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Reynolds Shares Up Ahead of Star Patent Ruling

Shares of Reynolds American were up more than 3 percent Tuesday ahead of a ruling in a patent infringement case filed against the maker of Camel and Salem cigarettes.

U.S. District Judge Marvin Garbis is scheduled to post a ruling on Reynold's "inequitable conduct" defense at 4:45 p.m. EDT on the court's Web site, the judge's office confirmed.

Star Scientific filed a lawsuit in 2001 against Reynolds American's R.J. Reynolds Tobacco unit, saying Reynolds had infringed patents related to a curing process that reduces the level of cancer-causing toxins in tobacco.

Garbis had previously ruled that key patent claims at issue in the lawsuit were invalid. He had agreed with Reynolds that the term "anaerobic condition," used in Star Scientific's patents on a curing process that reduces the level of cancer-causing toxins in tobacco, was "fatally indefinite" and therefore invalid.

Reynolds has argued that Star was not forthcoming with the U.S. patent office when it applied for the patent, which is the issue Garbis's ruling will address.

That is the final issue in the case, and once Garbis makes his ruling final, it will clear the way for Star to file an appeal of Garbis's previous rulings, a Star spokeswoman said.

On Monday, Star said it was reorganizing its business and might spin off its tobacco operations, leaving it with a company focused on intellectual property and new product development, including pharmaceutical products that use a component found in tobacco.

Reynolds shares were up $1.86, or 3 percent, at $63.87 the New York Stock Exchange in afternoon trading. Star shares were unchanged at 90 cents on Nasdaq.

Reynolds options were also very active ahead of the ruling.

In afternoon trading, 14,925 calls versus 1,289 puts had traded in Reynolds, far outpacing its average daily volume of 1,715 contracts, according to market research firm Track Data.

"In the U.S. options market, Reynolds calls were very active, as some traders appeared to be speculating that the ruling may go in favor of Reynolds and its share price will go higher," said Herb Kurlan, president of online trading firm Vtrader Pro in San Francisco.

But some equity analysts were skeptical about how important the ruling would be to Reynolds shares.

"Judge Garbis has already ruled in favor of Reynolds in two other summary judgment motions, essentially indicating that Star Scientific's patent in question is invalid," said Judy Hong, analyst at Goldman Sachs. She rates the stock "sell."

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