It is “disappointing” that two key players in the astaxanthin market have ended up talking via their attorneys after their “excellent business relationship” became frayed, Valensa International president Dr Rudi Moerck has admitted.
Moerck was speaking to NutraIngredients-USA after more details of Valensa’s legal dispute with Hawaii-based microalgae specialist Cyanotech emerged in court papers. (Click here to read our recent article.)
He added: “We hope to find a path to an amicable resolution so we can focus on astaxanthin rather than squabbling. Valensa has had an excellent business relationship with Cyanotech for a number of years and we believe that we were their largest customer.
“We certainly did not want to take legal action and I did reach out to Cyanotech’s CEO to try and resolve this amicably. It’s disappointing. When you’re dealing with a product as successful as astaxanthin, you would hope that both parties should be able to benefit.”
Cyanotech was short-shipping us and then took our key customer. That’s not right
The dispute began on May 24 when Valensa filed a complaint against Cyanotech accusing it of ‘tortious interference with a business relationship’.
Cyanotech has supplied astaxanthin biomass to Valensa for several years, said Moerck. Valensa in turn, supplied astaxanthin ingredients containing Cyanotech’s biomass to supplement maker The Mercola Group from 2011.
However, Cyanotech later approached The Mercola Group direct and offered to sell astaxanthin oleoresin at a discounted price, “freezing out Valensa” alleged Valensa.
However, Cyanotech said it had never agreed, “either expressly or impliedly, not to compete [with Valensa]".
Moerck: This is not about stealing a customer
But the row was not about being beaten on price, insisted Moerck.
“This is not about stealing a customer. We had a multi-year contract with Cyanotech in which they agreed to supply us with a minimum amount of biomass - and at times we took more than we needed - but in the past six months we have not been getting timely shipments.
“If Cyanotech had fulfilled all of its contractual obligations to us, we wouldn’t have a case. If one of our other competitors such as Algatech or Fuji had beaten us on price and won the contract, well that’s just business, but Cyanotech was short-shipping us and then took our key customer. That’s not right.”
He added: “Cyanotech reduced its shipments of biomass to us, so that even if we had kept the Mercola business, we couldn’t have fulfilled its orders. Mercola was one of our largest customers; it represented more than $1m of business.”
When the business interference issue came up, it seemed like the gloves were off
As for the parties’ dispute over intellectual property, Moerck had believed for a while that Cyanotech and its subsidiary Nutrex Hawaii were infringing the University of Illinois’ US patent # 5,527,533 (of which Valensa is the exclusive licensee for nutraceutical applications), claimed Moerck.
The patent covers the use of astaxanthin to treat eye and central nervous system diseases or injuries, and is based on the work of Dr Mark Tso et al.
However, Cyanotech had made direct references to the patent in marketing materials and in presentations about its Nutrex products, alleged Moerck.
“Over the years, I’ve talked to Cyanotech about this, but obviously as were doing business with them, I was hesitant to take legal action. But when this business interference issue came up, it seemed like the gloves were off.
“We offered Cyanotech a license to the [patented] technology years ago, but it did not take up our offer.”
Cyanotech: Parry breached spirulina contract - and was induced to do so by Valensa…
Cyanotech - which has strenuously denied that it has infringed the patent at issue in court filings - has not responded to requests for comment from NutraIngredients-USA.
However, court filings reveal it has hit back with a new lawsuit of its own filed in Hawaii on July 3 alleging that US Nutraceuticals LLC (doing business as Valensa International) and EID Parry (India) Ltd, had breached a May 2012 agreement in which Parry had promised to sell Cyanotech 9,000kg of blue/green algae spirulina.
A month later, claims Cyanotech, Parry “repudiated and thereby materially breached the agreement”, and had been induced to do so by Valensa, whose “interference caused Parry to fail to consummate the prospective contract with Cyanotech.”
Astaxanthin: The No.1 supplement you've never heard of that you should be taking
A potent red antioxidant responsible for the pink color in salmon, sales of astaxanthin started to skyrocket early last year after Dr Mercola appeared on a Dr. Oz segment that described it as the “No.1 supplement you've never heard of that you should be taking”.
Cyanotech, which posted a 46% hike in revenues in fiscal year 2012 to $24.63m, produces its BioAstin astaxanthin from Haematococcus microalgae, which is grown in closed culture systems and then put through a 'reddening' cycle in open culture ponds in Kona, Hawaii.