ABS Global, Inc. v. Inguran, LLC

Filing 789

Transmission of Notice of Appeal, Orders, Judgment and Docket Sheet to Seventh Circuit Court of Appeals re: #787 Notice of Appeal, (Attachments: #1 Order No.: 572, #2 Order No.: 587, #3 Order No.: 772, #4 Judgment, #5 Docket Sheet) (lak) Modified on 4/24/2017: Amended judgment #790 provided to the Court of Appeals for their case opening. (lak)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN

ABS GLOBAL, INC.,

v.

Plaintiff/Counterclaim Defendant,

OPINION & ORDER

INGURAN, LLC,

14-cv-503-wmc

Defendant/Counterclaimant/Third-Party Plaintiff,
and
XY, LLC,

Intervening Defendant/Counterclaimant/Third-Party Plaintiff,

and
CYTONOME/ST., LLC,
Intervening Defendant,
v.
GENUS PLC,
Third-Party Defendant.

This lawsuit arises out of the breakdown of a now ten-year business relationship
between plaintiff ABS Global, Inc. (“ABS”) and defendant/counterclaimant Inguran, LLC
d/b/a Sexing Technologies (“ST”). Originally, ABS sued seeking a declaration that the
parties’ latest agreement, under which ST is to continue to provide sexed semen
processing services for prized bulls at ABS facilities from 2012 to at least 2017, is void
under § 2 of the Sherman Antitrust Act and Wisconsin unfair competition law. Not to
be outdone, ST then counterclaimed that: (1) ABS and ABS’s parent company, Genus
plc (“Genus”), had fraudulently induced ST to enter into the Agreement; (2) ABS and

Genus breached the agreement in a number of ways; (3) ABS and Genus are liable under
an alternative theory of promissory estoppel; and (4) ABS and Genus has infringed two
U.S. patents owned by ST.

Finally, ST’s wholly-owned subsidiary, XY, LLC (“XY”),

intervened in this action with its own claims against ABS and Genus for infringement of
two additional U.S. patents owned by XY, and for misappropriation of XY’s alleged trade
secrets. Sadly for all concerned, most of these claims will now proceed to a jury trial for
the reasons set forth below.

OVERVIEW OF UNDISPUTED FACTS 1
I.

The Parties
ABS is in the business of providing bull semen to dairy and beef producers for

artificial insemination. ST provides a service to ABS and other similar companies using
“sorting” technology to separate male and female bull sperm. From 2006 to 2012, ABS
and ST did business together under the terms of several contracts called “Sorting
Agreements.” In 2012, ABS explored alternatives to doing business with ST, including
use of its own technology for sorting, but was unsuccessful. As a result, ABS reupped,
signing a 2012 Semen Sorting Agreement with ST (the “Agreement”) after some six
months of negotiation over its specific terms. Also in 2012, ABS continued researching
and developing technology for processing sexed bovine semen, which it calls “Genus
Sexed Semen” or “GSS” technology.

Except as otherwise noted, the court finds the following facts to be material and undisputed for
purposes of summary judgment. Additionally undisputed facts are set forth in the court’s
Opinion below in the context of specific counts in the complaint.
1

2

II.

Background
Although the parties’ characterizations of the bull semen market differ drastically,

they do not appear to dispute the following facts that provide necessary context to their
claims and defenses. 2

Dairy and beef producers often use artificial insemination to

impregnate cows with semen from a high quality bull. The suppliers of bull semen like
ABS are referred to as “bull studs.” Along with ABS, who appears to be the industry
leader, just three other major bull studs -- Select Sires, Cooperative Resources
International (“CRI”) and Accelerated Genetics -- represent some 96% of the U.S. market
for bull studs.
Although ST also operates as a bull stud, it is mainly in the business of sorting bull
ejaculate so that the viable sperm cells are either predominantly female or male. The
parties, and apparently the marketplace, refer to the final product of this process as
“sexed semen” or “sexed bovine semen.”
On dairy farms, female calves are generally more valuable than male calves.
Inseminating cows with sexed semen that has a higher proportion of X-chromosome
sperm is more likely to lead to birth of a female calf than impregnating them with socalled “conventional” semen that is not sexed. As a result, sexed semen has become a
tool for many (although not all) dairy producers using artificial insemination, especially
for heifers, who tend to be more fertile and therefore more likely to be impregnated by

As the parties’ respective proposed findings of facts have not included this background
information, the court has referred to their respective expert reports to fill in the gaps. (See Kevin
Murphy Am. Expert Rpt. (dkt. #298) at 7-8; Barry C. Harris Expert Rpt. (dkt. #322) at 8-11.)
Most of the general background appears to be in dispute; neither is it strictly material to the
outcome of the parties’ respective motions for summary judgment.
2

3

the substantially more expensive, though generally less potent sexed semen. 3
Accordingly, even though the majority of its sales are comprised of conventional semen,
companies like ABS and the three other major American bull studs, offer both
conventional bovine semen and sexed semen.
ST was founded in October of 2002, and it began attempting to commercialize
sexed semen processing in 2003. ST entered into its first contract with a U.S. bull stud
to provide sexed semen processing services in 2004. By virtue of its patented method
and related advantages it has received from acquiring XY, Inc. (as described below), ST
currently has nearly 100 percent of the sales of sexed semen processing services in the
United States. ABS asserts (and ST disputes) that bull studs like ABS have had no
choice but to work with and accept ST’s contract terms, including those in the
Agreement at issue here. In particular, ABS and ST dispute whether ABS needed, or had
the ability to find, another source for sexed semen processing.
III.

The Agreement
The Agreement became effective September 1, 2012, and continues by its terms

until at least September 1, 2017, with the opportunity for additional one-year extensions.
In it, ABS agreed to provide raw ejaculate from bulls owned or leased by ABS for sorting
by ST. The agreement is governed by Texas law and contains the following preamble:
ST is engaged in the business of sorting and freezing bovine semen into X
(female) chromosome bearing and Y (male) chromosome bearing
populations, for use in the artificial insemination of cattle (herein the
processing service shall be known as “Sort Semen” or “Sorting Semen” and
By definition, a “cow” has given birth to at least one calf, while a “heifer” is a female who has
never had a calf.
3

4

resultant X or Y chromosome bearing populations of sperm shall be known
as “Sorted Semen”). ABS wishes to engage ST as a service provider to Sort
Semen from its bulls in strict compliance with Certified Semen Services’
processes and procedures (known as “CSS Compliance”) and retain the X
(female) and Y (male) chromosome bearing population, respectively, as
separated (known as “Cells”).
(Agreement, Ex. 7 to Horowitz decl., dkt. #258-7.)
The parties’ contractual and antitrust/unfair competition-related disputes stem
from several sections of this agreement, principally involving:
•

Section 2, which includes annual commitments for ABS and ST. Each year, ABS
must provide a certain annual amount of semen and ST must provide its services
for a certain amount of semen.

•

Section 3, which includes a provision that makes the contract extend for an
additional year “unless either party … gives written notice to the other party of its
election not to so extend the term” three years in advance. (Agreement, dkt.
#258-7, at ING_005740.)

•

Section 4(a), which provides for liquidated damages if either party terminates the
Agreement for any reason other than the other party’s material breach, as defined
by Section 19 of the Agreement. Section 4(b) provides that ABS will pay ST
$1,500,000 “as liquidated damages” if ABS terminates the agreement, including
by non-renewal under Section 3, or if ST terminates it due to ABS’s material
breach.

•

Section 16, which defines “ST’s Confidential Information” and ABS agreed not to
use, disclose or make such information available to any third party.

•

Section 18(a), which restricts ABS’s ability to research and develop a sorting
technology that would compete with ST’s technology. Section 18(b) permits ABS
to continue research and development on programs that were in place at least
ninety (90) days prior to the Agreement’s effective date.

5

IV.

The Technology
A.

ST Sexed Semen Processing

ST originally based its sexed semen technology on a process developed by
Lawrence Johnson at the U.S. Department of Agriculture (the “Johnson method”). The
Johnson method is the subject of U.S. Patent No. 5,135,759 (“Johnson Patent”) and
requires a device called a flow cytometer, which is used to separate cells physically based
on their different properties. The Johnson Patent involves the use of fluorescent dye that
binds to the DNA in sperm cells. Because X chromosomes, which are female, have more
DNA than Y chromosomes, which are male, an X-carrying/female sperm will give off
more fluorescent light when exposed to a detection laser than a Y-carrying/male sperm.
The Johnson method uses this difference in fluorescence to sort female from male sperm
by applying a positive, negative or no charge to a droplet containing an individual cell
and then deflecting the charged droplet one way or another with electrostatic deflection
plates.
Since the Johnson Patent expired in 2006, ST has purchased, acquired or licensed
several U.S. patents related to sexed semen processing. Principally, ST acquired control
of XY, Inc., in 2007. At the time, ST was one of several U.S. licensees using XY’s U.S.
Patent Nos. 7,195,920 (“’920 patent”) and 7,820,425 (“’425 patent”).

The parties

dispute exactly how the other licenses ended, but they do not dispute that ST is now
XY’s sole current licensee for its patented sexed semen process in the United States for
bull studs. Since 2007, XY has also been a wholly-owned subsidiary of ST. In 2008, ST
also purchased several pending patent applications related to sexed semen processing
6

from Monsanto Company (“Monsanto”).

Those applications matured into 24 U.S.

patents, including U.S. Patent Nos. 8,206,987 (“’987 patent”) and 8,198,092 (“’092
patent”) that remain in suit here. Finally, ST obtained an exclusive license for nonhuman applications to a portfolio of U.S. patents relating to sexed semen processing from
Cytonome, Inc., covering an additional 46 U.S. patents related to sexed semen.
B.

