Financial hit for Datong as patent infringement battle continues

DATONG has vowed to appeal against a High Court ruling that it infringed a product patent.

The Leeds-based firm, which designs and manufacturers high performance security equipment, said that the verdict relating to a third party product for which it was a reseller was unexpected but that the firm continued to have “significant confidence” in its case.

It added that it was planning to appeal the ruling immediately.

However, Datong warned that costs, although not yet quantified, were inevitably going to have an impact on its results for the year ended March 31, 2009.

It said that it had expected to make sales of around £3m of the product but the recent ruling meant this was unlikely to happen, although the judgement only restricts Datong’s ability to sell the product in the UK. 

Commenting on the outcome of the court case, Brian Smith, chief executive officer of Datong, said: “Although we are exceedingly disappointed by this unexpected decision, which has a serious short term financial impact on the company, we maintain confidence in our argument and believe that it will be recognised through the appeal process.

“While this case relates to one third party product and its sale in the UK, Datong’s strong market position will be maintained due to its proprietary and third party products being recognised by a solid customer base throughout a number of global geographic markets.”

In February, Datong announced that it was expecting to take a financial hit following delays in the placing of US orders.

It blamed the change of administration in the country for the situation.

But the specialist, which makes equipment used by international security organisations to track drug dealers and terrorist suspects, said order intake and revenues for the year were expected to be in line with management expectations elsewhere.

The company said it now expected only a proportion of two orders for £2.9m to be placed this year with the balance to be received during the next financial year.

One of these, for £1.1m is in the US, while the other, for £1.8m, is in an unnamed country.

In a trading statement Datong said: “Given the order profile of the company, the year end out turn remains uncertain, however overall, the company expects full year revenues to be within the range of £9.5m to £10.5m.

“This will include a significant increase in third party product sales compared to last year resulting in a weakening of the company’s gross margin and therefore of its underlying profitability.”

The group saw revenue drop by more than half to £1.51m from £3.52m during the six months to September 30 because of the order delays and that saw a pre-tax loss of £1.62m rather than its traditional break-even position for the first half.