Document:

Exhibit
10.56

 

Advanced
Cell Technology, Inc.

One Innovation Drive

Worcester, Massachusetts 01605

 

 

January 23, 1998

 

 

Dr. James Robl,
Ph.D.

University of
Massachusetts

Department of
Veterinary and Animal Science

Amherst, MA 01003

 

Re:                               Consulting
Agreement

 

Dear Jim:

 

This letter confirms the
Agreement between you and Advanced Cell Technology, Inc. (“ACT”) under which
you will serve on the ACT scientific advisory committee provide consulting
services to ACT on the following terms and conditions:

 

1.                                       Services.  The consulting services you will provide are
described in the attached Exhibit A.

 

2.                                       Term.  This Agreement shall be for a period of one
year beginning October 1, 1997, and shall automatically renew for
subsequent periods of one year each unless either party notifies the other in
writing of an intention not to renew at least 60 days prior to the end of the
then-current period.

 

3.                                       Compensation.                                                                (a)
 ACT will pay you an amount of $48,000
per annum.  Your compensation will accrue
from day to day and be payable in once monthly installments.  In addition, ACT agrees to provide you with a
one-time signing bonus of $36,000 (thirty-six thousand dollars). It is further
understood that the aforementioned signing bonus is a one time only bonus and
that subsequent renewal of this or any similar consulting agreement between the
parties will not include payment of such signing bonus.

 

(b)  You will be
granted, immediately upon the initiation of ACT’s 1997 Incentive Stock Option
Agreement, a fully vested option to purchase twenty thousand (20,000) shares of
the company’s common stock. The exercise price shall be $0.25 per share for the
aforementioned 20,000 shares.  You will
also be eligible to earn, additional options to purchase share of the company’s
common stock.  The exercise price for
these additional options will be in accordance with the following schedule:

 

up to 10,000
options at $3.75 per share on the first anniversary date of this signing;

 

a further 10,000
options at $3.75 per share on the second anniversary date of this signing; and

 

a further 10,000 options
at $3.75 per share on the third
anniversary date of this signing.

 

Any additional
options [ILLEGIBLE] be granted under this 1997 Incentive Stock Option Agreement
and will be at the current exercise price as determined by that Agreement.  All options to

 

 

purchase common
stock of the company as described in this item shall be subject to the rules
and conditions of the company’s 1997 Incentive Stock Option Agreement except
where herein indicated by this item 3(b) (i.e., exercise price and
vesting schedule).

 

The numbers of
shares listed above in this item 3 (b) are premised upon a total number of one
million (1,000,000) shares of issued and outstanding common stock of the
company.  In the event of a stock dividend,
stock split, recapitalization or other change in the number of outstanding
shares of common stock of the company, your options, purchase prices and/or
holdings will be adjusted so as to continue to entitle you to the same
percentage of the company’s common stock at the same total cost. (Example: If
the number of outstanding shares doubles as a result of a recapitalization, you
will be entitled to twice as many shares and the prices will be one-half the
amounts recited above.) However, in the event of the sale of shares of common
stock for consideration which results in the dilution of the percentage
interests in the company owned by all shareholders, your dilution will be
proportionately equal to the dilution of the other shareholders.

 

4.                                       Independent Contractor.  You will provide your consulting services as
an independent contractor, not as an employee. Nothing herein creates any joint
venture, partnership, agency, employment or other relationship between us.  You acknowledge your responsibility for and
agree to comply with all federal and state tax laws with respect to any payments
you receive under this Agreement.  You
further agree not to hold yourself out as or characterize yourself as our
employee for any purpose.

 

5.                                       Ownership of Inventions.  Your consulting work for ACT may include your
making of inventions for ACT. ACT acknowledges that you are an employee of the
University of Massachusetts (the “University”), and that any inventions you
make for us under this Agreement shall be subject to (i) the terms of your
University Participation Agreement, and (ii) except to the extent expressly
provided to the contrary herein, the terms of the Research Collaboration
Agreement (the “RCA”) and the Exclusive License Agreement (the “License”), each
dated April 16, 1996, between ACT and the University.  Accordingly, for so long as you remain an
employee of the University, the following rules shall govern ownership of
inventions you make in performing your consulting work pursuant to this Agreement
for ACT at any ACT facility(ies):

 

(a)          Inventions
you discover during the Term of the RCA and first reduce to practice during said
Term or within 6 months thereafter shall belong to
the University and be subject to the RCA and the License.

 

(b)         Inventions
you discover or first reduce to practice more than 6 months after the termination
of the RCA shall be presumed to belong to the University (unless the University
stipulates to the contrary on a case-by-case basis under item 5 (c) below), and
shall be licensed to ACT by the University pursuant to the terms of the License
and Articles 4, 5 and 7 of the RCA as if such inventions had been part of the
Research Project under the RCA.

 

(c)          In
the case of any inventions you discover or first reduce to practice that you
and/or ACT in good faith believe to be unrelated to your work at the
University, such inventions(s) shall be disclosed to the University in writing
with a request for a determination by the University whether the invention
involved significant use of University resources (as defined in your University
Participation Agreement).  The University
shall decide this issue in good faith, and, if no significant use of University
resources was involved, then (i) the University will issue a written
acknowledgment that the University has no ownership interest in the relevant
invention, (ii) ACT shall be deemed the owner of the invention, and (iii) you
shall cooperate reasonably with

 

2

 

ACT to enable ACT
to secure patent protection for the invention in the United States and
abroad.  If, on the other hand, the
invention involved significant use of University resources, then the invention
shall belong to the University and shall be covered by item 5 (b) above.

 

(d)         For
avoidance of doubt, it is acknowledged and agreed that where ACT makes any
invention(s) in its own facilities for which you are not one of the “inventors”
(as that term is applied under U.S. patent law), the mere fact that you may
have consulted with the inventor(s) shall not grant the University any rights
in or to such invention(s) unless the invention in fact involved significant
use of University resources.

 

6.                                       Confidentiality.  All information relating to ACT’s research,
projects and business is highly confidential, and you agree to maintain it in
strictest confidence and use it only in connection with your work for us and
not for any other purpose.  You
specifically agree not to reveal any such information to any other persons.  The restrictions in this paragraph shall not
apply to information which: (a) you rightfully had before you learned it from
or about ACT; (b) subsequently becomes known or available to you from a third
party acting lawfully; (c) becomes generally known by publication, commercial
use or otherwise, without violation of this Agreement; (d) you develop
independently and without reference to or reliance upon any information from or
about ACT; or (e) may be disclosed under the terms of the RCA.

 

7.                                       Conflict of Interest.  During the period of your work for us under
this Agreement and for 18 months thereafter, you will not directly or
indirectly consult with or work for anyone else engaged in or proposing to
engage in commercial exploitation of xenotransplantation, pharmaceutical
protein production in transgenic animals or related technology.  Nor during the same period will you engage in
such activity for your own account or hire any of our employees or anyone who
was an employee of ours anytime during the period you worked for us under this
Agreement.  You acknowledge and agree
that the restrictions in this paragraph are necessary to protect ACT’s trade
secrets, which are essential to ACT’s business. The foregoing shall not apply
to your activities as a professor at the University.

 

8.                                       Remedies.  You acknowledge that any violation of the
restrictions set forth in Paragraphs 6 and 7 of this Agreement may irreparably
damage ACT and that such damage may not be compensable in money.  Consequently, you consent and agree that ACT
shall have, in addition to all other rights and remedies as may be available,
the right to obtain the issuance of an injunction from any court of competent
jurisdiction enjoining any breach of such restrictions.

 

9.                                       Miscellaneous.  This letter sets forth our entire Agreement.  It supersedes any prior agreements relating to
the same matters, whether written or oral.  It may be amended only in writing signed by
both parties.  Either party’s failure to
enforce any term or condition of this Agreement shall not be deemed a waiver of
such term or condition.  The rights and obligations
of both parties under Paragraphs 5, 6, 7 and 8 shall survive any termination of
expiration of this Agreement.  This
Agreement is governed by the laws of Maine without regard to principles of
conflicts of laws.  If any provision of
this Agreement is unenforceable, it shall be deemed amended to the extent
necessary to render it enforceable and the rest of the Agreement shall remain
in effect as before.

 

If the foregoing is in
accordance with your understanding and is agreeable, please indicate so by
signing and returning both enclosed copies of this letter.  We will return one fully-executed original to
you for your files.

 

3

 

ACCEPTED AND
AGREED

 

	
  Dr. James Robl, Ph.D.