ABS Sexed Semen Processing

ABS has developed its own technology, known as the “GSS technology” for
“Genus Sexed Semen,” that uses a laser-based method for producing sexed semen. The
GSS technology kills or incapacitates the male or female sperm, rather than separating
sperm by sex.

Through this technology, all of the sperm remain in a single stream

throughout the process and are collected in a single container after the laser operates on
them. ABS’s corporate representative indicates that the GSS technology has worked in
field trials and is ready to launch, but ABS has put off the launch due to this lawsuit.

OPINION
I.

Contract Claims
The parties’ Agreement includes a Texas choice of law provision, and so Texas law

controls. (Duncan Decl. Ex. 1 (dkt. #245-1) [hereinafter “Agreement”] ¶ 27.) Under
Texas law, “[t]he construction of an unambiguous contract is a question of law for the
court.” Willis v. Donnelly, 199 S.W.3d 262, 275 (Tex. 2006) (citing MCI Telecomms.
Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 650 (Tex. 1999)). “In construing a written
contract, the primary concern of the court is to ascertain the true intentions of the parties
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as expressed in the instrument.” Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). This
effort requires the court to “examine and consider the entire writing in an effort to
harmonize and give effect to all the provisions of the contract so that none will be rendered
meaningless.” Id. (emphasis in original) (citing Universal C.I.T. Credit Corp. v. Daniel, 150
Tex. 513, 243 S.W.2d 154, 158 (1951)).
“If the written instrument is so worded that it can be given a certain or definite
legal meaning or interpretation, then it is not ambiguous and the court will construe the
contract as a matter of law.” Id. If, however, “by looking at the contract as a whole in
light of the circumstances present when the contract was entered,” a contract is
“reasonably susceptible to more than one meaning,” then it is ambiguous. Id. at 393-94.
In the event that a contract is ambiguous, “interpretation of the instrument becomes a
fact issue.” Id. at 394.
With respect to the Agreement itself, ABS moves for summary judgment on four
grounds: (1) its development and expected commercialization of the GSS technology
does not breach the Agreement; (2) ST’s fraudulent inducement and promissory estoppel
claims fail as a matter of law; (3) ABS did not breach the confidentiality provisions of the
Agreement; and (4) the liquidated damages provision of the Agreement is unenforceable.
In response, ST moves for summary judgment on the basis that: (1) the non-compete
clause of the Agreement expressly encompasses the GSS technology; and (2) the
Agreement’s covenant not to compete is enforceable under Texas law.

8

A.

Research and Development of the GSS Technology

Since both ABS and ST move for summary judgment on the question of whether
the GSS technology violates the Agreement’s non-compete clause, the court begins there.
The clause provides:
To further ensure the efficient and full utilization of ST’s
sorting capacity and to ensure the protection of ST’s
Confidential Information, neither ABS nor any of its
Affiliates shall, at any time during the Term of this
Agreement (including any Renewal Years), directly or
indirectly (whether by means of financing or investing in
another entity or its activities), create, develop, sell or
market any method, apparatus, or technology for sorting
mammalian semen into X (female) chromosome bearing and Y
(male) chromosome bearing sperm populations, where such
method, apparatus or technology is, or is intended to be,
directly competitive with (i) ST’s technology for Sorting
Semen, or (ii) any sorted semen produced by ST’s technology
for Sorting Semen. For the avoidance of any doubt, in the
event of termination of this Agreement prior to the expiration
of the Term, excluding termination by ABS due to ST’s
material breach, the obligations under this Section 18 shall
survive until the end of the Term (including any Renewal
Years then accrued).
(Agreement ¶ 18(a) (emphasis added).)
In an argument that echoes in the parties’ patent disputes, ABS argues primarily
that Section 18(a) does not apply because the GSS technology “kills undesired cells but
does not separate them from the desired cells, is not a technology for ‘sorting mammalian
semen into X (female) chromosome bearing and Y (male) chromosome bearing sperm
populations,’ and therefore ST cannot establish any breach of Section 18(a).”
Opening Br. (dkt. #270) at 58.)

(Pl.’s

Even more specifically, ABS argues, “a processing

technology that collects the processed semen in a single container does not ‘sort’ into two
9

‘populations’ and is therefore not affected by the provision’s restrictions on sorting
technologies.” (Id.)
In support of its reading of “sorting” under Section 18(a), ABS refers to three
other provisions in the Agreement. Two are found in its “prelude”: (1) “ST is engaged in
the business of sorting and freezing bovine semen into X (female) chromosome bearing and Y
(male) chromosome bearing populations” (Agreement (dkt. #245-1) at 1 (emphasis added));
and (2) “ABS wishes to engage ST as a service provider to Sort Semen . . . and retain the
X (female) and Y (male) chromosome bearing population, respectively, as separated[.]”
(Id.) The third provision concerns the Agreement’s definition of “purity,” which is “the
ratio of the number of sperm cells of the requested gender to the total number of sperm
cells in each straw.” (Id. at ¶ 1.) ABS also cites the Oxford English Dictionary, which
defines “sort” as “to separate and put into different sorts or classes,” as well as the
American Heritage Dictionary, which defines “sort” as “to separate from others,” and
provides for the example that of sorting “the wheat from the chaff.”
On the other hand, ST argues that “[w]hen viewed in light of the entire
agreement, ‘sorting’ covers any and all techniques, including droplet sorting, photo-damage
sorting, fluid-switching sorting, or similar techniques.” (Def.’s Opening Br. (dkt. #275)
at 30.) ST further argues that in addition to the preamble of the agreement not limiting
sorting to a process that “separates” or “divides,” it also merely concerns the extent of
processing services ST was agreeing to provide, and not which activities Section 18
barred. Moreover, ST points to the second half of one of the preamble sentences that

10

states “the purpose of the sorting is to create sperm populations ‘for use in the artificial
insemination of cattle.’” (Id. at 29.)
Taking the contract as a whole, the court is persuaded that ABS’s interpretation of
“sorting” in Section 18(a) is too limited to give effect to the intentions of the parties.
Beginning with the plain language of the Agreement, even under the dictionary
definitions provided by ABS, the verb “sort” concerns the process by which one “separates”
or “puts into different classes,” not the form of the resulting thing or things that were
sorted. By way of example only, ABS’s extremely narrow reading of “sorting” would
exclude a gym teacher who separates a group of elementary school students into two
soccer teams by handing half of them the same color jersey, but not physically separating
them into two distinct groups. Nevertheless, few would disagree that the teacher had
“sorted” his students under a plain or ordinary understanding of the word. Thus, while
the meaning of “sorting” certainly extends to circumstances where one separates a
population into smaller, separate populations -- and indeed, if that is the narrow method
called for by a patent’s express terms, might even require it -- but one can sort something,
such as children into two teams, library books into genres or sperm cells into a
population comprising sperm cells of a single sex, without ever physically separating
them.
The context of the Agreement as a whole confirms that the parties intended a
broader meaning than that now championed by ABS.

First, the language of the

non-compete clause is broad, restricting ABS from doing anything to “directly or
indirectly . . . create, develop, sell or market any method, apparatus, or technology for
11

sorting mammalian semen[.]” (Agreement ¶ 18(a).) Second, the non-compete clause
restricts devices that sort semen into “X (female) chromosome bearing and Y (male)
chromosome bearing sperm populations,” which again by its plain language is not limited
to physical separation of sperm into two separate containers, provided the ultimate product
creates an acceptably pure female or male chromosome bearing sperm population. Third,
and perhaps most important, the non-compete clause itself explains that the purpose of
the clause is to restrict a “method, apparatus or technology [that] is, or is intended to be,
directly competitive with (i) ST’s technology for Sorting Semen; or (ii) any sorted semen
produced by ST’s technology for Sorting Semen,” at least one of which there is no
dispute does not in fact “sort” using physical separation. Accordingly, the non-compete
clause demonstrates that the primary purpose for the clause is to limit direct competition
with either the particular technology utilized by ST or the product created with that
technology, and not just a specific method for sorting semen by sex.
Since ABS’s express desire to compete with ST is at the heart of the current
lawsuit, ABS does not contend, nor could it contend, that its GSS technology is not
designed to compete directly with ST’s technology. Indeed, ABS brings antitrust claims
against ST based on that very theory.

For all of these reasons, ST’s assertion that

“sorting” in Section 18 encompasses ABS’s GSS technology, better captures the context
of the Agreement as a whole, and gives effect to the plain language of the non-compete
clause in particular, whereas ABS’s interpretation would render that clause relatively
meaningless.

12

That said, however, the Agreement also includes a “safe harbor” provision that was
the subject of much negotiation:
Notwithstanding Section 18(a) above or any other provision
of this Agreement, nothing herein shall operate to restrict
ABS or its affiliates from fulfilling or continuing their research
and development program that has been in place at least
ninety (90) days prior to the Effective Date of this Agreement
(as demonstrated by ABS’s or its Affiliates’ contemporaneous
written records), including the utilization of ABS’ own
personnel and resources and any third party for research or
development of semen sorting technology or for investment
in such research or development in fulfillment of that
program; provided, however, that the aforesaid research and
development program shall not include any marketing or sales
of Sorted Semen or any use of Sorted Semen in third-party
animals. For purposes of the foregoing sentence, “field trials”
shall be limited as follows: (1) “field trials” shall be conducted
with no more than 12,000 cumulative doses per annum and
no more than 75 of ABS’s co-operator herds in any year, (ii)
“field trials” cannot include the use of conventional or Sorted
Semen produced by or under the authority of ST or its
Affiliates, whether as a control or otherwise, and (iii) an
animal leased to ABS or any of its Affiliates shall be
considered a third-party animal.
(Id. at ¶ 18(b).)
ST does not effectively dispute that the safe harbor in Section 18(b) exempts
ABS’s research and development of the GSS technology from any restrictions found in
Section 18(a), although it accuses ABS of fraud in not disclosing the scope or progress in
that technology during negotiations, a claim addressed below. While the safe harbor
does not extend to any efforts by ABS to sell or market competing technologies, there is
also no dispute that ABS is currently doing neither. As a result, the parties’ current
contract dispute comes down to ABS’s claim for a declaratory judgment that it may

13

compete with ST in the sexed bovine sperm market using its own GSS technology despite
an express contractual prohibition to its doing so.
B.

