Formlabs to Pay 8 Percent of Net Sales in Patent Lawsuit Settlement

Formlabs, a 3D printer startup that makes high-end devices targeted at professional designers, has agreed to pay 8 percent of its net sales to much larger competitor 3D Systems in order to settle a patent lawsuit.

Details of the two companies’ financial deal were not revealed in the court filings dismissing the patent lawsuit earlier this week. But a new 3D Systems filing with the SEC lays out the price tag: Formlabs gets a “worldwide, non-exclusive, royalty bearing” license to eight 3D Systems patents in exchange for 8 percent of Formlabs’ net sales.

The SEC filing doesn’t say how long the agreement runs, specifying only that Formlabs will have to pay royalties “through the effective period.” Reached for comment today, Formlabs CEO Max Lobovsky said he couldn’t discuss details of the settlement.

In any case, the payments don’t seem like a windfall for 3D Systems (NYSE: DDD).

Last month, Lobovsky told me that Formlabs was selling “many thousands” of its printers per year. At a price of $3,300 each, that amounts to several million dollars in annual gross revenue.

We don’t know what is meant by “net sales” in the licensing agreement—namely, whether Formlabs has to pay any royalties before it shows a profit. Lobovsky told me last month that Formlabs wasn’t currently profitable as a result of its rapid hiring and new product introductions.

But for the sake of argument, consider this: 8 percent of gross sales on 3,000 Formlabs printers would total less than $800,000 (I have no idea what Formlabs nets on printer sales). Rock Hill, SC-based 3D Systems, meanwhile, has a market capitalization of about $3.7 billion.

The possibility of settling the lawsuit was hinted at more than a year ago and is obviously a big milestone for Formlabs, which raised $19 million in venture investment last summer.

Patent lawsuits are a time-tested way of making sure competitors don’t creep into an established company’s territory, and the rise of “patent troll” companies that exist solely to file lawsuits has been decried by everyone from President Obama on down in recent years.

3D Systems, however, is a real company that makes expensive, professional-grade 3D printers. What’s more, the company was founded by the guy who invented stereolithography, which is the underlying technology also used in Formlabs’ printers.

Some of 3D Systems’ patents on that technology are expiring, and that loosening grip on intellectual property was cited as an advantage when Formlabs got its start. But as Formlabs found out in the courts, the larger company had more patents at its disposal.

The 3D Systems approach was quite opposite from that of Stratasys, another large 3D printing company, which spent about $400 million last year to buy New York-based consumer 3D printing startup MakerBot.

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