  	
  Advanced Cell
  Technology

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ James M. Robl

  	
   

  	
  By:

  	
  /s/ [ILLEGIBLE]

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  2-2-98

  	
   

  	
  Title:

  	
  Chairman and CEO

  	
   

  
								

 

The University of
Massachusetts hereby acknowledges and agrees to the terms of Article 5 of
this Agreement, and hereby approves this Agreement as one involving permitted
Outside Activities under the University Policy on Faculty Consulting and
Outside Activities.

 

	
   

  	
  UNIVERSITY OF
  MASSACHUSETTS

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
					

 

4

 

EXHIBIT A

 

Description of Consulting
Services:  During each
consulting year, Dr. Robl will consult for ACT for not more than 20% of his
time during the academic year.(1)  This
consulting may require travel to ACT (Worcester, MA) or other specified
locations from time to time for scientific advisory board meetings.  Reasonable travel costs will be paid by ACT
for meetings held at locations other than ACT’s own premises.  The consulting duties will vary and involve
those items that the parties agree upon from time to time, including but not
limited to the following: (a) provide advice in setting up, conducting and
analyzing experiments conducted by ACT in the areas of (i) production of
pharmaceutical proteins in farm animals, (ii) xenotransplantation and (iii)
agricultural applications of cloning and transgenic technologies; (b)
communicate to ACT employees any new and important non-confidential scientific
findings (within and outside the lab) that Dr. Robl thinks may be of value to
ACT research and development efforts; (c) speak with potential ACT investors
about ACT scientific developments; and (d) perform any other duties reasonably
requested by ACT from time to time.

 

(1)  It is estimated that such consulting will
total approximately 95 - 98 days per calendar year, calculated as follows:

 

	
  Academic
  year = 9 months (Sep. - May)    =

  	
   

  	
  273

  	
   

  	
  total days

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  -78

  	
   

  	
  weekend days

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  195

  	
   

  	
  weekdays

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  -10

  	
   

  	
  legal holidays

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  185

  	
   

  	
  business days

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  -20

  	
   

  	
  vacation days

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  165

  	
   

  	
  working days

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  x20

  	
  %

  	
   

  	
   

  	
  = 33

  	
   

  	
  consulting days

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Summer
  = 3 months (June, July, August)    =

  	
   

  	
  92

  	
   

  	
  total days

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  -26

  	
   

  	
  weekend days

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  66

  	
   

  	
  weekdays

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  -1

  	
   

  	
  legal holiday

  	
   

  	
  = 65

  	
   

  	
  consulting days

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  98

  	
   

  	
  consulting daysExhibit
10.57

 

UNITED STATES
DISTRICT COURT

WESTERN DISTRICT
OF WISCONSIN

 

	
  INFIGEN, INC.,

  	
   

  
	
   

  	
  Plaintiff,

  	
   

  
	
   

  	
  vs.

  	
  Case No. 98 C 0431 C

  
	
   

  	
   

  
	
  ADVANCED CELL
  TECHNOLOGY, INC.,

  STEVEN L. STICE

  	
   

  
	
   

  	
  Defendants.

  	
   

  
				

 

FINAL SETTLEMENT
AGREEMENT

 

THIS
FINAL SETTLEMENT AGREEMENT (the “Agreement”) is entered into this 6th day of
August, 1999, among INFIGEN, INC., a Delaware corporation, whose principal place
of business is 6908 River Road, DeForest, Wisconsin 53532 (“Infigen”), and
ADVANCED CELL TECHNOLOGY, INC. (“Advanced Cell”) a Delaware corporation, whose
principal place of business Is One Innovation Drive, Worcester, Massachusetts
01605, and STEVEN L. STICE (“Dr. Stice”), an individual, whose business address
is University of Georgia, 125 Cedar Street, Athens, Georgia 30602.

 

1

 

I. CONSENT
JUDGMENT AND INJUNCTION:

 

1.  Advanced Cell and Dr. Stice agree to a
Consent Judgment that U.S. Patents 5,496,720 and 5,096,822 are valid. enforceable
and infringed.  This Consent Judgment in
the form of Exhibit A hereto will be binding upon the parties to the action,
their officers, agents, servants, and employees.

 

2.  Advanced Cell and Dr. Stice agree that the
Consent Judgment will include a permanent injunction against Advanced Cell and
Dr. Stice, their officers, agents, servants, and employees with respect to the
claims of U.S. Patents 5,496,720 and 5,096,822, as interpreted by the Court’s opinion
and order dated June 24th, 1999 as amended July 6, 1999.

 

II. CASH PAYMENTS

 

1.  Advanced Cell and Dr, Stice will pay within 90
days of execution of this Agreement (the “Effective Date”) the amount of
$250,000 in cash (by wire transfer).

 

III. NON-EXCLUSIVE
LICENSE GRANT

 

1.  Infigen will grant to Advanced Cell a
non-exclusive, royalty-free, fully paid up license in and to Infigen’s now

 

2

 

pending and future patent
applications for seven-and-a half years from the Effective Date, and issued
patents for use in the field for human cell therapy using nuclear-transfer-derived
cells.

 

2.  During the term of the license referred to in
paragraph 1 above, Advanced Cell may, at its cost, take over prosecution or
maintenance of any licensed Infigen patent applications or issued patents that
Infigen determines not to further prosecute or maintain.

 

IV. FUTURE
PAYMENTS

 

1.  Advanced Cell will pay Infigen $687,500 in
cash over a 3-year period from the Effective Date.  Payments totaling at least $208,333 must be
made within twelve months after the Effective Date.  Payments totaling $416,667 must be made within
18 months after the Effective Date.  Payments totaling $625,000 must be paid within
24 months after the Effective Date, and the entire $687,500 paid within 36
months after the Effective Date.

 

2.  Notwithstanding the foregoing, the above
$687,500 payment may be reduced to $550,000 if:

 

3

 

(a)  Advanced Cell pays such $550,000 in cash to Infigen
within twelve (12) months after the Effective Date (resulting in a $137,500
reduction in the amount otherwise due); or,

 

(b)  Advanced Cell provides notice of termination
of the non-exclusive license set forth above to Infigen within twelve (12)
months of the Effective Date.  In such
event payments totalling $166,666 by month 12, $333,333 by month 18, $500,000
by month 24 and $550,000 by month 36, shall be made.

 

3.  It is
the desire of Infigen, and the intent of Advanced Cell, that by this
Agreement Advanced Cell shall provide security to Infigen with regard to the
future payment of all outstanding settlement amounts as described herein.  Accordingly, as security for Advanced Cell’s
payment obligations hereunder, Advanced Cell will grant Infigen a first
security interest in all of its current and future equipment, including, but
not limited to, laboratory equipment, office equipment, and furniture (the “Equipment”).

 

Advanced
Cell will provide Infigen with a complete list of such Equipment, within 30
days after the Effective

 

4

 

Date, and will
represent and warrant that the list constitutes all of its Equipment.  Advanced Cell further represents and warrants
that the Equipment is wholly owned by Advanced Cell and
is or will not be pledged to any third party or otherwise encumbered. In this
regard, Infigen will have the right to make any and all UCC and other filings
on such existing and future Equipment as may be appropriate in order to perfect
its security interest in the Equipment.

 

Advanced
Cell further agrees that the list of Equipment shall be amended from time to
time, but not less than quarterly, to add any additional Equipment.  Advanced Cell also agrees that Infigen shall
have a security interest in any additional Equipment, whether or not such
Equipment is contained on an amended list of Equipment.

 

It is
the further desire of Infigen, and the intent of Advanced Cell, that Advanced
Cell not take any action that would impair the ability of Advanced Cell to make
the settlement payment or payments described herein.  Accordingly, Advanced Cell agrees that it
shall not sell, transfer, convey, license or otherwise encumber any Advanced
Cell assets, including but not limited to patents, patent applications,
confidential information, trade secrets, or Equipment that would materially
adversely affect

 

5

 

Advanced Cell’s payment
obligations to Infigen.  Any attempted
sale, transfer, conveyance, license or other encumbrance of any Advanced Cell
assets that would materially adversely affect Advanced Cell’s payment
obligations to Infigen shall be void.

 

In the
event of a payment default or an uncured default under this Agreement, Infigen
shall have the right to immediately accelerate all amounts payable, to
foreclose on its security interest and take possession of all listed and
unlisted Equipment, and to take any other appropriate actions.

 

Jurisdiction
and venue to enforce the provisions set forth above shall be in the Western
District of Wisconsin.

 

V. DISMISSALS OF
LITIGATION

 

1.  The lawsuit filed in the Superior Court
Department of the Trial Court Worcester Division of the Commonwealth of
Massachusetts by Advanced Cell against Infigen and Mr. Golueke (99-0218C) will
be dismissed with prejudice.  Infigen
will dismiss with prejudice its countersuit in that case.