Enforceability of Non-Compete Under Texas Law

ST also moves for summary judgment on the basis that its non-compete clause is
enforceable under Texas law, which ABS disputes. Under Texas law, “[a] covenant is
unreasonable if it is greater than required for the protection of the person whose benefit
the restraint is imposed or imposes undue hardship upon the person restricted.” Republic
Servs., Inc. v. Rodriguez, No. 14-12-01054-CV, 2014 WL 2936172, at *7 (Tex. App.
2014) (citation omitted). “Industrywide exclusions are therefore unreasonable” under
Texas law. Id. An enforceable covenant not to compete must also be “ancillary to or part
of an otherwise enforceable agreement” and reasonably limited in scope as to time and
geography. Tex. Bus. & Com. Code § 15.50(a).
Here, ABS has a strong argument that the scope of the activity covered by Section
18(a) is too broad. First, ABS argues that to the extent Section 18 restricts ABS from
"directly or indirectly" researching or marketing technology that would compete with ST's
technology, it is arguable that Section 18 amounts to an unenforceable "industrywide
exclusion" under Texas law. In response, defendants argue that the non-compete clause
cannot be industrywide because it leaves ABS able to pursue any activities it wishes with
respect to the research, development or commercialization of conventional bull semen
processes. Since the Agreement concerns only sexed bull semen, it is unclear why the
lack of any restrictions on conventional bull semen should save Section 18. Second,
plaintiffs point out that Section 18's worldwide restriction on ABS’s activity is
14

unreasonably large in scope, particularly given that ABS's only focus in foreign markets
has been on sales of conventional bull semen. Cf. Cobb v. Caye Publ'g Grp. Inc., 322
S.W.3d 780, 786 (Tex. App. 2010) (holding that a covenant not to compete extending to
a particular county was unreasonable in scope when the defendant “had nothing more
than a potential business interest” in that county) (emphasis in original).
However, Texas law also enables courts to reform covenants not to compete “[i]f
the covenant is found to be ancillary to or part of an otherwise enforceable agreement but
contains limitations as to time, geographical area, or scope of activity to be restrained
that are not reasonable and impose a greater restraint than is necessary to protect the
goodwill or other business interest of the promissee[.]” Tex. Bus. & Com. Code § 15.51.
Until ST establishes a breach of the non-compete clause, however, the court will not
reform it. Accordingly, the court will deny summary judgment to defendants on the issue
of whether Section 18 is an enforceable covenant not to compete.
C.

Confidential Information

Next, ABS seeks summary judgment on ST’s claim that it breached the
confidentiality provisions in the Agreement. Section 16 of the Agreement defines “ST’s
Confidential Information” as that which is “confidential, non-public, proprietary and/or
generally not known to the public[.]” (Agreement ¶ 16.)

The allegedly confidential

information ST claims ABS misused includes “(1) ST’s and XY’s sexing protocols for
preparing semen sorting media; (2) ST’s method for calculating straw fill volumes; and

15

(3) ST’s quality control data for sexed bulls.” 4 (Defs.’ Opp’n Br. (dkt. #334) at 63.) In
moving for summary judgment, ABS asserts with respect to the first category that there is
no evidence any sexing protocols were even disclosed to ABS. As for the second and
third, ABS asserts that: ST’s method for calculating straw fill volumes is not confidential;
and the quality control data did not belong to ST. The court addresses each assertion in
turn.
Starting with the first category, ABS concedes that XY’s tort claim based on
allegations that an ex-employee, Kathy Mean, stole sexing protocols to benefit the GSS
technology must go to trial. ABS argues with respect to the breach of the confidentiality
provision claims, however, that since Mean left XY to work at ABS in 2007, ST has failed
to show that ABS used confidential information regarding the protocols disclosed during
the life of the Agreement, which became effective in 2012.
In addition to Mean’s claimed disclosures, ST points to evidence that it claims
demonstrates ABS’s receipt of media protocols.

Generally, ST asserts that ABS

employees had “unfettered access” to its laboratory in ABS’s facility where ST kept its
protocols in notebooks.

Furthermore, ABS employee Eliza Roberts testified at her

deposition that “confidential information about ST’s sperm-sorting process was conveyed
to [ABS employee] Jeff Betthauser when the ST lab was set up.” Finally, ST employee
Rich Neis testified at his deposition that he had multiple conversations with Roberts
about adjusting the pH range of the ejaculate to better stain the sperm cells. In light of
this varied testimony, ST has provided sufficient evidence that ABS received sexing
ST has withdrawn a claim for breach of confidentiality based on “ST’s morphology criteria.”
(Defs.’ Opp’n Br. (dkt. #334) at 68-69.)
4

16

protocols during the life of the Agreement. Accordingly, ABS is not entitled to summary
judgment on ST’s claim for breach of contract with respect to ABS’s alleged misuse for
competitive advantage of confidential sexing protocols for preparing sorting media.
Likewise, ABS is not entitled to summary judgment on the third category, given
that the court is unable to resolve the parties’ conflicting evidence as to whether: (1)
quality control data was owned by ABS or (2) any use of the quality control data by ABS
could not have provided a competitive advantage. That being said, the court agrees with
ABS that it is entitled to partial summary judgment as to the second category, since ST
has failed to produce any evidence that so-called confidential information regarding its
method for calculating straw fill volumes was not already disclosed in an earlier
instruction manual or ABS memo on the subject. Accordingly, the court will grant in
part and deny in part summary judgment as to ST’s claims for breach of the Agreement’s
confidentiality provision.
D.

Liquidated Damages

ABS moves for summary judgment on the grounds that the Agreement’s
liquidated damages provision is unenforceable. While this is a question of law for the
court, Phillips v. Phillips, 820 S.W.2d 785, 788 (Tex. 1992), the party challenging the
validity of a liquidated damages provision has the burden of proof. Nortex Drug Distribs.,
Inc. v. Sunset Trails, Inc., 2000 WL 1230766, at *3 (Tex. App. Aug. 31, 2000).
Section 4 of the Agreement provides for several different, overlapping measures of
“liquidated damages” recoverable by ST. In Section 4(a), the Agreement provides that
ABS will pay ST $7.50 per unpurchased straw for all unfilled “Annual Minimum
17

Commitments” as “actual economic damages” should ABS commit a material breach or
terminate the Agreement for any reason other than ST’s material breach. (Agreement ¶
4(a).) In Section 4(a), the Agreement also provides that ABS will pay ST $1,500,000
“for additional [unspecified but] actual economic damages” upon the early termination of
the Agreement, ST terminates the contract due to ABS’s material breach or (apparently)
ABS merely gives timely notice of the Agreement’s non-renewal under Section 3. (Id. at ¶
4(b).)
Section 3 of the Agreement, an “evergreen” provision, explains that the term of
the Agreement will automatically be extended for additional one-year intervals unless and
until either party provides written notice no later than three years before its then
effective end date.

(Id. at ¶ 3.)

Effectively then, the original 5-year term of the

Agreement will be extended for one additional year on the anniversary of the second year
of the Agreement until either party gives timely notice that it no longer wishes to extend
further. (Id.)
Finally, Section 4(c) states:
The parties agree that the sums set forth in Sections 4(a) and
4(b) above are a reasonable estimate of the damages that
would be suffered by ST due solely to the lost sales of Sorted
Semen as a result of the termination scenarios set forth in
Sections 4(a) and 4(b), as the case may be, and that such
sums are not intended to be a penalty. These liquidated
damages shall not be exclusive of each other, nor of any other
remedy available to ST at law or in equity, including but not
limited to termination of this Agreement, or of the recovery
of any damages caused by any other breach of this Agreement
by ABS.
(Agreement ¶ 4(c).)
18

Defendants ST and XY argue primarily that, by its terms, the $1.5 million fee set
forth in Section 4(b) is not a liquidated damages provision or unenforceable penalty at
all, but rather a bargained-for “cancellation fee.” There is at least some support in the
case law for the proposition that a provision can only be invalidated as an unenforceable
liquidated damages provision under Texas law if it is triggered as the result of a breach.
See Blanchard & Co., Inc. v. Heritage Capital Corp., No. Civ. A. 3: 97-CV-0690-H, 1998
WL 597160, at *3-4 (N.D. Tex. Aug. 26, 1998) (holding that a provision was “neither a
penalty nor a liquidated damages provision” because the condition triggering the
provision did not result in a breach of contract); B.F. Saul Real Estate Inv. Tr. v. McGovern,
683 S.W.2d 531, 534 (Tex. App. 1984) (“The whole subject of penalty versus liquidated
damages only arises when the parties to a contract have attempted to provide for a
remedial right upon a breach of contract.”).

Indeed, at least one Texas court has

concluded that a “cancellation damages provision” was not an unenforceable liquidated
damages penalty under Texas law. See Nortex Drug Distribs., 2000 WL 1230766 at *3
(finding). But see Garza v. Dealers Elec. Supply, No. 14-02-01227-CV, 2004 WL 1193698,
at *1 n.6 (Tex. App. 2004) (“A party has no right to have a contract term enforced that
violates the rule limiting compensation to the damages actually sustained. Phillips, 820
S.W.2d at 788.

