[ VMRX/CPRO, part 2 ]
from the latest CPRO 10-Q........
LEGAL PROCEEDINGS
The Company is engaged in litigation with Baxter Healthcare Corporation
("Baxter"), The Johns Hopkins University ("Hopkins") and Becton Dickinson and
Company ("BD") (Baxter, Hopkins and BD hereinafter being collectively referred
to as "Plaintiffs") concerning certain U.S. patents. There have been two jury
trials in the case. Following the first trial in the summer of 1995, a unanimous
seven-member jury in the U.S. District Court in Wilmington, Delaware, rendered a
verdict wholly favorable to CellPro relating to the four U.S. patents then in
suit: Patent Nos. 4,714,680, 4,965,204, 5,035,994 and 5,130,144 (hereinafter the
"'680," "'204," "'994" and "'144" patents), which had been assigned to Hopkins,
licensed to BD and sublicensed to Baxter. The '680 patent, which expires
December 22, 2004, purports to cover certain suspensions of stem cells in
isolation from a mixed cell population; the '204 patent, which expires October
23, 2007, purports to cover hybridomas that produce monoclonal antibodies having
certain characteristics relating to stem
Page 12 of 17
<PAGE> 13
cells, and to cover such antibodies themselves; the '994 patent, which expires
July 30, 2008, purports to cover a method of stem cell isolation using such
antibodies; and the '144 patent, which expires July 14, 2009, purports to cover
a method of transplanting stem cells in a human patient.
The jury in the first trial determined that the Company did not literally
infringe any of these four patents; that all claims of all four patents were
invalid for obviousness under 35 U.S.C. Sections 103; and that, with the
exception of two claims of the '204 patent, all claims of all four patents were
invalid on the additional ground of failure to enable under 35 U.S.C. Sections
112. The two claims of the '204 patent as to which the jury did not render a
verdict of "nonenablement" invalidity under 35 U.S.C. Sections 112 are limited
in their literal scope to a particular antibody and its accompanying hybridoma,
an antibody and hybridoma which are not employed by the Company.
Following the first jury verdict, Plaintiffs filed post-trial motions and, on
June 28, 1996, the Delaware District Court (per Judge Roderick R. McKelvie)
partially granted Plaintiffs' motion for judgment as a matter of law as to the
issues of infringement, inducement of infringement and enablement with respect
to the '680 patent, as well as the issue of induced infringement with respect to
the '144 patent. The Court ordered a new trial on remaining liability and
infringement issues.
Subsequent to the June 28, 1996 order, Plaintiffs moved to withdraw two of the
four patents (the '994 and '144 patents) from suit, which motion was granted
upon Plaintiffs' undertaking that they would not accuse any present product of
the Company of infringing those patents. Thereafter, Judge McKelvie granted a
series of motions by the Plaintiffs to dismiss CellPro's remaining liability and
infringement defenses.
A second jury trial was held in March 1997, at which the jury was instructed to
the effect that the Court had already determined that the Company infringed the
two patents remaining in the suit, that its defenses had been dismissed, and
that the jury was bound by those determinations. Hence, the jury at the second
trial heard evidence and arguments only as to the amount of damages to be
awarded and as to whether the Company's conduct had been willful. On March 11,
1997, the jury reached a verdict finding willfulness and awarding some $2.3
million in damages to Plaintiffs.
After the second jury's verdict the following motions were filed and resolved:
(1) Plaintiffs' motion for enhanced damages, whereby they asked the
Court to treble the jury's damage award, was granted, and on July 24,
1997, final judgment was entered against the Company for $6,961,479.
(2) Plaintiffs' motion for attorney fees, whereby they seek a
determination that the Company is liable to reimburse them for some $7
million in attorney fees and related litigation costs, has been held in
abeyance by the Court, which may, but is not required to, reserve
decision on it until after the case is decided on appeal.
(3) Plaintiffs' motion for a permanent injunction, which was granted on
July 24, 1997, and which grants relief to Plaintiffs (subject to a
partial stay), as further described below.
Page 13 of 17
<PAGE> 14
The Court also dismissed the Company's defense that the patents are
unenforceable for misuse by reason of an attempt by the Plaintiffs to extend the
reach of the patents beyond the territory of the U.S.
The permanent injunction entered July 24, 1997 is complex in form, but it
generally prohibits the Company (subject to a stay hereinafter described) from
making, using and selling products in the U.S. which utilize the anti-stem-cell
monoclonal antibody that is essential to the Company's principal products as
they are presently constituted, and from conducting certain research activities
in the U.S. during the term of the patents. In the U.S., the injunction is
subject to a partial stay which by its terms permits CellPro to continue selling
its principal product (CEPRATE(R) SC disposable kits) until such time as another
stem cell immunoseparation product (such as Baxter's ISOLEX(R) product) gains
approval from the FDA, an event which Plaintiffs had contended would probably
occur before the end of 1997 but which has not yet occurred and may take
significantly longer. Thereafter, the Company would have to phase out sales over
a three-month period, except that the Company would be permitted to continue
supplying product to support certain U.S. clinical trials commenced before the
time an alternative device wins FDA approval. Outside the U.S., the partial stay
allowed by the Delaware District Court required the Company to phase out over a
one-year period its exports of disposable kits containing U.S. sourced antibody
found to infringe Plaintiffs' patents and to prohibit sales of such kits to new
customers. The Company filed a motion for stay of the Injunction with the
Appeals Court seeking, among other things, to eliminate certain restrictions on
sales outside the U.S. On January 30, 1998, the Appeals Court granted a stay of
the international phase-out pending review of the case on appeal. Under the
partial stay as modified pursuant to the agreement of the parties, commercial
sales and cost recovery sales (U.S. only) of disposable kits sold under the
partial stay are subject to a requirement that CellPro pay Plaintiffs $1,075 and
$750, respectively. Subsequent to January 30, 1998, the further stay issued by
the Appeals Court requires that net revenues from international sales be
deposited in an escrow account pending further action by the Appeals Court. The
Injunction has forced the Company to terminate substantially all sales of the
CEPRATE(R) LC34 Laboratory Cell Selection System.
On July 25, 1997, the Company filed a notice of appeal of the permanent
injunction order entered by the Court. CellPro also filed a motion for judgment
as a matter of law as to the treble damages award and sought certification of
the damages judgment to permit an immediate appeal. On September 23, 1997, the
Court denied CellPro's motion, and on September 26, 1997, the Court entered an
amended final judgment, adding interest to the jury's verdict for a total award
of $7,239,833, and certified the judgment so it could be appealed. CellPro
thereafter filed a second notice of appeal from the amended final judgment.
CellPro's two appeals have been consolidated by the Appeals Court and a combined
brief was filed by CellPro on December 24, 1997. Plaintiffs response is due
February 13, 1998. Oral arguments will likely occur in May of 1998, but there is
no way to know when the appeal will be decided. |
