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Ciphergen Pays Health Discovery $600K, Settles Patent Dispute on SVM Technology

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Ciphergen, already cash-poor and without any revenue source, has agreed to pay Health Discovery Corp. $600,000 to settle a dispute over a series of patents.
 
The settlement was announced late last week and brings to a close a dispute between the two companies that began a year ago when Health Discovery sued Ciphergen for allegedly infringing three patents pertaining to its support vector machine technology. SVMs are a machine-learning algorithm used for classifying large datasets.
 
Ciphergen will pay the $600,000 over a two-year period. It also agreed to drop all counter-claims against Health Discovery, based in Savannah, Ga., as part of the settlement. In return, Health Discovery granted Ciphergen a worldwide, royalty-free, non-exclusive license to the SVM technology in applications for Ciphergen’s surface enhancement laser desorption ionization-based technologies. The license covers 25 patents.
 
According to Health Discovery’s June 2006 complaint, three of Ciphergen’s software packages, ProteinChip, Biomarker Patterns, and CiphergenExpress, infringe patent Nos. 6,427,141, relating to “methods for enhancing knowledge discovered from data using SVMs;” 6,760,715, “a method of enhancing knowledge discovered from biological data using multiple SVMs and a related device;” and 6,789,069, relating to systems and methods “for enhancing knowledge discovered from biological data using an SVM and a method for diagnosing disease using SVMs.”
 
Last summer Health Discovery also sued Equbits for allegedly infringing the same three patents. The two companies settled the case in late November. Ciphergen, however, countersued Health Discovery in September accusing it of breach of contract and misappropriation of trade secrets.
 
Crying Wulf
 
The history between Ciphergen and Health Discovery goes back to 2001 when Cihergen and BIOwulf, Health Discovery’s predecessor, entered into a collaboration to analyze data from Ciphergen’s SELDI platform on a contract basis.
 
According to court documents submitted by Ciphergen, terms of that deal called for “any and all inventions and discoveries (whether patentable or not) related to improvements to, or new versions of, the Ciphergen Systems that are derived as a direct or indirect result of the project [to] be the sole and exclusive property of Ciphergen.”
 
Ciphergen also alleged an employee of BIOwulf, Isabelle Guyon, had acquired trade secrets pertaining to Ciphergen’s technology, and then with BIOwulf used that information in its applications for two of the disputed patents.
 
Ciphergen sought to have the Health Discovery suit tossed and the three patents invalidated. It also sought an injunction against Health Discovery from enforcing two of the patents, damages, back royalty payments, fees, and other forms of cash.
 
Calls to lawyers representing Ciphergen were not returned. The company also did not respond to requests for comment. But in a written statement, Gail Page, CEO and president of the company, suggested that it may have decided it was less costly to settle the dispute than continue to fight.
 
“We were able to obtain a broad, comprehensive license without significant expenditure of time and dollars,” she said. In a document filed with the US Securities and Exchange Commission this week, Ciphergen said neither company is making an admission of guilt as a result of the settlement.
 
In a statement, Stephen Barnhill, Health Discovery’s president and CEO, called the settlement “an excellent resolution for our company and shareholders.”
 
Daniel Furth, executive vice president, secretary, and treasurer of Health Discovery, told ProteoMonitor: ”We’re satisfied with what we perceive to be a victory, and we’re going to protect our patent stakes as we must.” 
 
He could not say how much originally Health Discovery was seeking from Ciphergen, but called the $600,000 award “fair,” adding that the company’s business “is to market, license, and develop our technology with our partners. It’s not to spend all of our time in the litigation posture.”
 
A patent lawyer not involved in the case and who has not worked with either Ciphergen or Health Discovery said that Ciphergen may have also dropped its own lawsuit because it could not prove its case.
 
“It would suggest to me that whatever the evidence was that there were trade secrets [that were stolen], it wasn’t compelling,” said Frederick Whitmer, a partner at the New York law firm Thelen Reid Brown Raysman & Steiner. “It doesn’t mean there wasn’t a theft of trade secrets — it just means that they can’t prove it. That’s happened to me on more than one occasion, I’m sorry to say.”
 
Green From Red?
 

“It would suggest to me that whatever the evidence was that there were trade secrets [that were stolen], it wasn’t compelling.”

The settlement comes as Ciphergen, which will change its name to Vermillion next month, fights to keep its doors open. During its last quarterly earnings results, it reported revenues had withered to $21,000 during the three months ended March 31. As a result of the sale of its SELDI platform to Bio-Rad Laboratories in November, Ciphergen no longer has any product revenue stream.
 
In a document filed with the SEC in the spring, the company warned it may not have enough money on hand to remain in business. 
 
“We believe that our current cash balances may not be sufficient to fund planned expenditures,” it said in its filing. “This raises substantial doubt about our ability to continue as a going concern.” [See PM 05/17/07
 
As of March 31, Ciphergen had $13.6 million in cash and cash equivalents. This week, however the company said that the US Patent and Trademark Office has told the company it will reissue a re-examination certificate for a patent pertaining to its SELDI MS technology. Once the patent is reissued, Bio-Rad will pay Ciphergen $2 million, as stipulated by the terms of the sale of the SELDI platform.                         
 
The company’s future rests on three diagnostic tests under development — for ovarian cancer, peripheral arterial disease, and thrombotic thrombocytopenic purpura. Its test for ovarian cancer is the furthest along in the commercialization process. By the end of the year, it could hit the market in one country in Europe, and Ciphergen plans to submit the test to the US Food and Drug Administration for approval as an in vitro diagnostic, also by the end of 2007.
 
Ciphergen is working with Quest Diagnostics to commercialize its test for peripheral arterial disease and during the next year, the two will further validate the test and prepare it for market launch. Ciphergen is still developing its thrombotic thrombocytopenic purpura test and working with Mosaic Health Care Consultants on developing reimbursement strategies for it. 

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