Thus, even if a liquidated damage term in the form of a 100%

cancellation fee had been expressly agreed to . . ., it would have required proof that the
actual damage amount was difficult to ascertain and that the liquidated damage amount
was a reasonable forecast of just compensation, neither of which was shown in this
case.”).
19

In an attempt to make sense of this somewhat muddled standard, defendants
argue that case law requires Texas courts to look to “the substance of the contract’s terms
to determine if the provision constitutes ‘liquidated damages,’” meaning that it is not
dispositive that Section 4(a) of the Agreement refers to the $1.5 million figure as
“liquidated damages.” Sunbelt Servs., Inc. v. Grove Temp. Serv., Inc., No. 05-05-01090-CV,
2006 WL 2130144, at *3 (Tex. App. Aug. 1, 2006). They further assert that “ABS and
Genus only challenge the $1.5 million payment in the context of Section 4(b)(i),” and
therefore, “Section 4(b)(ii) is not at issue.” While ABS and Genus’s briefing lacks some
clarity with respect to their arguments as to the enforceability of Section 4 of the
agreement, however, the fairest reading of their motion is that they intend to challenge
the enforceability of Section 4 more broadly. 5
Ultimately, the court is not persuaded that the $1.5 million fee is merely
“compensation for the cost of setting up [ST’s] sorting lab onsite at ABS’s Wisconsin
facility” (Def.’s Opp’n Br. (dkt. #334) at 78), which after all would not seem all that
difficult to ascertain in actual dollars. Although it is arguable that this fee operates as a
cancellation fee for breach under Section 4(b)(i), it clearly is a liquidated damages fee
under 4(b)(ii).

Accordingly, even under the Texas cases requiring that a breach of

contract trigger the fee before invalidating it as an unenforceable liquidated damages
provision, the $1.5 million fee is a liquidated damages provision.

ABS and Genus confirm as much in their response to ST and XY’s “proposed finding of fact” to
this effect, stating that they are challenging the enforceability of Section 4(b) as a whole. (Resp.
Supp. PFOF (dkt. #350) ¶ 428.)
5

20

For a liquidated damages provision to be enforceable under Texas law, the relevant
harm caused by the breach must also be “incapable or difficult of estimation” and the
amount of liquidated damages must be “a reasonable forecast of just compensation.”
FPL Energy, LLC v. TXU Portfolio Mgmt. Co., L.P., 426 S.W.3d 59, 69 (Tex. 2014)
(citations omitted). Defendants do not respond to ABS’s arguments that the liquidated
damages available under Section 4 fail to meet these criteria, relying instead on their
original arguments that: (1) the $1.5 million figure in Section 4(b)(i) is merely a
“cancellation fee”; and (2) plaintiffs do not challenge the enforceability of Section
4(b)(ii). Having rejected both arguments, the court further agrees with ABS that the flat
$1.5 million fee cannot be a reasonable forecast of just compensation, since it applies
equally in the first year of the agreement as it does to the last. See Bethel v. Butler Drilling
Co., 635 S.W.2d 834, 837-38 (Tex. App. 1982) (finding that a liquidated damages
provision was an unenforceable penalty because it did not account for the proportionality
of the harm caused by the breach). This conclusion is bolstered by the statement in
Section 4(c) of the Agreement that “the sums set forth in Sections 4(a) and 4(b) above
are a reasonable estimate of the damages that would be suffered by ST due solely to the lost
sales of Sorted Semen[.]” (Agreement ¶ 4(c).)
ST and XY also fail to respond to ABS and Genus’s argument that Section 4(c)
renders the liquidated damages provision unenforceable because it explicitly states that
“[t]hese liquidated damages shall not be exclusive of each other, nor of any other remedy
available to ST at law or in equity,” violating Texas law prohibiting liquidated damages
provisions allowing for such cumulative remedies. See Nextar Broadcasting, Inc. v. Gray,
21

No. 09-07-364 CV, 2008 WL 2521967, at *3 (Tex. App. June 26, 2008) (“Generally, a
contractual provision that does not exclude further liability for actual damages is not a
reasonable forecast of just compensation and is an unenforceable penalty.”) The court,
therefore, will dismiss ST’s claim for damages under the liquidated damages provision in
Section 4(b) of the Agreement.
E.

Fraudulent Inducement

Alternatively, ST claims that plaintiffs made two material misrepresentations that
fraudulently induced it to enter the Agreement: (1) ABS and Genus told ST that they
wanted a long-term contract despite never actually intending to perform the agreed-upon,
five-year period called for under the Agreement (Answer (dkt. #302) ¶¶ 208-209); and
(2) ABS and Genus only partially disclosed the nature of the GSS technology, concealing
their belief that it was not subject to the non-compete provision. (Id. at ¶¶ 211-14.)
Under Texas law, a plaintiff proves fraudulent inducement by showing “a material
misrepresentation[,] . . . known to be false when made or was made recklessly as a
positive assertion without knowledge of its truth[,] which was intended to be acted
upon[,] . . . was relied upon[,] and . . . caused injury.” Fletcher v. Edwards, 26 S.W.3d 66,
77 (Tex. App. 2000) (citing Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex.
1998)).

To prove that a representation involving a promise to do something in the

future was false, a plaintiff must show that the party who made the promise “had no
intention of performing the act” at the time the promise was made. T.O. Stanley Boot Co.,
Inc. v. Bank of El Paso, 847 S.W.2d 218, 222 (Tex. 1992).

22

Even assuming a stated intention to perform a long-term contract could serve as
an actionable misrepresentation, ST cannot show that ABS had no intention to perform
at the time it made that “promise.” 6 As an initial matter, the parties agree that ABS has
continued performing its end of the bargain throughout this litigation, even after giving
timely notice of its desire to non-renew undermining any reasonable inference that ABS
and Genus did not intend to perform under the five-year renewable contract when they
entered into it nearly four years ago. Furthermore, the most ST provides by way of
evidence of ABS’s contrary intent at the time of contracting is: (1) a statement during an
internal presentation that ABS “need[ed] to buy more time to have a product at parity to
compete with ST”; (2) ABS’s internal projection made in January of 2012 that GSS
could begin production in April of 2013; (3) “ABS solidif[ying] its plan to launch its GSS
technology by 2014”; and (4) documents dated nine months after the Agreement
showing that ABS had already considered the cost of cancelling the Agreement and
marketing the GSS technology.
together,

these

pieces

of

(Defs. Opp’n Br. (dkt. #334) at 54.)

evidence

cannot

support

a

claim

for

Even taken
fraudulent

misrepresentation under Texas law because they do not demonstrate that ABS and Genus

ST cites two examples of ABS and Genus’s fraudulent misrepresentations regarding their
intention to perform the under the Agreement -- “we look forward to working together over the
coming years to our mutual benefit” and “we look forward to working with you in the years
ahead.” (Defs.’ Opp’n Br. (dkt. #334) at 53.) Both statements certainly sound more aspirational
than representations of fact upon which ST could reasonably rely. Italian Cowboy Partners, Ltd. v.
Prudential Ins. Co. of Am., 341 S.W.3d 323, 327 (Tex. 2011) (“Material means a reasonable
person would attach importance to and would be induced to act on the information in
determining his choice of actions in the transaction in question.”). Regardless, the Agreement’s
integration clause disavowal of “all previous communications, representations or undertakings”
renders defendants’ supposed reliance of these general statements unreasonable. (Agreement
(dkt. #258-7) ¶ 21.)
6

23

“had no intention” of performing under the contract when they made the alleged
misrepresentations. T.O. Stanley Boot Co., 847 S.W.2d at 222.
ST also claims that ABS fraudulently omitted details about its laser-kill GSS
technology, and thereby “intentionally created the false impression that its GSS
technology would be covered by Section 18 during negotiations (and execution) of the
2012.” (Def.’s Opp’n Br. (dkt. #334) at 56.) “Generally, no duty of disclosure arises
without evidence of a confidential or fiduciary relationship,” Morris, 981 S.W.2d at 674,
something an arms-length negotiation between sophisticated commercial entities simply
not satisfy. To avoid this obvious conclusion, ST maintains instead that since ABS knew
ST intended to prevent ABS from launching its GSS technology by including the
non-compete clause in the Agreement, it thus created “the false impression that Section
18 covered its GSS technology.” (Defs.’ Opp’n Br. (dkt. #334) at 58.) At best, this
claim is a stretch under Texas law. Compare Bradford v. Vento, 48 S.W.3d 749, 755-56
(Tex. 2001) (noting that Texas had not yet adopted “a general duty to disclose
information . . . when a party makes a partial disclosure that, although true, conveys a
false impression”), with Hoggett v. Brown, 971 S.W.2d 472, 487 (Tex. App. 1997) (“A
duty to disclose may arise . . . when one makes a partial disclosure and conveys a false
impression.”).
Fortunately, this claim need not turn on an unsettled question of law, since the
court has already determined that Section 18 does cover the GSS technology, making the
matter essentially moot, except as it concerns the parties’ negotiation of a safe harbor
provision. Of course, the underlying premise that any alleged subterfuge by ABS created
24

a duty to disclose is also flawed. Specifically, even if true, ST’s assertion that ABS had
knowledge of its purpose in pursuing a non-compete clause did not create a duty to
disclose more details about the development of its technology. If anything, that is what
an arms-length negotiation is all about. If ST wanted additional information regarding
the technology, or assurances as to its falling under Section 18, that is what due diligence
leading up to contract, and representations and warranties in contracts, are intended to
address.
This does not give carte blanche to a contracting party to lie, or even withhold
information when a duty to disclose does exist (or even when a failure to disclose would
amount to a lie), but none of the evidence here supports a reasonable jury finding that
ABS lied or failed to disclose facts amounting to a lie, especially since ST wholly fails to
specify

what

particular

representations misleading.

alleged

“partial

disclosures”

made

ABS’s

affirmative

Accordingly, ABS and Genus are entitled to summary

judgment on ST and XY’s fraudulent misrepresentation claims.
F.