 

6

 

2.  The lawsuit filed by Infigen against Advanced
Cell and Dr. Stice, (98 C 0431-C) will be dismissed with prejudice, provided,
however, that there will be a judgment entered on the verdict of the jury on
the trade secret misappropriation claim in favor of the Defendants and against
Plaintiff.

 

VI.   RELEASES

 

1.                                       INFIGEN’s
Release.  Infigen, for itself and its agents,
successors and assignees, does hereby forever release and discharge Advanced
Cell and Dr. Stice, and any of its past or present agents, employees, officers,
directors and attorneys from causes of actions, losses, promises, damages,
costs, expenses, liabilities and demands of whatsoever character, nature and
kind, known or unknown, suspected or unsuspected, fixed or contingent, arising
out of or in any way related to the actions, conduct, omissions, or events
alleged in the Wisconsin and Massachusetts Actions. This release expressly
includes all claims relating to any animals produced or in utero as of the
Effective Date.

 

2.                                       ADVANCED
CELL’s Release. Advanced Cell, for itself and its agents, successors and
assigns, does hereby

 

7

 

forever release and
discharge Infigen, and any of its past or present agents, employees, officers,
directors and attorneys from causes of actions, losses, promises, damages,
costs, expenses, liabilities and demands of whatsoever character, nature and
kind, known or unknown, suspected or unsuspected, fixed or contingent, arising
out of or in any way related to the actions, conduct, omissions, or events
alleged in the Wisconsin and Massachusetts Actions. This release expressly
includes all claims relating to any animals produced or in utero as of the Effective
Date.

 

3.                                       DR.STICE’s
Release.  Dr.Stice, for himself and
his agents, successors and assigns, does hereby forever, release and discharge
Infigen, and any of its past or present agents, employees, officers, directors
and attorneys from causes of actions, losses, promises, damages, costs,
expenses, liabilities and demands of whatsoever character, nature and kind,
known or unknown, suspected or unsuspected, fixed or contingent, arising out of
or in any way related to the actions, conduct, omissions, or events alleged in
the Wisconsin Action.  This release
expressly includes all claims relating to any animals produced or in utero as
of the Effective Date.

 

8

 

VII. MISCELLANEOUS

 

1.                                       The
terms of this settlement will remain confidential. The parties agree to issue a
joint press release regarding this settlement.  All parties must agree to the terms of the
press release before it is made public.  It
is agreed that Advanced Cell and Infigen shall have the right to make
statements to investors, or to others as required by law, about the terms of this
settlement.

 

2.                                       Notwithstanding
the foregoing, Dr. Stice shall not be precluded from making any statement,
written or verbal, incluing but not limited to an independent press release about
the fact that a jury found no misappropriation of trade secrets, and Dr. Stice
agrees that he will provide a copy of any press release to counsel for Infigen
in advance of publication.

 

3.                                       Each
party represents and warrants that it has the power to enter into this
Agreement and to consummate the transactions contemplated herein, and nothing
herein conflicts with any obligation or right of such party or requires consent
of any third party to effectuate.

 

9

 

4.                                       The
parties expressly agree that this Agreement shall be enforceable in Federal
Court in Madison, Wisconsin, before Judge Crabb, who will retain jurisdiction
for purposes of enforcing this Agreement.

 

5.                                       Counterparts.
 This Agreement may be executed in one or
more counterparts, all of which, taken together, shall constitute one and the
same instrument when each party has signed at least one counterpart.

 

IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed
as of the date hereof by an authorized representative of each on their behalf,
and each of these covenants that this instrument is a voluntary act of each
said Party and that the manner of execution by said Party is sufficient to
constitute a solid and binding irrevocable agreement on its behalf and on which
other may rely.

 

10

 

Understood and agreed
this 6th day of August, 1999.

 

	
  /s/ Dale Schwartz

  	
   

  	
  /s/ Michael West

  	
   

  	
  /s/ Steven Stice

  
	
  Infigen, Inc.

  	
   

  	
  Advanced Cell

  	
   

  	
  Dr. Steven Stice

  
	
  By Dale Schwartz

  	
   

  	
  Technology Inc.

  	
   

  	
   

  
	
   

  	
   

  	
  By Dr. Michael West

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Approved

  	
   

  	
  Approved

  	
   

  	
  Approved

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  /s/ Douglas E. Olson

  	
   

  	
  /s/ Robert H. Stier

  	
   

  	
  /s/ Michael P. Erhard

  
	
  Douglas E. Olson

  	
   

  	
  Robert H. Stier Jr.

  	
   

  	
  Michael P. Erhard

  
	
  Attorney for Infigen,
  Inc.

  	
   

  	
  Attorney for Advanced
  Cell

  	
   

  	
  Attorney for Steven
  Stice

  
	
   

  	
   

  	
  Technology, Inc.

  	
   

  	
   

  

 

11

 

IN THE UNITED
STATES DISTRICT COURT

 

FOR THE WESTERN
DISTRICT OF WISCONSIN

 

	
  INFIGEN, INC.,

  	
   

  	
  OPINION AND

  
	
   

  	
   

  	
  ORDER

  
	
   

  	
  Plaintiff,

  	
   

  
	
   

  	
  v.

  	
   

  	
  98-C-0431-C

  
	
   

  	
   

  
	
  ADVANCED CELL
  TECHNOLOGY, INC.

  and STEVEN L. STICE,

  	
   

  
	
   

  	
   

  
	
   

  	
  Defendants.

  	
   

  
					

 

In this civil case,
plaintiff Infigen, Inc. is suing defendants Advanced Cell Technology, Inc. and
Steven L. Stice for infringement of two patents and for theft of trade secrets
and common law misappropriation.  The
case is before the court on plaintiff’s motion for partial summary judgment,
defendants’ motion for partial summary judgment and for construction of certain
claims of plaintiffs U.S. Patent No 5,496,720. Jurisdiction is present 28 U.S.C.
§ 1338.

 

Plaintiff’s ‘720
patent is directed to a process
for activating bovine oocytes (unfertilized eggs) for use in cloning.  The activation process is an artificial means
of stimulating embryo development without the use of spermatozoa.  In the ‘720 patent,

 

 

	
   

  	
   

  	
  A copy of this document

  has been mailed to the following

  
	
   

  	
   

  	
  [ILLEGIBLE]

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  this 24th
  day of June, 1999 by

  

 

1

 

plaintiff lays claim to a
specific process that involves an increase in intracellular levels of divalent
cations (ions such as calcium that are charged positively with the ability to
accept two free electrons), followed by a reduction in the phosphorylation of cellular
proteins before placement of the cell in a culture medium such as the one
claimed in plaintiffs U.S. Patent No. 5,096,822.  In plaintiffs view, its ‘720 patent covers
this activation process whether it takes place before or after the oocyte has
received a donor cell containing desirable DNA and it does not require that the
introduction of the divalent cations precede the administration of the chemical
that reduces the phosphorylation of cellular proteins, so long as the actual
chemical reactions occur in sequence.  Moreover,
according to plaintiff, the activation process is parthenogenic because it
takes place without spermatozoa and does not lose its parthenogenic character
simply because it is applied to an oocyte after fusion with a donor cell containing
a blastomere that by definition contains genetic material from a male.

 

Defendants’
position is that the, ‘720 patent was written to cover a process in which a
scientist would remove the nucleus from the oocyte and activate the enucleated oocyte
before fusing the donor cell to the oocyte and that for two reasons, the patent’s
claims do not cover defendant Advanced Cell’s present practice of fusing a
donor cell before activating the nuclear transfer product.  First, an oocyte that has received a donor
cell is no longer referred to as an oocyte but as a nuclear transferred embryo.  Not
only does plaintiff use this term, itself in the patent, but persons of
ordinary skill in the art would do the same.  Thus,

 

2

 

defendants argue, it is clear that plaintiff’s process, which is
directed to the activation of an, oocyte, applies
only to the activation of an unfertilized egg that has not been fused with a
donor cell.

 

Second, plaintiff
refers in the patent to a parthenogenically-activated recipient oocyte and
defines the term parthenogenic activation as producing an embryonic cell
without “any contribution from a male gamete. ‘720 patent, col. 2, In. 45-46.
By definition, say defendants, this excludes activation of a fused product,
because such a product would contain a blascomere containing genetic material
contributed by a male gamete earlier in the process. Thus, by referring to parthenogenic
activation, the inventors limited the claims to cover only the process in which
activation of the oocyte precedes its fusion with a donor cell.

