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Court ‘Encourages’ ABI to Settle IP Suit Against Former Patent Counsel, Illumina

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The federal court presiding over Applied Biosystems’ ongoing patent dispute against a former IP counsel, Illumina, and one-time company Solexa has scheduled for the parties to participate in a settlement conference led by a magistrate judge next week, according to a document filed by the court earlier this year.
 
The “parties are encouraged to participate and frankly discuss their case” during the March 19 conference, according to a court notice from mid-January. Statements made during the conference will not be admissible at trial in the event that the case is not settled.
 
The settlement overture follows disclosures that ABI, Illumina, and ABI’s former patent counsel had “engaged in informal settlement talks” weeks before ABI filed suit in a California state court in December 2006 (see In Sequence 1/9/2007) and five months before it shifted its battle to the federal court in May 2007 (see In Sequence 6/12/2007).  
 
Yet despite the possibility of a settlement on the horizon, the parties continue to skirmish in court. For instance, on either March 13 or March 20, the court will hear a motion filed by the defendants and an ABI cross-motion asking it to issue a summary judgment, which could abrogate the need for a trial. The parties made the request as they argue whether the statute of limitations for the case has expired, according to court documents.
 
ABI is suing Illumina, Solexa, and ABI’s former patent counsel, Stephen Macevicz, over the ownership of three patents related to the SOLiD technology.
 
ABI alleges that Macevicz, while an employee of the company, stole intellectual property belonging to ABI by failing to disclose a patent application he filed in 1995 under his own name.
 
He later assigned the application to ABI-spinoff Lynx Therapeutics, which he joined after leaving ABI in 1995. Lynx later merged with Solexa, which became part of Illumina last year.
 
The application yielded three patents, US Patents Nos. 5,750,341; 5,969,119; and 6,306,597, all entitled “DNA sequencing by parallel oligonucleotide extensions,” that cover sequencing-by-ligation, the method used by ABI’s new SOLiD sequencer.
 
By Monday of this week, the plaintiff and defendants had to deliver a confidential settlement conference statement to the magistrate judge stating, among other things, the facts, claims, and defenses of the case, as well as “a candid, forthright evaluation of the parties’ likelihood of prevailing on the claims and defenses, and a description of the major issues in dispute,” an estimate of expected costs if the case went to trial, and a list of relief and damages sought.
 
Sequence of Events
 
Despite the planned settlement talks, the suit has been developing on several fronts.
 
Seven months after ABI filed its suit with a federal court in May 2007, Solexa filed three counterclaims accusing ABI of infringing certain of its patents. In response, ABI called the patents “void and unenforceable” because their applications failed to disclose prior art.
 
In early December of that year, ABI asked the court to dismiss the counterclaims outright because Solexa does not own the patents, according to ABI. ABI also
asked the court to rule by summary judgment that Illumina, Solexa, and Macevicz are liable for the former IP lawyer breaching his contractual and fiduciary duties to ABI, and “that Dr. Macevicz and Illumina improperly misappropriated AB’s [patent] rights.”
 
However, in mid-January 2008, the judge denied ABI’s request to dismiss Illumina’s patent-infringement claims and its request for a summary judgment.
 

The court is seeking “a candid, forthright evaluation of the parties’ likelihood of prevailing on the claims and defenses, and a description of the major issues in dispute.”

ABI hired Macevicz in 1992, the same year the company spun off Lynx Therapeutics as a drug-development unit. According to the terms of his employment with ABI, Macevicz was required to assign to the company inventions he made, except for those he developed on his own time, without company resources, and that did not relate to current or anticipated ABI business or R&D. According to ABI, he promised to disclose inventions that fell under these exceptions.
 
In 1995, the year Macevicz would eventually leave ABI, he filed a patent application, No. 08/424,663, in his own name that gave rise to the three disputed patents, using ABI’s phone and fax numbers in exchanges with the US Patent and Trademark Office, according to court documents filed by ABI. Also that year, Lynx founded Spectragen to commercialize DNA-sequencing technology developed by Sydney Brenner. Lynx and Spectragen would go on to merge the following year.
 
In court documents, ABI claims the patent application was “squarely within AB’s line of business” because it is about DNA sequencing, but that Macevicz did not disclose it to anyone at the company.
 
But according to ABI, while still an ABI employee, Macevicz offered to assign Lynx the rights to the ‘663 patent application, and the application was assigned to Lynx in August of that year, one month before Macevicz joined the firm, according to court documents. Also in August, Macevicz received 20,000 stock options from Spectragen, several months before Lynx would assign the application to the spin-off. ABI said it is not clear if these stock options were in exchange for the IP.
 
Change of Heart
 
In December 2007, Illumina and Solexa filed their opposition to ABI’s request for the court to dismiss their counterclaims and to issue a summary judgment. In their filing, the defendants said Macevicz developed the invention on his own time and using his own resources.
 
He “has long enjoyed, as a personal hobby, recording new and often unproven ideas relating to biotechnology in personal laboratory notebooks which he kept at this home,” according to the filing.
 
He also did not keep his ideas a secret from ABI, but “rather freely discussed them during lunch and other general discussions.” Two of his colleagues at ABI served as witnesses for his inventions by signing his personal lab notebook, according to court documents.
 
The defendants also argue that Vincent Powers, a lawyer for Macevicz who prosecuted the three patents that resulted from the ‘633 application, joined ABI in 1999. Therefore, ABI “possessed detailed knowledge of the disputed patents for eight years prior to the filing of the lawsuit, and yet AB expressed no interest in them.”
 