Promissory Estoppel

ST’s promissory estoppel claims fail for largely the same reasons. Under Texas
law, “[p]romissory estoppel may be utilized to enforce a promise when a plaintiff
justifiably and reasonably relies on the promise to his detriment, it was foreseeable that
the plaintiff would rely on the promise, and injustice can only be avoided by enforcement
of the promise.”

Esty v. Beal Bank S.S.B., 298 S.W.3d 280, 305 (Tex. App. 2009).

Plaintiffs’ statements regarding their intention to perform under the life of the contract
are not promises that are sufficiently definite to be enforced under promissory estoppel.
25

Rather, it is a non-actionable, “speculation of future events, a statement of hope, an
expression of opinion, an expectation, or an assumption.” Id. Of course, those same
representations are also part of a binding contract between the parties, and that is where
ST’s remedy lies, if any. See El Paso Healthcare Sys., Ltd. v. Piping Rock Corp., 939 S.W.2d
695, 699 (Tex. App. 1997) (a party asserting promissory estoppel must “prove that the
promise on which it relied to its detriment was outside” any contract between the
parties). 7
II.

Antitrust Claim
ABS alleges that ST has monopolized and exercised market power in the alleged

“Sexed Bovine Semen Processing Market” in violation of Section 2 of the Sherman Act
(Am. Compl. (dkt. #226) ¶ 98.) ABS further claims that ST’s conduct in maintaining its
monopoly in the sexed semen market is anti-competitive, pointing to the Sorting
Agreements ST has entered into with it and other bull studs that include multi-year
commitments, minimum purchase requirements, as well prohibitions of or disincentives
placed upon the research, development or commercialization of new technology. Finally,
ABS claims that ST engages in unfair competition through its patent acquisitions and
licenses.

Defendants’ alternative arguments for promissory estoppel, alleging that plaintiffs failed to
disclose the scope of its GSS technology or “promised to be bound by the liquidated damages
provisions in the Agreement” (Answer (dkt. #302) ¶ 231), are doomed for the same reason.
Here, defendants simply seek to negate ABS’s challenge to the liquidated damages provisions as
unenforceable under Texas law. Having failed to explain how any promise to be bound by a
contract is enforceable under a promissory estoppel theory, the court will dismiss defendants’
promissory estoppel claims.
7

26

In seeking summary judgment as to these claims, ST disputes that it has
monopoly power, taking issue in particular with ABS’s proposed market, arguing that: it
is too narrow because conventional semen is the dominant product in the overall semen
market; ABS’s sales are largely of conventional semen; and the relevant market is not just
limited to the United States.

In support, ST asserts that consumers view sexed and

conventional semen as interchangeable, and that dairy farmers’ demand for both
conventional and sexed semen is highly elastic, depending on each individual’s farmer’s
needs and circumstances, as well as the price of milk.
ST likewise disputes each of ABS’s arguments that the Sorting Agreements are
anti-competitive, arguing first that ABS and third-party bull studs like Microbix and CRI
have been able to develop technology that competes with ST. Second, ST contends that
the terms of the contracts are not anti-competitive because: (1) they have differing start
dates and durations; (2) the purchase requirements are justified to offset significant costs
ST incurs; (3) its customers are permitted to purchase additional straws from other
suppliers; and (4) the duration of the contracts actually benefits the customers because
they guaranty continuity of supply. Finally, ST disputes that its acquisition of patents
constitutes exclusionary conduct, arguing that its acquisitions were investments in
development of its product and that ABS has not shown that it was harmed by ST’s
patent acquisitions and licenses.
Turning to ABS’s substance of the monopoly claim under § 2 of the Sherman Act,
a plaintiff must first show that the defendant has monopoly power in the relevant

27

market.

United States v. Grinnell Corp., 384 U.S. 563, 571 (1966). 8

“The second

element of a § 2 claim is the use of monopoly power ‘to foreclose competition, to gain a
competitive advantage, or to destroy a competitor.’” Eastman Kodak Co. v. Image Tech.
Servs., Inc., 504 U.S. 451, 482-83 (1992) (quoting United States v. Griffith, 334 U.S. 100,
107 (1948)). Put differently, § 2 prohibits “the willful acquisition or maintenance of
[monopoly] power as distinguished from growth or development as a consequence of a
superior product, business acumen, or historic accident.”

Grinnell Corp., 384 U.S. at

571-72. For the reasons that follow, the court finds that ABS has adequately established
ST’s position as a monopolist in the U.S. market for sexed bovine processing, but has
failed to establish per se violations of its use of that power. At the same time, ST has not
established on the record at summary judgment that no reasonable jury could find the
aggressive efforts made to maintain that monopoly position has crossed the line of
exclusionary conduct prohibited by § 2 of the Sherman Act.
A.

Relevant Market

“A relevant market is comprised of those ‘commodities reasonably interchangeable
by consumers for the same purposes[.]’” Fishman v. Estate of Wirtz, 807 F.2d 520, 531
(7th Cir. 1986) (quoting United States v. E.I. Du Pont de Nemours & Co., 351 U.S. 377,
395 (1956). “The outer boundaries of a product market are determined by . . . the
cross-elasticity of demand between the product itself and substitutes for it.” Brown Shoe
Co. v. United States, 370 U.S. 294, 325 (1962). Within broad markets, submarkets may

The parties agree that ABS’s unfair competition claim under the common law of Wisconsin rises
or falls with its Sherman Act claim, and so, it is not addressed separately.

8

28

exist, which themselves “constitute product markets for antitrust purposes.” E.I. Du Pont
de Nemours & Co., 351 U.S. at 593-95. “The boundaries of such a submarket may be
determined by examining such practical indicia as industry or public recognition of the
submarket as a separate economic entity, the product’s peculiar characteristics and uses,
unique production facilities, distinct customers, distinct prices, sensitivity to price
changes, and specialized vendors.” Brown Shoe Co., 370 U.S. at 325. The determination
of a relevant market requires “a factual inquiry into the ‘commercial realities’ faced by
consumers.” Eastman Kodak Co., 504 U.S. at 482.
With the support of its economic expert, ABS contends that the relevant market is
“the market for sexed semen processing services in the U.S.”

(Pl.’s Opp’n Br. (dkt.

#324) at 24.) Relying on its own expert, ST criticizes this definition as too narrow
because it fails to include “both the processing and downstream sales of conventional
semen,” and the geographic region should be worldwide.

(Def.’s Opening Br. (dkt.

#275) at 44.) The core of ST’s argument is that the relevant market must incorporate
downstream products and services because “downstream competition constrain[s] the
prices that ST may impose for its sexed semen processing services.” (Id.)
The

Supreme

Court

outlined

the

pertinent

analysis

concerning

interchangeability of products in a § 2 case in E.I. du Pont de Nemours & Co.:
Monopoly power is the power to control prices or exclude
competition. It seems apparent that du Pont’s power to set
the price of cellophane has been limited only by the
competition afforded by other flexible packaging materials.
Moreover, it may be practically impossible for anyone to
commence manufacturing cellophane without full access to
du Pont’s technique. However, du Pont has no power to
prevent competition from other wrapping materials. The trial
29

the

court consequently had to determine whether competition
from the other wrappings prevented du Pont from possessing
monopoly power in violation of § 2.
351 U.S. at 392-93 (footnote omitted).
As an initial matter, neither party engages in a rigorous analysis of the
cross-elasticity between sexed bull semen and conventional bull semen. ST asserts that
they are essentially interchangeable, as demonstrated by the 33% decline in ST’s sexed
semen sales compared to the only 4% decline in total U.S. semen sales when milk prices
“crashed” in 2009.

(Def.’s Opening Br. (dkt. #275) at 47.)

In contrast to ST’s

argument that this disproportionate decline in price demonstrates substitutability between
sexed semen and conventional semen, an equally reasonable inference is that purchasers of
sexed semen straws simply stopped buying altogether when it became far less profitable
to produce female cows due to the decline in dairy prices. For the most part, this would
actually suggest that purchasers of both sexed and conventional bull semen are in
separate product niches, something that might be determined by tracking actual sales
during the period of declining milk prices, but neither side provides this data.
More to the point, “[a]n element of consideration as to cross-elasticity of demand
between products is the responsiveness of the sales of one product to price changes of the other.”
E.I. du Pont de Nemours & Co., 351 U.S. at 400 (emphasis added). Yet ST’s expert fails to
offer any evidence that the cross-elasticity of sexed and convention bull semen is positive.
In other words, the limited data ST provides does little to establish as a matter of
undisputed fact that purchasers of both sexed and conventional bull semen are sensitive
to price changes in one product or the other.
30