 

The three terms in
dispute requiring construction are “oocyte,” “in sequence” (as referring to the
increase in divalent cations and the reduction in phosphorylation) and “parthenogenic
activation.” I conclude that, as used in 1 claims and 18 of the, ‘720 patent, “oocyte”
refers to an unfertilized egg in either its natural state or one whose nucleus
has been removed or replaced with a foreign nucleus; “in sequence” means the
order in which the chemical processes of increasing levels of divalent cations
and reducing phosphorylation take place and not to the order in which chemicals
are added to produce those reactions; and “parthenogenic activation” refers to
any form stimulating embryo development without the use of spermatozoa, even if
carried out on a nuclear fused oocyte.

 

3

 

From the
evidentiary hearing held on claim construction, I make the following findings
of fact.

 

FACTS RELEVANT TO
CLAIM CONSTRUCTION

 

Plaintiff Infigen,
Inc. is a corporation doing research in animal cloning procedures.  Defendant Advanced Cell Technology, Inc. is a
corporation engaged in the same kind of work.  Defendant Steven L. Stice has worked for
defendant and for plaintiff’s predecessor and has recently founded a third
company in Georgia to work in the field of animal cloning.

 

The technology at
issue involves the cloning of cattle, and transgenic cattle in particular. A
transgenic cow is one that has had DNA introduced artificially into one or more
of its cells. The value of such a cow is that it is capable of producing a
transgene product, that is, one not naturally present in cattle, such as a
pharmaceutical drug.  Researchers hope to
be able to manipulate cattle genes so that transgenic cattle will produce a transgene
product in their milk that can be extracted from the milk or consumed with it.

 

Producing a
transgene product begins with a cloning phase One method of cloning is to start
with an unfertilized egg, or oocyte, that has been isolated from a cow.  The nucleus is removed, producing an
enucleated oocyte.  At this stage, the
enucleated oocyte might be activated according to the method described in
plaintiff’s ‘720 patent, after which a donor embryonic cell from a cow
containing a desired nucleus that has been manipulated to

 

4

 

contain new DNA inside it
would be transferred to the activated oocyte and fused with it. Alternatively,
the activation process would occur after the recipient oocyte has been fused
with the donor cell.  Whatever the
sequence, the next step is to transfer the fused and activated cell to a
culture medium.  If and when the product
develops into an embryo, it is transferred to the womb of a surrogate mother
cow, to develop into a calf.  The two
processes are set out in chart form below:

 

 

5

 

l.  Claim language

 

The relevant claims
of plaintiff’s ‘720 patent read as follows:

 

1.  A process for the in vitro parthenogenic
activation of a bovine oocyte comprising the following steps in sequence:

a.  increasing
intracellular levels of divalent cations in the oocyte; and

b.  reducing
phosphorylation of cellular proteins in the oocyte.

 

8.  The process of claim 1 wherein the
intracellular levels of divalent cation are increased by treatment with ethanol.

 

9.  The process of claim 1 wherein the
intracellular levels of divalent cation are increased by treatment with caged chelators.

 

18.  A process for the in vitro parthenogenic
activation of a 10-52 hour bovine oocyte comprising the following steps in
sequence:

a.  increasing intracellular
levels of divalent cation in the oocyte by introducing a divalent cation into
the oocyte ctyoplasm; and

b.  reducing phosphorylation of
cellular proteins in the oocyte wherein phosphorylation of cellular proteins is
reduced by adding a serine-threonine kinase inhibitor to the oocyte in an
amount effective to inhibit phosphorylation.

 

2.  Specifications

 

In the Summary of
the Invention, the inventors provide that the invention is directed to at least
three ends: 1) a process for parthenogenically activating mammalian oocytes
comprising increasing intracellular levels of divalent cations in the oocyte
and reducing phosphorylation of cellular proteins in the oocyte; 2) a process for
parthenogenically activating a 10-52 hour mammalian
oocyte in the same manner; and 3) a method for

 

6

 

transferring a nucleus
from a donor embryonic cell to a parthenogenically-activated recipient oocyte
and culturing the resulting nuclear transferred embryo in vitro or in vivo. ‘720
patent, col. 3, In. 28-62.

 

In the same
paragraph, the inventors describe the last two steps of their method as “transferring
the nucleus to the enucleated recipient parthenogenically-activated oocyte to
form a nuclear transferred oocyte; and forming a single cell embryo from the
nuclear 

transferred
oocyte.”  See col 3. In. 60-62. At
col. 15, In. 6, they refer to a fused donor cell and parthenogenically-activated
oocyte as a fused nuclear transfer embryo.  At col. 16, In. 46, oocyte is used to refer to
an electrofused nuclear transfer.

 

In col. 5, In.
6-9, the inventors explain that they use the term oocyte to refer to the “recipient
oocyte” (suggesting both the oocyte that is to receive a donor cell and one
that has received such a cell) and that they define it as an oocyte that “develops
from an oogonium and, following meiosis, becomes a mature ovum.” (Webster’s
Third International Dictionary of the English Language Unabridged,
Merriam-Webster, Inc. p. 1578 (1993), defines oogonium as “one of the
descendants of a primordial germ cell that give rise to oocytes.” The same
source defines meiosis at p. 1405 as “the sequence of complex nuclear changes
resulting in the production of cells (as gametes) with half the number of
chromosomes present in the original and typically involving an actual reduction
division in which the chromosomes without undergoing prior splitting join in
pairs with homologous chromosomes

 

7

 

of maternal and paternal
origin associated and then separate so that one member of each pair enters each
daughter nucleus and a second division not involving reduction.”)

 

Describing the invention
as it relates to nuclear transfer, the inventors explain a process in which
enucleated oocytes are parthenogenically activated before a donor cell is
inserted and fused with the recipient oocyte.  In the Detailed Description of the Invention,
col. 4, they describe activation without reference to any sequence in the increase
in calcium and a reduction in phosphorylation.  The inventors describe three experiments
carried out with parthenogenically activated aged, young and 24-hour oocytes in
nuclear transfer procedures.  Col. 14,
In. 55 - col. 16, In. 52.  Before setting
out the description of the experiments they carried out, the inventors note
that the experiments “art illustrative of the present invention and are not intended
to limit the invention in any way.” Col 9, line 44-46.

 

In col. 6, In.
60-64, the inventors note that “it appears that the initial calcium transient
appears to be an upstream event which activates a cascade of cellular changes
necessary for resumption of meiosis and the cell cycle.” At the end of the
section, they state that the invention is not confined to the particular
construction and arrangements described within the patent.  Col. 16. In. 49-52.

 

8

 

3.  Prosecution history

 

The inventors
added the phrase “in sequence” to claims 
1 and 18 in response to a statement by the examiner that it was unclear
whether steps (a) and (b) occurred simultaneously or in sequence.  Trial Exh. #3, at Bates stamp 60258. In
distinguishing the invention from prior art, the Inventors told the examiner
that the prior art did not suggest parthenogenic activation as claimed in their
application, that is, by increasing intracellular levels
of divalent cations in the oocyte, followed by reducing phosphorylation of
cellular proteins in the oocyte.  Id.
at 60271.

 

4.  Extrinsic evidence

 

One of defendants’
witnesses was James Robl, Professor of Veterinary and Animal Research at the
University of Massachusetts. Robl is a co-inventor on U.S. Patent No.
4,994,384, which was applied for in 1987, The patent uses the term oocyte to
refer to an oocyte that has received a donor cell. See, e.g., ‘384
patent, col. 3, In. 46; col. 4, in 67-col. 5. In. 5. Robl was a co-author with
defendant Stice of a paper published in 1988 in which the term oocyte was used
to refer to an oocyte that had been fused with a donor cell. See Plt’s
Htg. Exh. #27.

 

In three papers
published in 1998, defendant Stice and other scientists used the term oocyte to
refer to the product of fusion of a donor cell with a recipient oocyte.  See, e.g., Jose B. Cibelli,
Steve L. Stice et al., Cloned Transgenic Calves Produced from Nonquiescent

 

9

 

Fetal Fibroblasts,
280 Science 1256 (1998) (“When the donor cell is fused to the recipient oocyte,
which is arrested in the second metaphase in meiosis, the nuclear envelope
breaks down and the chromosomes condense until the oocyte is activated.”) and
1258 n.12 (“successfully enucleated oocytes were fused with actively dividing
CL 1 fibroblasts. After 2 to 4 hours, oocytes were then chemically activated” with
calcium ionophore and DMAP); W. Michael Zawada, Steven L. Stice et al., Somatic
cell cloned transgenic bovine neurons for transplantation in parkinsonian rats,
42 Nature Medicine 572 (1998) (describing activation of oocytes following
fusion of recipient enucleated oocyte with individual donor fibroblasts); Jose
B. Cibelli, Steve S. [sic] Stice et al., Transgenic Bovine Chimeric Offspring
Produced from Somatic Cell-derived Stem-Like Cells (1998) (draft), Plt’s
Hrg. Exh. #8, A 001494-95 (describing activation of oocytes that had been fused
with donor cells).

