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As Health Discovery Signs More Licensees For SVM IP, Ciphergen Files a Countersuit

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This week, Health Discovery Corp. said that Epigenomics had licensed its support vector machine technology for use in DNA methylation research. The agreement was the second for the firm in six weeks, following a similar deal signed in early August with Bruker Daltonics for applications in clinical proteomics.
 
These agreements indicate that the firm is seeing some success in an “aggressive campaign” it launched last year to secure licensees for its SVM patent portfolio [BioInform 05-23-05].
 
In a statement, Stephen Barnhill, HDC's chairman and chief executive officer, said that the two application areas of the recent agreements — methylation and mass spectrometry analysis — “underscore the scope and power of HDC's SVM technology as the leading pattern recognition tool,” and noted that the agreement with Epigenomics “should spark the interest of other companies in licensing this versatile and potent tool.”
 
But at least one firm that HDC has identified as a potential licensee disagrees. Ciphergen, the subject of an infringement suit related to the SVM IP that HDC filed in June [BioInform 06-30-06], has filed a countersuit.
 
Ciphergen’s counterclaim, filed in the US District Court for the Eastern District of Texas on Sept. 1, states that the patents involved in the suit – US Nos. 6,427,141; 6,760,715; and 6,789,069 — are unenforceable and invalid, and accuses HDC of breach of contract and misappropriation of trade secrets.
 
According to court documents, the dispute dates back to 2001, when Ciphergen and HDC predecessor BIOwulf entered into a collaboration under which BIOwulf analyzed data from Ciphergen’s SELDI platform on a contract basis.
 
Ciphergen argues in its counterclaim that Isabelle Guyon, a BIOwulf employee and a co-inventor on two of the disputed patents, “acquired confidential information from Ciphergen” relating to the Ciphergen ProteinChip System after signing a non-disclosure agreement and a contract research agreement stating that any improvements to the ProteinChip system resulting from the project would be the “sole and exclusive property of Ciphergen.”
 
Ciphergen argues that Guyon and BIOwulf made amendments to the claims of the ‘715 and ‘069 patents in 2003 that were “a direct or indirect result of Ciphergen’s collaboration with BIOwulf,” and that these amendments were “derived from Ciphergen’s confidential information.”
 
The counterclaim argues that “Isabelle Guyon, BIOwulf, and/or HDC breached the [non-disclosure agreement] by prosecuting the ‘715 and/or ‘069 patents,” and that this breach of contract “is causing irreparable harm from which there is no adequate remedy at law.”
 
Ciphergen is requesting a dismissal of HDC’s complaint, a declaration that the three patents are invalid, a declaration that it has not infringed the patents, an injunction against HDC from enforcing the ‘715 and ‘069 patents, as well as costs, expenses, and attorneys’ fees.
 
In addition, Ciphergen is seeking an award of two times its actual damages for the “willful and malicious misappropriation” of its trade secrets and an award of half of any royalties HDC has obtained by licensing the ‘715 and ‘069 patents.
 
The company is also seeking a declaration that the’715 and ‘069 patents are the “exclusive property” of Ciphergen.
 
Ciphergen’s arguments against the validity of the ‘414 patent were not spelled out in court documents and an attorney for the firm could not be reached for comment before press time.
 
Ciphergen is in the midst of divesting its tools business, including the ProteinChip system and all related software, to BioRad for $20 million. In a proxy statement filed Sept. 12, Ciphergen listed the HDC litigation among liabilities that BioRad would not assume following the acquisition.
 
The company had $20.6 million in cash and cash equivalents as of June 30.
 

“The combined efforts of our management, science board, and law firms have now led HDC to the verge of a monetization process for our intellectual property.”

As for HDC, William Quirk, a director and the firm’s largest individual investor, expressed faith in his company’s position by purchasing 61,303,685 shares of HDC stock for $1 million this week, according to SEC filings.
 
"The combined efforts of our management, science board, and law firms have now led HDC to the verge of a monetization process for our intellectual property,” Quirk said in a statement. “The commercialization process has been a long time in coming, and it has been expensive for a firm our size.”
 
HDC had a cash position of $244,078 as of June 30. The company, which trades on the Over-The-Counter Bulletin Board, reported $175,000 in licensing revenues for the first six months of the year. It values its patent portfolio at $3.4 million.
 
In its most recent quarterly earnings report, filed with the SEC on Aug. 14, HDC said that it was in “preliminary discussions” to resolve a suit with Equbits that it filed on the same day as the Ciphergen suit.
 
Ciphergen, meantime, this week filed documents with the US District Court for the Eastern District of Texas requesting a change of venue to the US District Court for the Northern District of California.
 
Officials from Health Discovery and Ciphergen could not be reached for comment for this article.

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