ABS does little better in trying to establish the lack of or low cross-price elasticity
between sexed and conventional bull semen, merely offering the opinion of its expert that
there are no “reasonable substitutes for ST’s processing services in the U.S.” because
“entry would lead to lower prices, [and] this means that there are no other products or
services that are sufficiently close substitutes to constrain the prices charged by ST.”
(Pl.’s Opp’n Br. (dkt. #324) at 31.)
Instead, ABS changes the focus to the Brown Shoe factors, which encourage the
consideration of such practical indicia “as industry or public recognition of the submarket
as a separate economic entity,” the product’s peculiar characteristics and uses, unique
production facilities, distinct customers, distinct prices, sensitivity to price changes, and
specialized vendors.” 370 U.S. at 325; see also Cass Student Advert., Inc. v. Nat’l Educ.
Advert. Serv., Inc., 516 F.2d 1092, 1099-1100 (7th Cir. 1975) (applying Brown Shoe
factors to determine relevant market in case alleging monopoly power in a service
market).
Applying these factors, ABS argues that sexed semen processing is in a separate
market from the final sexed or conventional semen product. First, ABS asserts that a bull
stud unable to obtain sexed semen processing services from ST would not find
conventional bull semen straws to be an adequate substitute, since the latter includes both
male and female sperm cells. Second, ABS points out that sexed semen processing uses
unique production facilities with expensive semen sorting machines, while producing
conventional semen straws requires no such expense. Third, ABS points out that bull
studs purchase ST’s processing services, whereas their downstream customers, such as
31

dairy producers and beef producers, purchase sexed or conventional semen straws as a
final product. Fourth, ABS demonstrates that sexed and conventional semen straws have
markedly different price points, with the average price per straw sold $24.75 and $8.87,
respectively. Finally, ABS emphasizes that ST is the only firm “that sells sexed semen
processing services to major bull studs in the U.S.” (Pl.’s Opp’n Br. (dkt. #324) at 29.)
ST does not respond to ABS’s fairly persuasive arguments regarding the Brown
Shoe factors in its reply brief, electing instead to lean heavily on Virginia Vermiculite, Ltd.
v. W.R. Grace & Co.-Conn., 108 F. Supp. 2d 549 (W.D. Va. 2000), a case it originally
cited in its opening brief. In that case, the district court held that the plaintiff’s effort to
define the relevant product market was inadequate in light of the defendants’ evidence
that:

(1) “perlite constrains the value of vermiculite mining rights”; and (2) “the

competitive position of vermiculite with other downstream minerals limited the royalty
rate [the defendant] would pay for vermiculite mining rights.” 108 F. Supp. 2d at 578.
In particular, the court faulted plaintiffs for offering “no evidence that potential
substitutes for the downstream concentrates do not affect the value of mining rights.” Id.
(emphasis added).
In contrast, ABS actually provides at least some evidence that the market for sexed
bull semen is distinct from the market for conventional bull semen, but again does so
almost entirely in the form of the Brown Shoe rubric. This failure is telling, although
neither party addresses it, because a definition of a relevant market centered solely on the
Brown Shoe factors is insufficient as a matter of law in this circuit. The Seventh Circuit

32

has repeatedly emphasized the need for both a quantitative and qualitative economic
analysis in arriving at a market definition:
While the “practical indicia” named in Brown Shoe and
Beatrice Foods Co. are important considerations in defining a
market, they were never intended to exclude economic
analysis altogether.
....
This Court has emphasized the use of economic analysis in
the law. To demonstrate competition in an antitrust case, the
plaintiff must provide an economic analysis of the relevant
market. See, e.g., Menasha, 354 F.3d 661 (requiring economic
evidence to prove the existence of a distinct market). Lacking
any economic evidence [the plaintiff] has failed to show that
the tying arrangement has foreclosed any portion of the
market for real estate services.
Reifert v. South Cent. Wis. MLS Corp., 450 F.3d 312, 320 (7th Cir. 2006); see also DSM
Desotech Inc. v. 3D Sys. Corp., 749 F.3d 1332, 1342 (Fed. Cir. 2014) (applying Reifert and
Menasha to hold that summary judgment against the plaintiff was appropriate because
the plaintiff presented insufficient economic evidence for a reasonable jury to find a
distinct product market); contra McWane, Inc. v. F.T.C., 783 F.3d 814, 829-30 (11th Cir.
2015) (affirming relevant market definition on the basis of the qualitative Brown Shoe
factors despite the lack of an econometric analysis).

Still, ABS’s expert provides an

adequate economic analysis of the market for sexed semen processing in his report for a
reasonable jury to find that market to be relevant.
Certainly, ABS’s principal expert, University of Chicago Economics Professor
Kevin Murphy, is both highly credentialed and lays out a persuasive case for ST’s

33

monopoly power if one assumes a distinct market for “sexed semen processing services.” 9
As Professor Murphy points out, there is no dispute that ST has a nearly 100% share of
sexed semen processing services in the U.S. Moreover, over the course of ten years, ST
appears to have locked in all of the major U.S. bull studs (representing 96% of the
downstream market) to long term supply contracts for increasingly lengthy terms
(moving generally from 1 to 2 years, to 4 to 5 years), while enjoying remarkably steady
variable margins that would seem to be the envy of most industries in the United States.
The complete lack of a competitor for these services operating in the United
States, and the acknowledged need for processing services to be provided locally to be
effective, provides substantial support for Professor Murphy’s conclusion that a
meaningful analysis as to the cross demand or price elasticity is unnecessary here. 10 As
for the downstream market for conventional vs. sexed bull semen, that market no doubt
does play some role in constraining the apparently steady, supra-competitive margins
that ST appears to enjoy regularly for its sexed semen processing in the United States.
Certainly, Professor Murphy’s opinions can be criticized for failing to do any
cross-elasticity analyses as to the substitutability of conventional and sexed semen in the
downstream market in the U.S., and indeed overseas. This is hardly a case like Virginia
Vermiculite, however, where there was not only evidence of the interchangeability of
different grades of vermiculite, but also between vermiculite and other non-vermiculite

Professor Murphy is the Jury Stiler Professor of Economics in the Booth School of Business and
Department of Economics at the University of Chicago, which is also where he earned his
doctorate.
10
Of course, the court will continue to consider whether the evidence as a whole at trial supports
such a finding.
9

34

substitutes.

In that case, defense experts actually conducted their own, basic cross-

elasticity analysis of these substitutes, concluding both that although these substitutes
did not cover all of the potential uses of vermiculite, “[t]he existence of a variety of
substitutes in a variety of applications indicates that even a hypothetical monopolist
supplier of vermiculite would be unable to profitably increase price.’” 108 F. Supp. 2d at
587 (quoting defense experts’ report).
Regardless, as Professor Murphy points out, the evidence supports a finding that
the price ST charges for sexed semen processing is not at a competitive level, meaning
that a more rigorous cross-elasticity analysis of the downstream products would have
been of limited usefulness.

See Va. Vermiculite, 108 F. Supp. 2d at 578 (“[C]ross-

elasticity of demand helps establish whether two products are close substitutes only when
both are sold at competitive prices.”) (citing Donald F. Turner, Antitrust Policy and the
Cellophane Case, 70 Harv. L. Rev. 281, 308-10 (1956)); see also Philip Areeda, et al.,
Antitrust Law: An Analysis of Antitrust Principles and Their Application, Vol. IIB, ¶ 507, p.
131 (4th ed. 2014) (“At different prices, elasticities differ.”). This also distinguishes the
Seventh Circuit’s Reifert and Federal Circuit’s DSM decisions suggesting that a crosselasticity analysis is crucial, since both concern substitutability at the same level of
competition as the challenged product, rather than downstream products.
Moreover, ABS has presented enough evidence to sufficiently create an issue of
fact as to whether the relevant geographic market is the United States, rather than the
world.

ST does not even attempt to dispute that there are significant barriers to

obtaining sexed semen processing services overseas. Indeed, the evidence suggests it is
35

simply impractical to perform these services far from the bulls themselves, and there are
enough unique characteristics to the population of U.S. prized bulls to make foreign
suppliers of finished downstream sexed semen from overseas bulls insufficient for U.S.
bull studs.

Based on the record on summary judgment, therefore, the court cannot

resolve the market definition issue in either parties favor. Indeed, while certainly open to
dispute at trial, ABS has so far done the more persuasive job of establishing sexed semen
processing services in the U.S. as the relevant product and geographic market.
Accordingly, ST’s motion for summary judgment based on a failure to prove the alleged
market under § 2 will be denied.
B.

Anticompetitive Conduct

Next, ST seeks to avoid antitrust liability by moving for summary judgment on
the grounds that ABS cannot demonstrate that its conduct was anticompetitive.

To

prevail on a § 2 claim, “[t]he mere possession of monopoly power, and the concomitant
charging of monopoly prices is not only not unlawful, it is an important element of the
free-market system.” Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540
U.S. 398, 407 (2004). “Under § 2, intent to obtain a monopoly is unlawful only where
an entity seeks to maintain or achieve monopoly power by anticompetitive means.”
Endsley v. City of Chicago, 230 F.3d 276, 283 (7th Cir. 2000). Moreover, to show that
ST’s conduct was exclusionary, ABS must do more than show that ST improved its
opportunity to compete, but rather show that ST “has been attempting to exclude rivals
on some basis other than efficiency.” Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472
U.S. 585, 605 (1985) (internal quotation marks omitted). Here, ABS claims that ST
36

engaged in exclusionary conduct in violation of the Sherman Act by (1) use of long-term,
take-or-pay contracts and (2) acquisition of patents.
1.

Contracting Practices

With respect to the contracts into which ST entered with the four major bull
studs, ABS’s position is that several characteristics of those contracts unlawfully
prevented potential competitors from entering the U.S. market for sexed semen
processing services, including in particular their increasingly long terms, minimum annual
purchase commitments, research and development restrictions, non-compete provisions,
evergreen provisions, and liquidated damages provisions. Similar to the parties’ dispute
concerning the definition of the relevant market, however, the record is not so one-sided
as to permit the court to enter summary judgment in ST’s favor. Indeed, ST’s obvious
aggressively negotiated, restrictive contract terms, while not per se illegal, open it up to
possible antitrust liability if found to be a monopolist under § 2.
As to the length of the contracts, ABS points out that as of late 2012, all of the
major bull studs in the U.S. were under contract with ST through at least late 2014.
Besides its own five-year contract, ABS provides as an example ST’s 2011 contract with
Select Sires that had a four-year term and a minimum purchase requirement of 800,000
straws per year. (Pl.’s Opp’n Br. (dkt. #324) at 37.) ST does not dispute the length of
the contracts.
Beyond pointing out that Select Sires and it have both been subjected to
minimum purchase commitments, ABS offers a hypothetical example to establish that
these commitments are anticompetitive. According to Professor Murphy, a firm owning
37

a technology with a similar cost structure to that arguably available to ABS using its GSS
technology, who wanted to supply sexed semen to Select Sires in 2012 (at which time,
three years remained on its contract with ST) would have needed to charge less than $4
per straw to be competitive given its minimum purchase at a $12.40 per straw price
guaranteed to ST. (Murphy Am. Rpt. (dkt. #298) at 35-36, Ex. 14a.) By Murphy’s
calculation, only seven months of Select Sires’ four-year contract with ST would remain
before a hopeful competitor could profitably compete at that price. Finally, to establish
that ST intentionally crafted the Sorting Agreements to impede competition, ABS points
to the observation of one of ST’s directors that “[o]ur contracts will slow adoption for a
new provider.” (Horowitz Decl. Ex. (dkt. #329-4).)
Even so, ST’s position is that: (1) the Sorting Agreements have not restricted
market entry; and (2) the agreements actually have multiple procompetitive aspects.
First, ST points out that ABS and two other companies (Microbix and CRI) have
continued to research and develop technology to compete with ST’s technology, although
ABS disputes any suggestion that Microbix or CRI are prepared to launch competing
technology.