 

FACTS FOUND TO BE
UNDISPUTED FOR PURPOSE OF SUMMARY JUDGMENT

 

From the findings
of fact proposed by the parties, I find the following facts to be undisputed.

 

Plaintiff Infigen,
Inc is a Delaware corporation with its principal place of business in Madison,
Wisconsin. Defendant Advanced Cell Technology, Inc. is a Delaware corporation with
its principal place of business in Worcester, Massachusetts.  The defendant company 

 

10

 

was founded in 1994 to
develop and commercialize technologies related to the genetic modifications of
cells and the use of those cells to produce cloned transgenic animals for
agricultural and biomedical applications.  Defendant Steven L. Stice is an individual and
a named inventor on the ‘720 patent.

 

In a letter dated June 23,
1997, counsel for plaintiff’s predecessor in interest wrote defendant Advanced
Cell to alert it to the possibility that it was using a culture medium covered
by plaintiff’s ‘822 patent and might be infringing the ‘720 patent as well.
(Defendants have stipulated that the CR1 and CR2 media they used are within the
scope of claims 1-7 and 9-12 of the ‘822 patent; plaintiff has stipulated that
the ACM medium defendant Advanced Cell uses does not infringe.) This was the
first written notice either defendant had received of plaintiff’s claims of
patent infringement.

 

On September 25,
1997, defendant Advanced Cell executed a Development and Commercialization
Agreement with Genzyme Transgenics. Both companies were interested in
developing transgenic cattle that would produce recombinant human serum albumin
in their milk and in commercializing such a product.  Commercialization would require approval of
the United States Food and Drug Administration.

 

Plaintiff has never
sold, leased or offered for sale any articles, products or things practicing
the inventions of the ‘822 patent.

 

Defendant Advanced
Cell began infringement of plaintiff’s ‘720 patent in 1994. It

 

11

 

has been using CR1 and
CR2 media since at least 1996.

 

Defendant Stice
was the chief scientific officer at defendant Advanced Cell, in charge of
research and developmental activities and responsible for all scientists
working on this research and development.  He supervised the work of the technicians at
the company.

 

OPINION

 

A. Claim
Construction

 

Claim construction
is the first step in analyzing an allegation of patent infringement and must be
decided by the court, because it is a question of law, See  Markman v.
Westview Instruments. Inc., 517 U.S. 370, 372 (1996). Until the claim has
been construed, it is not possible to make the factual determination that is
the second step of the infringement analysis: whether the accused product or
method infringes the claims of the patent.  It is black letter law that claim construction
begins and usually ends with a consideration of “intrinsic evidence” only, that
is, the claims themselves, the written description portion of the patent specification
and the patent’s prosecution history. See, e.g., Digital
Biometrics, Inc. v. Identix, Inc., 149 F.3d 1335, 1343-44 (Fed. Cir. 1998).
A court is to give claim terms their ordinary meaning, unless the inventor has
made it clear in the patent or file history that the term has a special
meaning. See, e.g., Vitronics Corp. v. Conceptronic, Inc.,
90 F.3d 1576, 1582 (Fed. Cir. 1996). Further, the claims are to be read in view
of the specifications,

 

12

 

see  Markman.,
52 F.3d 967, 979 (Fed. Cir. 1995), aff'd, 517 U.S. 370, but the claims
may not be interpreted by adding words or concepts from the specifications that
do not appear in the claims, See  Electro Medical Systems S A, v.
Cooper Life Sciences, Inc., 34 F.3d 1048, 1054 (Fed. Cir. 1994). “The
written description part of the specification itself does not delimit the right
to exclude.  That is the function and
purpose of claims.” Markman, 52 F.3d at 980.

 

1.  Oocyte

 

Defendants assert
that the patent distinguishes between enucleated “oocytes” and
nuclear-transferred “embryos,” both in its language and by the specifications’
exclusive reference to the activation of enucleated oocytes, but a reading of
the patent does not bear out defendants’ assertion.  The inventors do not use “oocyte” to refer
only to a pre-fused cell and nothing in the patent suggests that the term
should be read in this restricted manner.  The inventors define oocyte in three ways: 1)
as developed from an oogonium; 2) as a structure able to enter meiosis; and 3)
a structure able to reach metaphase II of meiosis.  Throughout the patent, the inventors use the
term oocyte broadly to refer to cells that are enucleated and to cells that are
transferred and fused.  Because the
inventors did not adopt the distinction between embryo and oocyte that
defendants might wish they had and because nothing in the patent indicates that
they intended to make such a distinction, it is

 

13

 

not possible to infer from
the patent language that the patented method refers only to a cloning method in
which activation precedes fusion.

 

Except when the
inventor uses a special meaning for a word, a court must give the term its
ordinary meaning.  If there were any
doubt that scientists such as the inventors of the ‘720 patent use the term
oocyte as well as embryo to refer to the product of a recipient, enucleated
oocyte and a donor cell, it would be resolved by the evidence that other
scientists, including defendant Stice, used “oocyte” in this manner in
scientific papers they wrote as recently as last year, as well as in others
they wrote before the application for the ‘720 patent was filed in 1993.
Although I do not believe that the interpretation is in doubt and am not relying
on the evidence in the scientific papers, it would be permissible to do so to
resolve any remaining ambiguity in the use of the term.  For that reason, I am denying defendants’
motion to strike all references to extrinsic evidence from plaintiff’s brief. See
Vitronics  Corp., 90 F.3d at 1583 (extrinsic evidence may be
considered, if needed, to assist in determining meaning or scope of technical
terms after court has looked to language of claims, specification and
prosecution history).

 

Defendants are correct
that the ‘720 patent specification describes a cloning process in which
activation precedes fusion, but incorrect in arguing from this that the patent
is limited to the activation of pre-fused, enucleated oocytes. It is black
letter law that claims are not limited to the embodiment described in the
patent specifications.  See, e.g.,
Electro

 

14

 

Medical Systems, SA,
34 F.3d at 1054. Moreover, a patent claim may encompass uses not anticipated by
the inventor and therefore not described in the patent. See  SRI Int'l
v. Matsushita Electric Corp., 775 F.2d 1107, 1121 (Fed. Cir. 1985) (patent
applicant is not required to describe in specification every conceivable future
embodiment of invention). Therefore, it is irrelevant that the ‘720 patent
specifications describe experiments in which activation precedes fusion,
provided that the claim language is broad enough to include a process in which
fusion precedes activation.  The language
of claims 1 and 18 is not limited to either sequence; the claims cover the
method of activation without specifying when in the cloning process it must
occur.

 

2.  In sequence

 

Defendants argue
that when the inventors spoke of steps “in sequence,” they meant that that
chemicals leading to the increase in divalent cations and then to the reduction
in phosphorylation must be added in sequence.  They maintain that no other reading of the
claim language is logical, particularly, because in their view, scientists did
not understand the sequential reaction of these two processes in 1993.

 

Claim 1 claims a
process for in vitro parthenogenic activation of an oocyte “comprising the
following steps in sequence”: the increase of intracellular levels of divalent
cations in the oocyte and the reduction of phosphorylation of cellular proteins
in the oocyte.

 

15

 

Contrary to defendants’
assertion, the plain meaning of the language is that the steps occur in
sequence; that is, step a occurs before step b. The claim recites a result.  The claim says nothing about the
administration of chemicals to achieve the reactions or the order in which such
chemicals might be administered. Therefore, it is not limited to a
method in which the chemicals are administered in sequence, rather than
simultaneously, so long as the resulting reactions occur sequentially.  As to the argument that scientists would not
have understood the sequential nature of the reactions when the ‘720 patent
application was filed, the patent specifications includes the inventors’
observation that the initial calcium transient “appears to be an upstream
event.” Col. 6, In. 61-62.

 

The language of
other claims in the patent does not demonstrate that the inventors intended
that claim 1 refer to both treatments and results.  Claims 8 and 9 are claims that
depend on claim 1. They recite specific processes to achieve the results
claimed in claim 1. Claim 18 is an independent claim. Like claims 8 and 9, it
claims specific ways of achieving the result claimed in claim 1. The legal
presumption is that the use of different words or phrases in separate claims
implies a significant distinction between the claims.  See  Tandon Corp. v. United States
Int’l Trade Comm’n, 831 F.2d 1017, 123 (Fed. Cir. 1987).

