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PharmaStem Amnesty Agreement

Christopher L. Nuland, Esq.
General Counsel

Over the past several weeks many FOGS members may have received a proposed "Amnesty Agreement" from PharmaStem Therapeutics, Inc., urging Ob-Gyns to execute the Agreement in order to "avoid legal action from PharmaStem relating to its patents." In response to inquiries from members, FOGS would like to provide the following background information.

PharmaStem indeed does hold several patents for the "isolation and preservation and neonatal hematopoietic stem and progenitor cells of the blood," and it is also true that PharmaStem has vigorously defended its intellectual property rights, having secured a $7.1 million verdict against several blood banks in November, 2003. The current suits to which the cover letter refers pertain to new PharmStem patents, but involve many of the same laboratories involved in the 2003 suit. Because uniform and vigorous enforcement of intellectual property rights are essential legally to the very maintenance of such rights, PharmaStem is expected to continue its aggressive litigation in this arena.

As part of the latest round of lawsuits, PharmaStem has sent the proposed Amnesty Agreement to many obstetricians suspected of using "unlicensed" cord banks. In this case, the term "unlicensed" does not mean that the named banks have not been appropriately licensed by the state, but rather that they have not executed a licensing agreement with PharmaStem for the use of the latter's patented technology (several of the defendant labs reportedly currently are in negotiations to obtain such licenses).

The Amnesty Agreement actually serves several purposes for PharmaStem. First, it directs obstetricians to use PharmaStem-licensed banks, thereby increasing the company's market share and actually increasing the value of the patents. Second, the Agreement itself allows PharmaStem to disclose the Amnesty Agreement to others, meaning that it likely will be used in litigation as evidence of the defendant's alleged use of the patented technology.

With the above in mind, should FOGS members sign the Agreement and stop using the named blood banks that are in alleged violation of PharmaStem's patent rights? While PharmaStem has alleged that it will defend its property rights against "obstetricians if they continue to work with unlicensed cord blood banks," neither the past nor present lawsuits appear to have named individual physicians as defendants. Moreover, such a suit may only be brought if the physician has "constructive knowledge" that the unlicensed use of patented technology is involved.

However, the cover letter and Agreement itself may serve as such constructive notice, and FOGS members are urged to exercise extreme caution when collecting cord blood for any of the defendant blood banks. Those wishing to insulate themselves from any possible litigation may want to execute the Agreement, although it is recommended that a cover letter be attached in which the obstetrician states that "the execution of the Amnesty Agreement should not be construed as an admission that the practice has had any relationship with any of the named cord blood banks, nor should the execution of the Agreement be construed as an opinion as to the merits of the referenced litigation." These statements should reduce the likelihood that the physician will be called as a witness in the actual litigation.

FOGS members with further questions are invited to contact the Office of General Counsel directly at nulandlaw@aol.com.

Added September 21, 2004

Last week's information sheet on the PharmaStem Amnesty Agreement appears to have answered many member questions, yet also raised a few additional issues:

Q: I heard that PharmaStem's patent infringement victory was overturned. What does that mean to me?:
A: The most significant part of the Court's finding for obstetricians (which dismissed one infringement count and called for a new trial on the second) was that infringement could not occur unless a party was involved in all three parts of the patented process, i.e., the isolation of stem cells, the preservation of the cells, and the introduction of the cells into a suitable host. If this finding, a physician will not be held liable for infringement so long as he or she does not participate in the reintroduction of the cells, a process in which few, if any, obstetricians participate.

Q: I have not and do not draw cord blood. Do I have to concern myself with the Agreement?
A: No, unless you are actively promoting the use of non-PharmStem-licensed cord blood banks.

Q: You suggest that obstetricians exercise extreme caution when dealing with non-PharmStem cord blood banks. What does "extreme caution" mean?
A: Some suggestions include obtaining indemnifications from the blood bank (which they are usually willing to provide), refusing any remuneration associated with using a particular blood bank, and refraining from marketing a single blood bank. Moreover, as stated above, obstetricians may want to refrain from participating in the reintroduction process.