oxonica in clear and unconditional terms that Neuftec was prepared to accept the accuracy of the composition statement at face value and accordingly did not consider its patent to have been infringed by the 'second source product'. As such, Neuftec asked Oxonica to confirm that it was withdrawing that claim from the court proceedings to avoid parties wasting time and costs on the issue.

However, Oxonica refused to drop the non-infringement claim and during the course of the last month has insisted that Neuftec make further admissions as to the nature and composition of the 'second source product' which in Neuftec's view are not necessary. Given that the further admissions sought were of facts not within Neuftec's knowledge, Neuftec has refused to provide these.

It is Neuftec's view that Oxonica's press release dated 12 July 2007 attaches undeserved importance to an issue which was never central to the dispute with Neuftec and in relation to an issue which Neuftec had ceased to challenge more than a month ago. Inconsistently with their press release, Oxonica continued to maintain their claim for a declaration by the court that the 'second source product' does not infringe Neuftec's European patent. It was only on 17 July 2007 that Oxonica finally agreed to withdraw its claim.

Outstanding Issues

Contrary to Oxonica's statement that the only issue that remains is a "narrow technical argument by Neuftec…" there remain outstanding issues between Oxonica and Neuftec relating to:

The audit verification. Oxonica continues to resist allowing Neuftec to exercise its contractual right under the Licence Deed to verify royalties paid in respect of the first source product. Neuftec first issued notice to verify the royalties in February 2007 and Oxonica agreed to permit such exercise to be carried out. More than 5 months later that verification exercise has still not commenced. Oxonica continue to impose numerous terms and conditions outside the terms of the Licence Deed, which has effectively prevented the audit from taking place. Neuftec has now placed Oxonica on notice that unless matters progress in substance, Neuftec will have no choice but to commence fresh legal proceedings against Oxonica in the next 24 hours.

Discrepancies in financial figures. Neuftec have queried a number of apparent discrepancies between Oxonica Energy's reported revenues and the figures provided to Neuftec by Oxonica in the royalty statements. In particular in the Neuftec Royalty Statement for 2006, the "Sales value for Oxonica Energy Group" for 2006 was stated as Ł6,668,836.72. However, on page 15 of the Preliminary Results under the heading " Segmental Information", the turnover for the Energy business segment is stated to be Ł8,933,000. In the Neuftec Royalty Statement for 2006, a deduction of Ł4,379,064.10 was made in respect of "POAS sales using an alternative supplier". However, in the Presentation at slides 3 and 10, Oxonica disclosed that revenue of Petrol Ofisi sales in the second half of 2006 was Ł7,600,000. Oxonica have not provided any explanations to date for the apparent discrepancies.

Infringement of Neuftec's Australian patent by Oxonica. Following the termination of the Licence Deed, it came to Neuftec's knowledge that Oxonica infringed the terms of Neuftec's Australian patent by collecting a shipment of Envirox without the knowledge, consent or authorization of Neuftec. This stock is estimated by Neuftec to have a resale value of approximately US$1.8 million and cannot be used or sold without Neuftec's permission. It currently is stored in a warehouse in Australia.

Existing stock of Neuftec-licensed Envirox in the UK. Similarly, according to Oxonica, it currently holds approximately US$4m of Neuftec-licensed Envirox which it is similarly unable to use or sell without Neuftec's permission. Several months ago, Neuftec invited Oxonica to put forward details of the precise quantity, composition and intended terms of sale as well as proposals as to royalties but Oxonica have failed to respond in substance.

Future sales of Envirox™. Oxonica can no longer market or sell the first version Envirox™ which relies on intellectual property owned by Neuftec and manufacturing processes employed by ANO. This is because Neuftec has terminated the Licence Deed and secondly ANO they have now entered into an exclusive supply agreement with Energenics of Singapore.

Contrary to what Oxonica say in their press release of 12 July 2007, Neuftec believes that it has a strong case on the merits. The case will be ultimately decided by the court and a trial is likely to take place early next year.