 

The specification
language does not mandate a different meaning of “in sequence.” In describing
one of the experiments, the inventors refer to sequential treatment
and describe the time it takes for the sequential steps to occur after
administration of particular chemicals,

 

16

 

‘720 pat., col. 10, In. 54-55,
but they do so using very different language from the language they use in
claim 1. Instead of reciting the steps as they occur in sequence, as they do in
claim 1, they refer explicitly to the timing of the treatments administered.

 

The prosecution
history does not mandate a different understanding of the term “in sequence.”
Although the term was added during the prosecution of the application, there is
no indication that it was added to refer to the timing of the administration of
chemicals rather than to the order in which the steps described in (a) and (b)
occur.  Rather, the evidence is that it
was added in response to a comment by the examiner that it was unclear whether “step
(a) and step (b) occur simultaneously or in sequence.”

 

Defendants have a
final argument on this point that they raise for the first time in their reply
brief and fail to develop, Relying on a concurring opinion in one case from the
Federal Circuit, Seal-Flex, Inc. v. Athletic Track and Court Construction,
172 F.3d 836 (Fed. Cir. 1999) (Rader, J., concurring), they argue that as claim
1 is written, it is a “step-plus-function “within the scope of 35 U.S.C. § 112,
¶6. Paragraph 6 provides that

 

An element in a
claim for a combination may be expressed as a means or step for performing a
specified function without the recital of structure, material, or acts in
support thereof, and such claims shall be construed to cover the corresponding
structure, material, or acts described in the specification and equivalents
thereof.

 

Defendants maintain that
under this provision, claim 1 must be read as covering the corresponding acts
described in the specification because the claim is written to cover

 

17

 

functions without
specifying how the functions are to be achieved.  It may be that defendants are correct.  It is not possible to know from the scant
fifteen lines in their brief or the twelve sentences of their argument at the
evidentiary hearing exactly what their theory is on this complex question of
patent construction.  The law in this
circuit is that “[a]rguments that are not developed in any meaningful way are
waived.” Central States, Southeast and Southwest Areas Pension Fund v.
Midwest Motor Express, Inc., 1999 WL 

371671, *7 (7th Cir.
1999); see also Finance Investment Co. (Bermuda)  Ltd. v. Geberit AG, 165 F.3d 526, 528
(7th Cir. 1998).

 

3.  Parthenogenic activation

 

The ‘720 patent
claims a process for “in vitro parthenogenic activation of a bovine oocyte.”
The patent defines “parthenogenic” as “the ‘production’ of embryonic cells,
with or without eventual development into an adult, from a female gamete in the
absence of any contribution from a male gamete (Kaufman 1981).” ‘720 pat., col.
2, In. 43-46. Although this definition is included in the “Description of Prior
Art,” it is the only definition
given in the patent specifications.  Defendants argue that this definition cannot
be read to cover the activation of a recipient oocyte containing a blastomere
because by definition, a blastomere contains genetic material contributed by
both a female and a male gamete.

 

Oddly enough,
despite having made this argument in their brief on claim

 

18

 

construction, defendants
say in their brief in opposition to plaintiff’s motion for partial summary
judgment, that “defendants have activated only nuclear transfer embryos parthenogenically.”
Br. at 7 (emphasis added). In making this statement and using “parthenogenically”
to refer to the activation of a oocyte recipient that has had a blastomere
fused to it, defendants seem to be conceding the very point they argue on claim
construction.  At the least, defendants’
statement is a strong indication that the term parthenogenic covers any
activation that takes place without the use of sperm, whether the oocyte being
activated has received a blastomere or is still waiting for one.  This conforms to the logical reading of the
definition, in which it is clear that it is the process (i.e., activation) that takes
place in the absence of any contribution
from a male  gamete.  Even if a
blastomere is fused with the oocyte before activation, the male chromosomes in
the blastomere do not play any role in the activation process.  I conclude that production of embryonic cells
is parthenogenic if the activation process does
not involve spermatoza, regardless whether the recipient
of activation contains male genetic material.

 

B. The Parties’
Motions for Partial Summary Judgment

 

In its motion for
partial summary judgment, plaintiff asks for judgment on the following issues
of infringement:

 

1.  Defendants’ infringement of claims 1-7, 9-12
of the ‘822 patent by their use of CR1

 

19

 

or CR2 media;

 

2.  Defendants’ infringement of claims 1-7, 9-12
of the ‘822 patent by their use of CR1or CR2 media as control media;

 

3.  Defendants’ infringement of claims 1, 7, 10-12
of the ‘822 patent by their use of CR2 media in the absence of bovine serum
albumin;

 

4.  Defendants’ infringement of claims 1-6, 10-13
and 15-23 of the ‘720 patent by their use of methods of their alleged “sequential”
activation of oocytes;

 

5.  Defendants’ infringement of claims 1-6, 10-13
and 15-23 of the ‘720 patent by their use of methods of their alleged “simultaneous”
activation of oocytes; and

 

6.  Defendants’ infringement of claims 1-6, 10-13
and 15-23 of the ‘720 patent by their use of methods of their alleged “sequential”
activation of oocytes used as a control activation method.

 

In their own
motion for partial summary judgment, defendants are seeking a judgment that
plaintiff cannot prevail on its claims of infringement because it cannot prove
that it has complied with the statutory notice requirements of 35 U.S.C. § 287
and because any allegedly infringing activity undertaken by defendants after September 25,
1997 is excused under the provisions of 35 U.S.C. 5 271(e)(l) (the “safe harbor”
provision). When they filed their motion, defendants included an allegation
that they were entitled to partial summary judgment on plaintiff’s claim that
defendants had infringed the ‘822 patent.  They

 

20

 

have since stipulated to
the fact that the CR1 and CR2 media that they used are within the scope of
claims 1-7 and 9-12 of plaintiff’s ‘822 patent.  They also expanded their motion for partial
summary judgment.  In their briefs in
support of their own motion and in opposition to plaintiff’s motion, defendants
raised two new arguments for exempting them from liability for infringement:
estoppel and a common law research or experimentation exception for infringing
acts.

 

1.  Plaintiff’s entitlement to damages for pre-
June 23, 1997 activity

 

Although admitting
that they used plaintiff’s patented culture media and oocyte activation method
before June 23, 1997, defendants argue that they are not liable to
plaintiff for damages for these uses for two reasons. 1) Plaintiff failed to mark its culture medium, as required
under 35 U.S.C. § 287, and 2) plaintiff is estopped from proving its
entitlement to damages.

 

a.
 Marking

 

35 U.S.C. § 287
makes it a prerequisite to the recovery of damages for infringement that
patented articles placed in commerce be marked with the word “patent” or its abbreviation
and the patent number.  Section 287
does not apply to patent owners who do not sell articles covered by the patent
or authorize others to sell such articles.  Defendants

 

21

 

concede that the statute
does not apply to alleged infringement of process or method claims, such as
those in the ‘720 patent, see  American Medical Systems Inc. v.
Medical Engineering Corp., 6 F.3d 1523, 1538 (Fed. Cir. 1993) (“ordinarily,
where the patent claims are directed only to a method or process, there is
nothing to mark”), but they continue to believe the statute applies to the
culture media that are the subjects of the ‘822 patent, despite the undisputed
fact that plaintiff never sold or leased the culture media or offered them for
sale.  They try to avoid the force of
cases such as Loral Fairchild Corp. v. Victor Co. of Japan, Ltd., 906 F.
Supp. 813, 816 (E.D. N.Y. 1995) (marking statute does not apply to patent owner
who neither sells nor authorizes another to sell articles covered by patent)
(citing Wine Railway Appliance Co. v. Enterprise Railway Equipment Co.,
279 U.S. 387, 398 (1936)), by raising for the first time in their reply brief
the argument that the marking statute comes into play because a third-party
vendor, Specialty Media, sold culture media covered by the ‘822 patent.  Defendants concede that they do not know the
arrangement under which Specialty Media made sales, but argue that if the sales
were authorized by plaintiff, the failure to mark the products deprives
plaintiff of the right to collect damages.

 

For two reasons, this
argument offers no help to defendants. 
First, the argument was not raised until the reply brief, thus giving
plaintiff no opportunity to respond to it. 
See James v. Sheahan, 137 F.3d 1003, 1008 (7th Cir. 1998)
(arguments raised for first time in reply brief are waived).  Second, as defendants admit, they do not know
how Specialty

 

22

 

Media came to be selling
culture media covered by the ‘822 patent.  Defendants have not come forward with
sufficient evidence to show that they would have a disputable issue of fact on
their claim that Specialty Media’s sales make the remedies for violation of § 287
unavailable to plaintiff. They have not adduced any facts from which an inference could be drawn
that plaintiff knew of Specialty Media’s sales and approved them, or at least
acquiesced in them.

