Laser discovery kindles unusual lawsuit between former partners.

Laser discovery kindles unusual lawsuit between former partners A potentially major breakthrough in ophtahlmic laser surgery technology has spawned a bitter, litigious battle over proprietary rights between an inventor and a venture capital firm on one side, and a Los Angeles-based start-up firm on the other.

The inventor, Alfred Sklar, claims the start-up Automated Laser Systems Inc. has swiped his technology. Automated Laser has countersued, charging its venture capital partner and Sklar with similar misdeeds.

The countersuit, filed by Automated Laser last week in U.S. court here, alleges that the firm's venture capitalist partner, the San Francisco-based Twenty-First Century Venture Partners, conspired to steal proprietary technology and set up a rival company with Sklar, a former Automated Laser board member.

The two-year-old Automated Laser is seeking unspecified damages exceeding $5 million and injunctive relief under various securities laws and the federal Racketeer Influenced and Corrupt Organizations Act.

A managing general partner of the Twenty-First Century venture capital firm, Thomas J. Sherwood, refuses to comment on the allegations, saying only, "We deny all allegations."

At stake, claims Automated Laser, is control over a potentially lucrative "dye laser technology," a patent-pending process that could revolutionize eye surgery.

According to the lawsuit, "Automated Systems has built a system known as Computer Aided Laser Microsurgery. Known as CALM, it is capable of cutting tissue within the eye with a precision impossible until now. Unlike competitive lasers, this dye laser operates within tissues without damaging surrounding tissues, and without any evidence of thermal damage."

The suit continues, "Automated Systems believes that CALM can create cavities in the cornea impossible until now, and that it can sever membranes in the retina, iris, lens or other tissue to treat conditions that today require invasive surgery. These procedures cannot be performed with lasers currently used in ophthalmology."

The suit states that Automated Laser intends to market its new technology to the ophthalmic industry by selling CALM units to physicians, hospitals and clinics, and that CALM may have broader medical applications.

Automated Laser was incorporated in August 1985 after raising $1.1 million in working capital. Equal shares of common stock were sold to Sklar, co-inventor of the CALM technology, G-G Associates, which is a partnership having one partner named Aaron Mendelsohn, and to Dodge Crockett Jr., who became Automated Laser's attorney.

If the CALM technology is all it's purported to be, it would be quite a deal, say area eye laser surgeons.

"That sounds like the greatest thing since sliced bread," says Dr. Peter Liggett, associate professor of ophthalmology at the University of Southern California on staff at the nationally acclaimed Doheny Eye Institute here. "I've heard of several firms trying to do something that sounds like this, but I'd have to see it and work with it to know if it's novel or new. It sounds like something that would be used in radial keratotomy or corneal transplants."

Liggett explains that light from dye lasers emanates on wavelengths, which can be altered by technicians. "Certain tissues, with different pigmentation, will respond to different wavelenghts," he explains.

That the squabble over the CALM technology has produced a lawsuit against a venture capital firm is something of a rare event, say area financiers.

"It's very much out of the ordinary as far as I am concerned," says David B. Jones, general partner in Interven Partners, a major venture capital firm located downtown. "Sometimes you hear of claims by firms where things haven't worked out, and the venture capitalist doesn't want to put in any more money, but it's rare. Most of those suits are probably unfounded."

Said another senior venture capitalist who didn't wish to be identified, "I've never been sued, and as far as I know neither have any of my partners, at this firm or the (venture capital) firms we worked at before."

The Automated Laser suit alleges that Twenty-First Century induced the firm to invest $200,000 in a limited partnership that would finance the laser firm's expansion. Twenty-First Century promised "to provide any additional financing required," the suit claims, presumably by going out and finding additional investors.

Instead, the suit alleges, Twenty-First conspired with former Automated Laser board member Sklar who, the suit claims, stole proprietary information on laser dye solutions and other technical data, and seized customer and investor lists.

Then Twenty-First formed another company in competition with Automated Laser, which they name "Advanced Laser Microsystems Inc."

The suit contends the name "Advanced Laser Microsystems" was chosen because it sounds like "Automated Laser Systems" and thus was intended to confuse customers and investors.

The suit continues, "They then attempted, and are still attempting, to cripple or destroy Automated Laser, so that it will be plunged into bankruptcy."

Nevertheless, the suit contends, Twenty-First Century this Feb. 10 disseminated materials to potential investors that touted Automated Laser as "a company with tremendous potential and future growth," and on March 11 mailed out information to certain existing limited partners -- excluding Automated Laser -- that described the laser firm as on "the clean road to success."

In his earlier suit against Automated Lasers, inventor Sklar claims that the laser technology was stolen from him.

Sklar claims he developed the technology from 1982 to 1985, then sought out the legal and financial advice of attorney Crockert and adviser Mendelsohn to commercially exploit his device. They instead wrested control of the technology once Automated Laser was formed, he contends.

Says Sklar's attorney, William Gwire of the San Francisco international law firm of Kaplan, Russin, Vecchi, Eytan & Collins, "It is our belief that their lawsuit was a retaliatory suit against our legitimate lawsuit against Aaron Mendolsohn and Automated Laser Systems."