Illumina and Solexa also said that Macevicz had worked on related sequencing methods that involve hybridized oligonucleotide probes several years earlier and had offered a patent related to this to ABI in 1992, before he joined the company. ABI declined the offer at the time.
 
Finally, the defendants claimed that the disputed patent application became relevant to ABI’s business only in 2006 when the company acquired Agencourt Personal Genomics, which had developed a sequencing-by-ligation technology. 
Until then, ABI’s business was restricted to improving Sanger sequencing, according to the defendants.
 
In its response, ABI asserted that the ‘633 patent application was always related to its business, which includes DNA sequencing. ABI also argued that although colleagues and other ABI employees might have known about the invention, Macevicz did not formally disclose them to the company as required by his employment contract.
 
Welcome Back?
 
Late last year, before ABI was seeking a summary judgment from the court, Macevicz asked to be dismissed from the case because he “does not have a sufficient stake” in the suit.
 
ABI opposed that request, claiming that Macevicz “has not told the whole story.”
 
According to the company, in December 2006, before the suit was filed, ABI, Illumina, and Macevicz had “engaged in informal settlement talks.” As part of these talks, they had signed a release agreement promising not to seek monetary damages from Macevicz. The agreement would be confidential, “except as may be necessary to enforce” it, and could be terminated “if Dr. Macevicz was willfully untruthful in his meetings with AB and Illumina.”
 
ABI said that it has discovered “other wrongful actions by Dr. Macevicz that fall outside of the agreement,” which means he is now potentially liable for damages and “cannot cite the lack of a damages claim as a justification for dismissal.”
 
Among Macevicz’s alleged actions that he failed to mention during the December 2006 meeting was an indemnity agreement he signed with Lynx. He also allegedly failed to disclose that in late 2004, several months before he left ABI, he negotiated with Lynx to assign it the patent application, which he had not filed at the time.
 
Because of these disclosures, Macevicz “remains a necessary party to this action,” ABI contended.
 
In mid-January 2008, the judge denied Macevicz’s request to be dismissed from the case.
 
Statute of Limitations
 
Later that month, the defendants asked the judge to issue a summary judgment on ABI’s original suit because the statute of limitations in the case had run out. According to the defendants, because the three patents were issued in 1998, 1999, and 2001, “the applicable statutes of limitations for each of AB’s state-law claims regarding the Macevicz patents therefore expired no later than 2002, long before AB filed its complaint in this court in 2007.”
 
They insisted that the limitations period for ABI’s claims started in 1999 since Powers, the lawyer who prosecuted the patents on Macevicz’s behalf, knew about their existence when he joined ABI that year.
 
In its defense, ABI told the judge that because it did not know that the patents were issued — indeed, ABI said it learned of the patents in February 2006 — that the statute-of-limitations clock should not have been started in 1999.
 
According to ABI, Macevicz “did not tell a single AB person that he was applying for patents on DNA sequencing which he intended to claim for himself,” and that the company “has never conducted routine, comprehensive patent searches for all patents related to all aspects of its business.”
 
ABI claimed that the defendants have presented “no evidence that AB knew, or had a basis to suspect, that Dr. Macevicz had taken patents belonging to AB.” Powers, ABI said, “believed that Dr. Macevicz was working for Lynx, not AB, when he made his invention and filed the original patent application.”
 
Hoping to reconcile the dueling views, the court scheduled a hearing on both the defendants’ motion and ABI’s cross-motion for summary judgment on the statute of limitations for either March 13 or March 20.
 
Highly Confidential
 
Late in February, an ABI lawyer asked the court to help resolve a dispute between it and Illumina regarding their agreement to disclose confidential information to each other.
 
According to the request, Illumina is seeking sensitive information such as trade secrets, unpublished patent applications, and customer lists, disclosure of which “would be extremely harmful to AB’s business.” ABI wants such information to be available only to outside lawyers for Illumina, but not to its in-house counsel.
 
In particular, it does not want Christian Cabou, Illumina’s senior vice president and general counsel, to review any documents designated as “highly confidential” because he is “involved in helping Illumina decide how it can best compete against AB.”
 
The defendants’ lawyers replied that ABI failed to “meet its burden to show that any ‘clearly defined and serious injury will result’ from Mr. Cabou’s access to AB’s documents.”
 
ABI, they say, has so far marked almost every document it has provided as “highly confidential,” including a user’s guide to the SOLiD system and transcripts of depositions from witnesses that “did not reveal ABI trade secrets.”
 
Preventing Cabou from accessing ABI documents “would seriously hinder [his] ability to effectively communicate with outside trial counsel regarding critical issues in this litigation,” according to the defendants.
 
The court held a hearing on the dispute on March 6. As of deadline, the outcome of the hearing had not been filed with the court.
 
Claim Construction
 
Back in September 2007, the court had ordered a Markman claim construction hearing for Feb. 13, 2008. In preparation for this, in late December 2007, the plaintiff and defendants jointly submitted a claim construction and prehearing statement, selecting six claim terms and phrases, all from the first claim of the ‘341 patent.
 
Following a technology tutorial on Jan. 30, 2008 and the claim construction hearing on Feb. 13, the judge issued his claim construction order for the six selected phrases on Feb. 21, agreeing with ABI’s claim constructions in some cases, and with Solexa’s in others.

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