$150 Oversight Cost VLI Corp. Its Patent

It was only a $150 renewal fee, but by failing to pay it, VLI Corp. has been stripped at least for the time being of its prized patent on the Today brand contraceptive sponge.

And the oversight could block the Irvine-based company’s $86-million merger with American Home Products.

American Home is proceeding with plans to buy VLI, but the offer depends on VLI’s regaining the patent, which protects specific design features of the sponge.

The U.S. Patent and Trademark Office has rejected VLI’s initial reinstatement petition because it lacked details, VLI said, but the company is preparing another request.

Because there no longer is a U.S. patent, any company can jump into the domestic market with a contraceptive sponge that copies Today’s design.

But VLI chairman Robert A. Elliott doesn’t think such a move is likely. He cites these reasons:

- VLI still has the exclusive license to obtain the polymer for the sponge from W.R. Grace & Co. A competitor would need to find another polymer and obtain approval for its use by the Food and Drug Administration.

- Because a contraceptive sponge is considered a drug by the FDA, a competing product would have to survive lengthy trials before it would be allowed to enter the market.

- A prospective sponge maker would have to find a manufacturing process. Elliott called VLI’s manufacturing method “a trade secret.

For those reasons, said Jim McCamant, editor of the Medical Technology Stock Letter in Berkeley, the patent isn’t nearly so valuable as VLI’s national distribution system and its trademark on the Today name.

So, VLI, which spent years developing the sponge, seems to have a market share that is safe from competitors.

Elliott said, however, that he still is “distressed” that VLI lost the patent. He said the company wasn’t aware it needed to pay a $150 patent maintenance fee in July because a letter from the patent office never reached the company.

He said the letter apparently outlined the need to renew patents after 3 1/2 years. He said he was unaware of the law.

McCamant said he had never heard of a company’s losing a patent because it didn’t pay a renewal fee. He said he believes that the patent office probably will award VLI the patent once again.

The company didn’t miss the $150 payment intentionally and certainly “didn’t do it to save money,” he said.