Markforged to Pay $25M to Continuous Composites in Lawsuit Settlement

Metal and composites 3D printer manufacturer Markforged (NYSE: MKFG) announced that it has entered into a Settlement and Patent License Agreement with Continuous Composites Inc., effectively resolving all claims and counterclaims in their ongoing patent infringement litigation. The lawsuit, which began in July 2021, was pending before the United States District Court for the District of Delaware.

Under the terms of the Settlement Agreement, Markforged will make an upfront payment of $18 million to Continuous Composites in the fourth quarter of fiscal year 2024. This will be followed by three additional installment payments of $1 million, $2 million, and $4 million in the fourth quarters of fiscal years 2025, 2026, and 2027, respectively. In total, Markforged will pay $25 million to Continuous Composites.

The agreement includes cross-licenses of the parties’ respective patent portfolios, mutual releases of claims for liabilities arising prior to the effective date, and mutual covenants not to sue. Additionally, Markforged has granted Continuous Composites a security interest in certain assets, including its patent intellectual property rights. Importantly, the Settlement Agreement acknowledges that neither party admitted to any liability or wrongdoing concerning the claims alleged in the lawsuit. The settlement is subject to review and approval by the District Court.

Background of the Litigation

The legal dispute originated in July 2021 when Continuous Composites filed a patent infringement lawsuit against Markforged, alleging unauthorized use of its patented continuous fiber 3D printing technology. Initially, four patents were asserted against Markforged, but by April 2023, these were removed from the case, leaving four claims from a patent added in 2022.

A composite part being 3D printed via Continuous Composites’ ‘CF3D’ technology. Image via Continuous Composites.

In April 2024, the case went to trial. On April 11, a federal jury found that Markforged had infringed one of the two remaining patent claims, awarding Continuous Composites $17.34 million in damages for past sales of the infringing products from November 2021 through December 2023. The jury found the other patent claim to be invalid and not infringed. Both companies filed post-trial motions: Markforged challenged the verdict, while Continuous Composites sought additional royalty payments for sales after December 31, 2023.

“We are pleased to announce this Settlement Agreement which, if approved by the District Court, will bring this litigation to a successful conclusion that will eliminate this distraction to Markforged and the uncertainty over the outcome of this litigation for all of our stakeholders,” said Shai Terem, President and Chief Executive Officer of Markforged. “With the Settlement Agreement in place and the previously announced $25 million cost reduction initiative implemented, we are committed to advancing our strategic objectives and executing on our strategy to bring industrial 3D printing right to the factory floor.”

Under Pressure

The $25 million settlement between Markforged and Continuous Composites is a significant financial burden for a company that has already been navigating a difficult financial landscape. Markforged’s financials reveal an ongoing struggle with negative cash flow and declining equity, as detailed in the company’s latest reports. As of the end of 2023, Markforged reported a net loss of $115.9 million. Furthermore, the company’s revenue for the trailing twelve months was $86.48 million, reflecting a steep decline of over 83% in stock price year-over-year.

The F10 3D printer from Markforged.

Markforged’s total cash position as of its most recent quarter was $73.39 million, which should provide the liquidity needed to cover the immediate $18 million payment to Continuous Composites under the terms of the settlement. However, the additional installment payments over the next three years, totaling another $7 million, will place further pressure on the company’s already tight financial position.

From a cash flow perspective, Markforged has been facing substantial challenges, with negative operating cash flow and limited free cash flow. The settlement payments, while staggered, add to the financial strain. Given that Markforged has already implemented a $25 million cost reduction initiative, the settlement may force further cost-cutting measures to ensure the company’s financial stability.

The settlement comes at a time when the overall market has been a negative one, particularly for publicly traded machine manufacturers. SPAC companies like Markforged have suffered significantly as a result. For instance, Velo3D has had to delist from the New York Stock Exchange, while Desktop Metal is the process of being sold to Nano Dimension at a value far below its initial public offering.

This blow to Markforged’s bottom line could be the last it takes before a momentous shift occurs for the company. That could mean near-bankruptcy, as with Velo3D, a sale, as with Desktop Metal, or some other outcome. However, because of the interest rate cuts implemented by the Federal Reserve, the machine makers may be poised to bounce back as businesses can take out more loans for equipment purchases. Whether industry recovery can happen in time to save these 3D printer manufacturers is difficult to determine.