Neuftec are represented by Watson, Farley & Williams LLP and by Richard Hacon of 11 South Square , a set of barristers with particular expertise and experience with intellectual property disputes. BDO Stoy Hayward have been retained by Neuftec as independent accountants to conduct the verification of royalties.

History of the Dispute

In December 2001, Neuftec entered into an agreement with Oxonica Energy Ltd (an operating division of AIM-listed Oxonica Plc) to licence its technology in return for royalty and milestone payments.

Oxonica had no prior experience in the fuel additive market but capitalised on Neuftec's technical and commercial experience by employing Neuftec founder, Ronen Hazarika to help commercialise the technology. Oxonica used this technology to manufacture a product which has been sold as Envirox™. Envirox™ reduces fuel consumption and emissions and helps conserve energy.

One of Oxonica's founding investors is Richard Farleigh of Dragon's Den, who remains a significant shareholder, post the AIM floatation in Summer 2005.

Following extensive testing, in 2004, Stagecoach signed an agreement to adopt Envirox™ for its bus fleets in the UK and New Zealand and has reported fuel savings in excess of 5%.

In August 2006, Oxonica Plc publicly announced that "…it has reached agreement with Petrol Ofisi A.S ., the leading national oil company in Turkey with sales of US$8.8 billion in 2005, to supply its EnviroxTM fuel borne nanocatalyst, for use in diesel fuel across Petrol Ofisi's nationwide distribution network ." Oxonica's claim of product efficacy to Neuftec in January 2007 in relation to the 'second source product' appeared contradictory to subsequent press reports in March 2007 that the field trials had produced negligible impact on fuel efficiency in the Turkish high-sulpur diesel. Oxonica had informed Neuftec that in respect of Envirox™ sold in 2006, about 83-85% was from the alternative supplier.

On 23 February 2007, Oxonica Energy Limited filed a claim in the Patents Court for declarations against Neuftec Limited that it was not obliged to pay royalties on the sale of the 'second source product' and that its dealings with the 'second source product' did not infringe the Neuftec patent.

On 26 February 2007, Panmure Gordon (Oxonica's Nomad) issued a Buy Recommendation in its Analysts Research Report.

The announcement of the 'second source product' trial failure was followed shortly by the reported termination by Petrol Ofisi of their contract with Oxonica. The subsequent financial uncertainty caused by the termination by Petrol Ofisi led to the suspension from trading of Oxonica's shares.

In March 2007, Neuftec filed its Defence and Counterclaim asking the court for an order that Oxonica pay royalties for sales of the 'second source product', to permit Neuftec to conduct an audit of those sales as well as a declaration that the non-competition restrictions did not apply.

In May 2007, Oxonica subsequently confirmed that they would not enforce the non-compete provision and confirmed unconditionally that Neuftec was free to compete in the fuel additive business.

Oxonica PLC announced 2006 results on 19 March 2007

Oxonica Plc's Annual Report and Accounts 2005, it is stated that of its total sales for the year (Ł1.247 million) " (t)he majority of the sales revenue consisted of Envirox™". The recently announced Petrol Ofisi deal for the supply of Envirox™ had a projected sales value of US$12.7 million for 2006 alone.

The 2006 results reported revenues of Ł10.2m - which indicated the impact of Envirox™ and the Petrol Ofisi deal on Oxonica Plc's overall business. The Petrol Ofisi contract alone therefore represents a five-fold increase in the value of Oxonica Plc's sales in 2005 and 64% of 2006 revenues.

Petrol Ofisi Trials Announcement: 28 March 2007

Nine days after Oxonica's annual results announcement, the company made a further announcement stating the the Petrol Ofisi trials had been inconclusive and that this had the potential to jeopardise the Petrol Ofisi deal.

(i) Panmure Gordon then issued a revised forecast on 29 March 2007 and downgraded the company shares to Hold following their Buy note put out the previous week.

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About Neuftec
[1] Neuftec is a research & development company that owns patents in the fuel catalyst technology sector used in the production of the first version of Envirox ™ that was manufactured by Advanced Nanotechnology ("ANO") of Australia under a manufacturing licence granted by Oxonica with authorization from Neuftec.

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