(See Def.’s Reply PFOF (dkt. #373) ¶ 123.)

Additionally, while ABS

acknowledges that it has been able to develop its own GSS technology, ABS contends
that it is not financially feasible. Again, relying on Professor Murphy’s calculations, ABS
contends that even assuming it could launch its GSS technology during the term of its
contract with ST, ABS would still have found it more profitable to continue paying ST’s
price for processing, despite much lower costs associated with the technology, due to the
minimum purchase requirement in their contract. (Pl.’s Opp’n Br. (dkt. #324) at 37;
38

Murphy Am. Rpt. (dkt. #298) at 36, Ex. 14b.)
ST further argues that the Sorting Agreements are actually procompetitive because
they: (1) are designed to guarantee ST enough future sales to offset the upfront costs
associated with installing laboratory equipment at each bull stud facility; (2) include
terms guaranteeing quality; (3) protect against price increases; and (4) promote efficiency
and lower prices by avoiding the need for bull studs to submit purchase orders. (Def.’s
Opening Br. (dkt. #275) at 53.)

As evidence of the efficiencies generated by its

contracts, ST points to the decline in price of its semen sorting services over the time
period relevant to this lawsuit.
Not surprisingly, ABS challenges each of these asserted justifications, pointing to
ST’s installation of laboratory equipment at Select Sires’ facility under a fourteen month
contract to argue that long-term contracts were not necessary to justify its upfront
installation costs. (Pl.’s Opp’n Br. (dkt. #324) at 42.) ABS also argues “ST could have
earned a positive return on its investments with shorter contracts that included lower
minimum purchase requirements,” given that “ST was earning more than $10 million per
year after 2010 on sales to the larger bull studs, and those profits were much higher than
ST’s lab investment costs of setting up labs at those bull studs.” (Id. at 40.) Using ST’s
2012 contract with ABS as an example, while ST spent $2.5 to $3 million installing
laboratory equipment, the minimum purchase requirement guaranteed ST enough profit
to cover those costs within the first six months of the five-year Agreement.
Viewed in isolation, each of the examples of anticompetitive contract provisions
ABS asserts would likely not be sufficiently strong to survive summary judgment. As the
39

Seventh Circuit instructs, however, “[i]t is the mix of various ingredients . . . in a
monopoly broth that produces the unsavory flavor.” City of Mishawaka, Ind. v. Am. Elec.
Power Co., 616 F.2d 976, 986 (7th Cir. 1980); see also Aspen Highlands Skiing Corp. v. Aspen
Skiing Co., 738 F.2d 1509, 1522 n.18 (10th Cir. 1984) (Each of the ‘six things’ [on which
plaintiff relied to demonstrate that it was deliberately excluded from the destination skier
market] viewed in isolation need not be supported by sufficient evidence to amount to a
§ 2 violation.

It is enough that taken together they are sufficient to prove the

monopolization claim.”).
Several other disputed facts bar ST’s request for summary judgment as to whether
the Sorting Agreements are anticompetitive. Despite ST’s insistence that this district
court grant of summary judgment on § 2 claims based on Digene Corp. v. Third Wave
Technologies, Inc., 536 F. Supp. 2d 996 (W.D. Wis. 2008), that decision actually dictates
otherwise.

In Digene, the court considered evidence establishing that the defendant

developer “had a natural, but short-lived dominant position in the market for high risk
HPC testing because it was the first to market a test for this purpose and the first (and
still the only company) to secure FDA approval[.]” Id. at 999. The evidence further
established that the competitor asserting the § 2 claims in Digene had “a gradually
increasing share of [the HPV testing] market and the clear prospect of obtaining a greater
share once it secures FDA approval.” Id. Further distinguishing the contract at issue in
this case, the developer in Digene had “not been able to impose termination fees and
minimum purchase commitments on its biggest customers and [was] forced to offer them
multi-year fixed price contracts.”

Id. at 1006.
40

Finally, both “the availability of

substitutes” and price constraints imposed by Medicaid’s and insurance companies’
ceilings on reimbursement for medical tests limited the ability of the developer to extract
favorable price and contract terms from its customers. Id.
In contrast to the developer in Digene, ST has failed to demonstrate that
competitive forces in the relevant market, or even the downstream market, have limited
its ability to demand seemingly aggressive contract concessions from all its customers
that are favorable to it alone, aside from the limited “safe harbor” provision for existing
research and development that ABS was able to negotiate in its contract. On this record,
the court cannot even find as a matter of law that ST’s long-term contracts are
procompetitive as a matter of law. See, e.g., Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466
U.S. 2, 45

(1984) (O’Connor,

J., concurring) (“In determining whether

an

exclusive-dealing contract is unreasonable, the proper focus is on the structure of the
market for the products or services in question -- . . . . [e]xclusive dealing is an
unreasonable restraint on trade only when a significant fraction of buyers or sellers are
frozen out of a market by the exclusive deal.”); ZF Meritor, LLC v. Eaton Corp., 696 F.3d
254, 286-89 (3rd Cir. 2012) (holding that a jury could find five year de facto exclusive
dealing agreements with provisions making termination difficult are anticompetitive in
practice in violation of § 2); Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 395
(7th Cir. 1984) (“Exclusive-dealing contracts terminable in less than a year are
presumptively lawful under section 3 [of the Clayton Act].”); Pro Search Plus, LLC v.
VFM Leonardo, Inc., No. SACV 12-2102 JST (ANx), 2013 WL 3936394 (C.D. Cal. July
30, 2013) (finding that contracts, including one with a duration of five years and
41

terminable upon 12 months’ notice, did not support a Sherman Act claim, at least alone,
because they were “of relatively short duration and, crucially, [could] be terminated upon
short notice[.]”); cf. XI Phillip E. Areeda, et al., Antitrust Law § 1802g2 (3rd ed. 2011)
(“The significance of any particular contract duration is a function of both the number of
such contracts and the market share covered by the exclusive-dealing contracts.”). Given
the possibility that a reasonable jury could find that ST had a near total monopoly on
sexed semen processing market in the U.S., questions related to the cumulative
anticompetitive impact of these varied contract restrictions also remain for the jury.
2.

Patent Acquisitions

Finally, the court turns to ABS’s additional claim that ST’s acquisition of patents
related to sexed semen sorting technology is anticompetitive under § 2 of the Sherman
Act as a matter of law. Both parties move for summary judgment on this issue. Any § 2
claim based on the acquisition of patents presents an “obvious tension between the
patent laws and antitrust laws. One body of law creates and protects monopoly while the
other seeks to proscribe it.” United States v. Westinghouse Elec. Corp., 648 F.2d 642, 646
(9th Cir. 1981). Indeed, acquiring and asserting valid patents is absolutely protected by
the patent laws “in the absence of monopoly but, because of their tendency to foreclose
competitors from

access

to

markets

or

customers

or

some

other

inherently

anticompetitive tendency, they are unlawful under § 2 if done by a monopolist[.]” City of
Mishawaka, Ind., 616 F.2d at 986 (quoting Sargent-Welch Sci. Co. v. Vernon Corp., 567 F.2d
701, 711-12 (7th Cir. 1977)).

42

Here, ABS has shown enough to suggest that ST’s acquisition of patents may
qualify as unlawful under the Sherman Act. See SCM Corp. v. Xerox Corp., 645 F.2d
1195, 1205 (2d Cir. 1981) (“Surely, a § 2 violation will have occurred where, for
example, the dominant competitor in a market acquires a patent covering a substantial
share of the same market that he knows when added to his existing share will afford him
monopoly power.”); L.G. Balfour v. F.T.C., 442 F.2d 1, 15 (7th Cir. 1971) (disagreeing
with the petitioners that the cases they cited “[stood] for the proposition that the
accumulation of patents . . . may never constitute a violation of the antitrust laws”).
Specifically, ABS identifies several facts that may expose ST’s relatively recent, aggressive
patent acquisitions to § 2 liability.

First, ST acquired all four of the original

patents-in-suit -- two (the ‘920 and ‘425 patents) when ST purchased XY as a
wholly-owned subsidiary and the others (the ‘987 and ‘092 patents) when it bought
Monsanto’s pending patent applications concerning sexed semen processing services in
early 2008.

Second, despite acquiring it in 2008, ST has still not made use of the

“laser-kill” technology described in one of those patents, the ‘987 patent. Third, “ST
(through XY) also sued another potential competitor, Trans Ova Genetics, LC, on those
same two acquired patents -- along with nine others.” (Pl.’s Opening Br. (dkt. #270) at
91.) Fourth, ST secured an exclusive license in 2009, comprising 46 U.S. patents relating
to “sexed bovine semen processing” from Cytonome, Inc., resulting in “ST now either
own[ing] or ha[ving] exclusive rights to a portfolio of 136 U.S. patents related to sexed
semen processing, together with additional foreign counterpart patents.” (Id. at 87.)

