Poppy grower TPI Enterprises Ltd (ASX: TPE) remains locked in a legal battle with its competitor Tasmanian Alkaloids Pty Ltd (TA).

The dispute relates to an action brought by TA for a patent infringement regarding TPI’s use of high-grade poppies.

TPI’s core business is the production and sale of poppy straw, which is used in the production of opiate-based pharmaceuticals.

TA argues that TPI’s production of high-grade poppy straw is a breach of patent, while TPI has made a cross-claim on the grounds the patent is invalid. The Federal Court has set a hearing date for October 2019.

Stop right there

In the meantime, TPI has agreed to halt the manufacture of its high-grade poppy straw.

Before they meet in the Federal Court this October, the two sides have mapped out a tentative compromise via a convoluted set of agreements.

For starters, TPI will undertake restrictions on seed sales from its high-grade poppies — as well as its use of high-codeine poppy straw — until April 30.

But the deal is just to buy time. TPI needs to inform TA by April 8 if it intends to resume operations after April 30, in which case TA may then seek an injunction against TPI beyond that date. TPI may then oppose that injunction.

It’s all looking pretty messy, and the market wasn’t happy with the impact of what could be a protracted legal battle. TPI shares slumped almost 15 per cent to 90 cents a share.

Moving the stock

TPI says it should still have enough poppy straw to supply its customers, even if it has to halt production of its high-codeine products.

“However, the inability to process existing inventory of straw from high codeine poppies, pending resolution of the infringement and invalidity proceedings, will adversely affect (TPI’s) working capital position,” the company said.

TPI said it currently has around $4.5 million worth of high-codeine poppy on its books that it’s now unable to sell.

As part of the legal dispute, TA has agreed to pay compensation to TPI if its patent infringement claim is unsuccessful.