 

Defendants’ motion
for partial summary judgment will be denied with respect to defendants’ claim
that plaintiff's failure to comply with the marking statute prevents it from
recovering damages for defendants’ infringing use of the ‘720 methods and the ‘822
culture media.

 

b.  Estoppel

 

As a threshold
matter, plaintiff objects to any reference to a defense of estoppel because
defendants never pleaded it as an affirmative defense in their answer and
plaintiff would be prejudiced if the court allowed defendants to raise the
defense at this late stage in the proceedings after discovery has closed.  Plaintiff is correct.  See  Bank Leumi Le-Israel., B.M, v.
Lee, 928 F.2d 232, 235 (7th Cir. 1991) (failure to plead an affirmative defense results in
waiver of that defense). See also LINC Finance Corp. v. Onwuteaka, 129 F.3d
917 (7th Cir. 1997) (defendant who admitted in answer that plaintiff was suing
in its capacity

 

23

 

as assignee could not
assert for first time in opposition to plaintiff’s motion for summary judgment
that plaintiff lacked standing to sue as an assignee). I conclude that
defendants waived any defense of estoppel by failing to plead it as required
under Fed. R. Civ. P. 8(c).

 

Even if defendants
had not waived the defense, however, it would do them no good.  Although defendants mount a multi-faceted
estoppel argument, they cannot sustain it.  The argument begins with their assertion that if
plaintiff did not authorize Specialty Media to sell the ‘822 culture media,
plaintiff must have known that the selling was going on and therefore, must
have acquiesced in the sale of an unmarked product, leading defendants and
others to think that plaintiff did not intend to enforce it rights under the ‘822
patent.  As a second instance of
misleading conduct, defendants allege that lawyers working for a predecessor of
plaintiff told defendant Stice and his co-workers that the patent protection
provided by the ‘822 patent was weak and that the patent could be designed
around easily.

 

Estoppel requires
reliance and material prejudice in addition to misleading conduct by the party
to be estopped.  For the reliance
element, defendants argue that they relied on plaintiff’s silence both in the
face of publications in which defendants cited their use of the culture media
and of the knowledge of Specialty Media’s sales.  As to prejudice, defendants say that they will
be hurt financially if plaintiff can proceed on its claim of infringement of the
‘822 patent.

 

As I noted in
discussing the claim of noncompliance with the marking statute,

 

24

 

defendants have proposed
no facts concerning the Specialty Media sales, including the critical ones
involving plaintiff’s knowledge of the sales and the arrangements made between
plaintiff and Specialty Media.  In the
absence of those facts, I can draw no inferences either of express or implied
authorization or of misleading silence in the face of infringement.  As to the assertion that plaintiff is estopped
by statements made by a predecessor company’s attorneys, little need be said.  Defendants have not shown that the statements
are admissible in evidence.  They appear
to be hearsay that is not covered by any exception to the rule prohibiting the
admission of hearsay into evidence.  (Whether
they violate an attorney-client privilege is another, separate question,
irrelevant to resolution of the pending motions.)  In addition to the hearsay problems,
defendants have not shown that the statements were either made, adopted or
authorized by plaintiff or that if they were, they would demonstrate plaintiff’s
intent not to enforce the ‘822 patent.  In short, even if I were to address defendants’
estoppel argument, it is a non-starter, for a myriad of reasons.

 

Plaintiff has
moved to strike defendant Stice’s affidavit in support of the proposition that
he gathered from the lawyers that the ‘822 patent protection was thin.  The motion is unnecessary because I am not
giving the affidavit any consideration.

 

2.  Plaintiff’s entitlement to damages for
infringement occurring after June 23,1997

 

Defendants concede
that they have used the methods in the ‘720 patent and the

 

25

 

culture media covered by
the ‘822 patent since receiving notice of infringement in June 1997, but they
deny liability for these post-notice activities on two grounds. 1) Their acts are a permitted exception to infringement
under 35 U.S.C. § 271(e)(l) and 2) their acts come within a research
exception to infringement.

 

a.  Section 271(e)(l)

 

In the 1984 Drug
Price Competition and Patent Term Restoration Act, Congress enacted legislation
designed to advance the development of generic substitutes for patented
prescription drugs.  Recognizing both
that drug patent holders often were deprived of the value of as much as seven
to twelve years of patent protection because of the time it took after the
patent issued to obtain the FDA approval required for marketing the drug and
that under the existing law companies could not begin the lengthy process of
developing generic drug substitutes until after the prescription drug patent
had expired, Congress devised a scheme involving a trade-off between the two
groups.  See  Ell Lilly v.
Medtronic, Inc., 496 U.S. 661, 670 (1990); Telectronics Pacing Systems
v. Ventritex. Inc.. 982 F.2d 1520, 1524 (Fed. Cir. 1992). Patents relating
to human drug products and to medical devices, food additives or color
additives subject to regulation under the Federal Food, Drug, and Cosmetic Act
can be extended up to five years if the product “was subject to a regulatory
review period before its commercial marketing or use,” and “the permission for the commercial marketing

 

26

 

or use of the product
after such regulatory review period [was] the first permitted commercial
marketing or use of the product under the provision of law under which such
regulatory review period occurred.” See  Eli Lilly, 496 U.S. at
670-71; 35 U.S.C. § 156(a). At the same time, Congress exempted from patent
infringement the acts of making, selling or using a patented invention “solely
for uses reasonably related to the development and submission of information
under a Federal law which regulates the manufacture, use, or sale of drugs.  See  Eli Lilly, 496 U.S. at 671; § 271(e)(l).
Thus, holders of certain patents received an extended period of protection
under the patent; in exchange, they were barred from collecting damages caused
by otherwise infringing acts by persons engaging in such acts solely for uses
reasonably related to complying with FDA requirements. See  Eli Lilly,
496 U.S. at 671.

 

Defendants argue
with little support that their use of plaintiff’s patented products and method
comes within the § 271(c)(l) exception because they were working on the
preliminary steps of a product that would need FDA approval when and if it was
commercially viable, They rest their argument on the language of § 271(c)(1),
which provides in pertinent part as follows:

 

It shall not be an
act of infringement to make, use, offer to sell or sell within the United
States or import into the United States a patented invention :...  solely for uses reasonably related to the
development and submission of information under a Federal law which regulates
the manufacture, use, or sale of drugs or veterinary biological products.

 

27

 

At first reading,
it appears that if defendants are correct about the purpose for which they are
using plaintiff’s patented products and method, their use is exempt from infringement
under this provision.  As Eli Lilly
holds, however, § 271(e)(1) is to be read in conjunction with § 156. Id.
at 671-72. When that is done, it becomes apparent that § 271(e)(l) applies only
to those patents identified in § 156(a) (4) and (5) that, among other
things, cover certain specified products (including drug products, see § 156(f))
that were subject to a regulatory review period before their commercial
marketing or use.  Neither of plaintiff’s
patents covers a drug product; neither patent would have been eligible under § 156
for an extension in its term.  As Eli Lilly makes clear, the patent
extension is the quid pro quo for the protection from infringement actions and
vice versa.  A patent holder whose patent
is ineligible for the five-year extension is not precluded from suing for
infringement damages (except in unusual circumstances not present here, such as
those involving patents pertaining to “follow-on” drug products rather than
pioneers.)  See  id. at 672
n.4.  Neither the ‘822 media nor the ‘720
method is subject to the use and sale exemption from infringement actions
provided under § 271(e)(1).

 

Defendants have
cited no cases that support their reading of § 27l (e)(1) as applying to
any kind of product or method, whether or not it is a product identified in § 156(f).
 My own research shows no cases granting
the § 271(e)(1) exemption from the otherwise infringing use of any product
other than those drugs, medical devices, food and color

 

28

 

additives defined
specified in § 156. See, e.g., Eli Lilly, 496 U.S.
661 (implantable cardiac defibrillator); AbTox, Inc. v. Exitron Corp.,
122 F.3d 1019 (Fed. Cir. 1997) (medical device for sterilizing plasma); Glaxo,
Inc. v. Novopharm, Ltd., 110 F.3d 1562 (Fed. Cir. 1997) (active ingredient
in anti-ulcer medication); Telectronics Pacing Systems, 982 F.2d 1520
(implantable defibrillator); Ortho Pharmaceutical Corp. v. Smith, 959 F.2d
936 (Fed. Cir. 1992) (oral contraceptive); Amgen, Inc. v. Hoechst Marion
Roussel, Inc., 3 F. Supp.2d 104 (D. Mass. 1998) (hormone that stimulated
growth of red blood cells); Key Pharmaceuticals, Inc. v. Hercon Laboratories
Corp., 981 F. Supp. 299 (D. Del. 1997) (transdermal patch); NeoRX Corp.
v. Immunomedics, Inc., 877 F. Supp. 202 (D.N.J. 1994) (product for labeling
proteins to detect and treat cancer); Infinitech, Inc. v. Vitrophage, Inc.,
842 P. Supp. 332 (N.D. Ill. 1994) (perfluorocarbon used in retinal surgery); Baxter
Diagnostics Inc. v. AVL Scientific Corp., 798 F. Supp. 612 (C.D. Cal. 1992)
(medical devices).

 

Plaintiff has
proposed a number of facts about the nature of the work that defendant Advanced
Cell is doing for Genzyme pursuant to the agreement between the two, but it is
not necessary to explore those proposals.  They are advanced to support plaintiff’s
contention that even if § 271(e)(l) applied to the patents, Advanced Cell
could not claim its benefits because the work the company is doing is not
reasonably related to the development and submission of information to the FDA.
 Because I agree with plaintiff that § 271
is not applicable, I will not express any opinion whether the uses Advanced
Cell is making of

 

29

 

plaintiff’s patented
media and method in the work it is doing for Genzyme is related reasonably to
the need to support an
application to the FDA.

 

b.  Research exception

 

Casting about for
additional reasons to deny plaintiff any damages for infringement, defendants
suggest that they are exempt from liability under a common law research
exception for their use of the ‘822 culture media.  Defendants do little to flesh out their
suggestion, other than to assert that a jury should be permitted to decide “whether
science — and mankind — benefits when researchers like Dr. Stice (and Dr.
First) use otherwise patented technology as controls or otherwise in their
university-based research laboratories.  A jury should decide whether a remote promise
of some commercial success should override the benefits of such university-based
research.” Defs’ Br. in Opp. to Infigen’s Br. for Partial Summ. Judgm., dkt.
#145, at 6. The assertion is hardly persuasive.  In the first place, it is up to Congress to
decide whether there should be an infringement exemption for university-based
research laboratories.  So far, Congress
has not seen fit to grant one.  See,
e.g., Patent Competitiveness and Technological Innovation Act of 1990,
H.R. 5598, 101st Cong. (1990), which was never passed but which, among other
things, proposed exemptions from infringement liability for university
research.  Second, Dr. Stice is being
sued for work done in a commercial laboratory, not for work done in a
university research setting.

 

30

 

There is a common law experimental exception to infringement,
but its scope has never been explored in detail.  Generally, it seems to be what Justice Story
described it as in Whittemore v. Cutter, 29 Fed. Cas. 1120, 1121 (C.C.D.
Mass. 1813): an exemption from punishment for building “a machine merely for
philosophical experiments, or for the purpose of ascertaining the sufficiency
of the machine to produce its described effects.” See, e.g., Roche
Products v. Bolar Pharmaceutical Co., 733 F.2d 858, 862-63 (Fed. Cir. 1984)
(finding experimental use exception to be “truly narrow” and refusing to expand
it to cover use of patented drug for federally mandated premarketing tests
prior to enactment of § 271 (e)(1)).

 

It is undisputed that defendants used plaintiff’s patented
activation methods and culture media in their cloning experiments and that the
purpose of those experiments was to develop transgenic cattle that could be
used for commercial purposes, including the production of transgene products.  These were not “philosophical” experiments or
experiments carried out merely to satisfy the curiosity of researchers; they
were done as part of the ongoing business activities of defendant Advanced Cell.
 No common law research or
experimentation exception is applicable.

 

C.  Sanctions

 

In its reply brief in
support of its motion for summary judgement, plaintiff asks that

 

31

 

sanctions be imposed on
defendants pursuant to Fed. R. Civ. P. 11 or 28 U.S.C. § 1927 for their
assertion of defenses that have no basis in law or fact.  The motion for Rule 11 sanctions must be
denied because Rule 11(c)(1)(A) requires both that such a motion “shall be made
separately from other motions” and that it “not be filed with or presented to
the court unless, within 21 days after service of the motion, the challenged
paper... is not appropriately withdrawn or corrected.” Plaintiff neither filed its
motion separately nor presented it to the court 21 days after serving it on
defendants.

 

Plaintiff is
correct that defendants’ defenses of estoppel, the safe harbor of § 271(e)(1)
and the common law research or experimentation exception to infringement are
not well thought through.  However, I do
not find that they cross the line of objective unreasonableness and vexatiousness
that this circuit requires for the imposition of a sanction under § 1927. See,
e.g., Webster v. Methodist Occupational Health Centers, 141 F.3
1236, 1239 (7th Cir. 1998).  (In applying
sanctions, Federal Circuit follows law of pertinent regional circuit.  See  Seal-Flex, Inc. v. Athletic
Track and Court Construction, 172 F.3d 836, 845 (Fed. Cir. 1999)).  I cannot say that counsel’s work has multiplied the proceedings vexatiously, although it did add
to the effort required of plaintiff’s counsel in briefing and to the court’s
workload.  Cf.  Fox Valley
Construction Workers v. Pride of Fox Masonry, 140 F.3d 661 (7th Cir. 1998)
(imposition of § 1927 sanctions upheld when lawyer evaded service of
process, gave untrue sworn testimony in affidavit regarding service of process,

 

32

 

failed to file an
appearance, filed baseless appeals with intent to delay proceedings, incorporated
a second corporation in effort to keep client from having to pay debts and tried
to avoid contempt proceeding by having client file bankruptcy proceeding).  See  also Laitram Corp. v. Cambridge
Wire Cloth Co., 919 F.2d 1579 (Fed. Cir. 1990) (court found that counsel
for both sides had misled both district court and court of appeals in asking
the courts to decide issues of infringement with respect to non-existing
product, had made statements of fact with no reference to the record, had cited
arguments of counsel as “evidence,”
had referred to materials as if they were before the district court when they
were not and generally abandoned professional obligations as officers of
court).

 

D.  Summary

 

Taking into
consideration what I find to be the proper construction of the disputed claims,
the undisputed facts and the arguments of the parties, I conclude that
plaintiff is entitled to a finding of infringement, as sought in its motion for
partial summary judgment.  Defendants
have not denied that they infringed the claims of the patent; they have argued
only that various affirmative defenses relieve them of liability for what would
otherwise be infringing acts.  The
affirmative defenses are mostly wishful thinking.  They are not supported by the factual
evidence or by the law.

 

33

 

ORDER

 

IT IS ORDERED that
the disputed terms in plaintiff Infigen, Inc.’s U.S. Patent No. 5,496,720
patent is construed as follows:

 

As used in claims 1 and 18 of the ‘720 patent, “oocyte” refers
to an unfertilized egg in either its natural state or one whose nucleus has
been removed or replaced with a foreign nucleus; “in sequence” means the order
in which the chemical processes of increasing levels of divalent cations and
reducing phosphorylation take place and to the order in which chemicals are
added to produce these reactions; and “parthenogenic activation” refers to any
form of stimulating embryo development without the use of spermatozoa, even if
carried out on a nuclear fused
oocyte.

 

FURTHER, IT IS
ORDERED that plaintiff Infigen, Inc.’s motion for partial summary judgment is
GRANTED as to its claims that

 

1.  Defendants Advanced Cell Technology, Inc. and
Steven L. Stice infringed claims 1-7, 9-12 of the ‘822 patent by their use of
CR1 or CR2 media;

 

2.  Defendants infringed claims 1-7, 9-12 of the ‘822
patent by their use of CR1 or CR2 media as control media;

 

3.  Defendants infringed claims 1, 7,10-12 of the ‘822 patent by their
use of CR2 media in the absence of bovine serum albumin;

 

4.  Defendants infringed claims 1-6, 10-13 and
15-23 of the ‘720 patent by their use

 

34

 

of methods of their
alleged “sequential” activation of oocytes;

 

5.  Defendants infringed claims 1-6, 10-13 and
15-23 of the ‘720 patent by their use of the methods of their alleged “simultaneous”
activation of oocytes; and

 

6.  Defendants infringed claims 1-6, 10-13 and
15-23 of the ‘720 patent by their use of methods of their alleged “sequential”
activation of oocytes used as a control activation method.

 

FURTHER, IT IS
ORDERED that the motion for partial summary judgment of defendants Advanced
Cell Technology, Inc. and Steven L. Stice is DENIED; plaintiff’s motion to
strike the affidavit of Steven L. Stice is DENIED as unnecessary; and
defendants’ motion to strike references to extrinsic evidence from plaintiff’s
brief on claim construction is DENIED.

 

Entered this 24th day of June, 1999.

 

	
   

  	
  BY THE COURT:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Barbara B. Crabb

  	
   

  
	
   

  	
  BARBARA B. CRABB

  
	
   

  	
  District Judge

  

 

35

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00085-of-00352.parquet"}]]