43

Relying largely on Areeda’s Antitrust Law treatise, ABS asserts that these actions
constitute per se unlawful behavior under § 2.

Actually, Areeda only concludes that

“[a]cquisition by a monopolist of exclusive rights in related patents should presumptively
be a § 2 ‘exclusionary practice.’” III Phillip E. Areeda, et al, Antitrust Law § 707 (4th ed.
2015). Regardless, ST maintains that its accumulation of patents related to sexed semen
technology is actually procompetitive. Indeed, ST asserts that the patents it acquired
complimented its own portfolio, allowing ST to “develop[] and combine[] the Monsanto
and Cytonome technologies with the XY sexing technology.” (Def.’s Opening Br. (dkt.
#275) at 58.) Whether this is so presents a classic issue of disputed fact. Moreover, the
parties present a dispute of fact as to whether ST could have secured a nonexclusive
license from Monsanto, a practice Areeda describes as presumptively lawful. 11 Antitrust
Law § 707.
However,

ST’s

argument

that

its

patent

acquisitions

cannot

constitute

anticompetitive conduct as a matter of law, because it did not increase its market power
completely misses the mark, especially since ST already controlled 100% of the relevant
market, at least as defined by plaintiffs. The case law instructs that the relevant question
here is not whether the patent acquisitions actually enhanced ST’s market power, but
rather whether they reflect ST’s intent to maintain monopoly power through

The court will deny ABS’s motion to strike Cynthia Ludwig’s declaration that Monsanto was
uninterested in licensing, rather than selling its patent technology. (Dkt. #368.) At least for
summary judgment, ST sufficiently established that Ludwig had adequate personal knowledge
based on her participation in meetings from which she could describe the understanding as to
whether the patents ST acquired from Monsanto were available for licensing. (Dkt. #374.)

11

44

anticompetitive means. 12 See Ford Motor Co. v. United States, 405 U.S. 562, 576 n.11
(1972) (“Even constitutionally protected property rights such as patents may not be used
as levers for obtaining objectives proscribed by the antitrust laws.”); Kearney & Trecker
Corp. v. Giddings & Lewis, Inc., 452 F.2d 579, 599 (7th Cir. 1971) (“[A]lthough the
acquisition of one or two dominating patents by the owner of the other has not been held
to constitute a violation of the antitrust laws, plaintiff’s acquisition of [the Morgan
patent] may be taken as evidence of an intent to restrain competition.”) (citing United
States v. Singer Mfg. Co., 374 U.S. 174 (1963)). 13
Another leading antitrust treatise explains the standard as follows:
ST’s arguments that the “failing company defense” and the Noerr-Pennington doctrine save its
patent acquisitions from § 2 scrutiny are likewise easily dismissed as applying to claims falling
under § 7 of the Clayton Act. Contrary to ST’s assertion, ABS could, as it did, elect to challenge
ST’s patent accumulation under § 2 of the Sherman Act, and ST fails to demonstrate that the
failing company defense is applicable to a § 2 claim. With respect to the Noerr-Pennington
doctrine, the Seventh Circuit has refused to immunize a party’s conduct when litigation is used as
a vehicle for eliminating competition regardless of the outcome of the suit. See Winterland
Concessions Co. v. Trela, 735 F.2d 257, 263-64 (7th Cir. 1984) (“As this court has previously
noted, ‘it has long been thought that litigation could be used for improper purposes even where
there is probable cause for the litigation; and if the improper purpose is to use litigation as a tool
for suppressing competition in the antitrust sense . . . it becomes a matter for antitrust concern.’”)
(quoting Grip-Pak, Inc. v. Ill. Tool Works, Inc., 694 F.2d 466, 472 (7th Cir. 1982)). Since ABS
accuses ST of accumulating and asserting patents for the purpose of restricting competition in
violation of § 2, among other anticompetitive behavior, the court declines to apply the
Noerr-Pennington doctrine to protect the challenged conduct.

12

See also Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416, 422 (10th Cir. 1952) (“Ordinarily patent
pools when created for legitimate purposes are not illegal in themselves. Agreements which
require licensees to assign future inventions or patents are not in themselves illegal. Such
agreements, however, which effect a restraint of trade or create monopolies, if designed for that
purpose, are violations of the law.”) (internal citations omitted); Id. at 425 (“The facts . . . are
sufficient to support a finding that although Kobe believed that some of its patents were
infringed, the real purpose of the infringement action and the incidental activities of Kobe’s
representatives was to further the existing monopoly and eliminate Dempsey as a competitor.
The infringement action and the related activities, of course, in themselves were not unlawful, but
when considered with the entire monopolistic scheme which preceded them, we think, as the trial
court did, that they may be considered as having been done to give effect to the unlawful
scheme.”).
13

45

As a general rule, the acquisition of patent rights through
government grant does not violate the antitrust laws. “Mere
procurement of a patent, whatever the conduct of the
applicant in the procurement, cannot without more affect the
welfare of the consumer and cannot in itself violate the
antitrust laws.” Moreover, it is quite well established that,
absent bad faith, an accumulation of patents by a single party
is not inherently illegal.
Nevertheless, it is equally well established that patent
acquisition may violate the antitrust laws if such is
accompanied by an illegitimate purpose or anticompetitive
consequences beyond those encompassed by the patent grant
in question. . . . Similarly, courts have held that aggressive
accumulation, nonuse, and enforcement of “every important
patent” in a particular competitive market for purposes of
foreclosing competition in that market can give rise to
antitrust liability.
In general, as would be expected,
accumulation of patents as part of a larger scheme to
monopolize (beyond the scope of the patents themselves)
might also be found unlawful, assuming all other requisites of
a Sherman Act (or Clayton Act) violation have been met.
2 Julian O. von Kalinowksi, Antitrust Laws and Trade Regulation § 7A.03 (2d ed. 2015).
When viewed in light of the other allegedly anticompetitive contract terms
asserted by ABS, a reasonable jury could find that ST’s accumulation of patents related
to sexed semen sorting technology was part of an unlawful effort to maintain its
monopoly in violation of § 2 of the Sherman Act. Accordingly the court will deny both
parties’ motions for summary judgment on ABS’s Sherman Act claims.
III.

Patent Claims
Although four patents were originally named in this lawsuit, two -- the ‘920

Patent, which is entitled the “Collection Systems for Cytometer Sorting of Sperm,” and
the ‘425 Patent, entitled “Method of Cryopreserving Selected Sperm Cells” -- are
46

currently undergoing invalidity challenges before PTAB and no longer before this court.
This leaves in suit the ‘987 and ‘092 Patents. The ‘987 Patent is titled “Photo-Damage
Method for Sorting Particles,” and is directed to methods of selectively “photodamaging” sperm that lack a desired characteristic, such as a female-producing Xchromosome.

ST claims that the GSS technology infringed claims 1-10 of the ‘987

Patent. The ‘092 Patent is titled “Digital Sampling Apparatus and Methods for Sorting
Particles,” and it is directed at a sorting method of analysis and classification that uses
digital signals, rather than analog signals that had been previously used. ST claims that
ABS and Genus infringe numerous claims of the ‘092 Patent. Only certain claims under
the patents in suit are the subject of the parties’ motions for construction and summary
judgment. Those are addressed below.
A.

‘987 Patent Claims 1, 7 and 8 and ‘092 Patent Claims 40-46

The ‘987 patent discloses a “laser-kill” technology that can be used for eliminating
sperm cells to produce a population of semen of the desired sex. More specifically, the
process described in the ‘987 patent uses a laser to kill sperm cells of the undesired sex,
which are identified by the difference in light emitted by X-bearing and Y-bearing sperm
cells, creating a semen population of the desired sex in a single container.
While ABS contends that the ‘987 patent does not describe “‘sorting’ in the
conventional sense,” in that the technology does not physical separate the male and
female sperm into different containers, ABS acknowledges that the ‘987 patent expressly
states that “‘sorting’ for the purposes of the patent includes photo-damaging unwanted
cells, even if the cells are not then separated into discrete populations.” (Pl.’s Opening
47

Br. (dkt. #270) at 28); see CCS Fitness, Inc. v. Brunswick Corp., 288 F.3d 1359, 1366 (Fed.
Cir. 2002) (“[T]he claim term will not receive its ordinary meaning if the patentee acted
as his own lexicographer and clearly set forth a definition of the disputed claim term in
either the specification or prosecution history.”).

For the purposes of the present

motions, ABS similarly accepts this definition of “sorting” for the ‘092 patent, which
concerns technology for sorting particles, including sperm cells, using a digital processor
to analyze and classify particles instead of using analog signals. (Robinson Report (dkt.
#295) ¶ 43.)
As a result, ABS/Genus does not oppose ST’s partial motion for summary
judgment on infringement of claims 1, 7 and 8 of the ‘987 patent, as well as claims 40-46
of the ‘092 patent, even though ABS maintains that both patents are invalid in light of
prior art for purposes of trial.
B.

Other Claims of the ‘987 Patent
1.

Claim Construction
a.

“sort strategy”

The parties dispute the proper construction of four terms or phrases in the ‘987
patent. “It is a ‘bedrock principle’ of patent law that ‘the claims of a patent define the
invention to which the patentee is entitled the right to exclude.’” Phillips v. AWH Corp.,
415 F.3d 1302, 1312 (Fed. Cir. 2005) (en banc) (quoting Innova/Pure Water, Inc. v. Safari
Water Filtration Sys., Inc., 381 F.3d 1111, 1115 (Fed. Cir. 2004)). The interpretation of
a patent claim is exclusively a matter of law for the court.
48

Markman v. Westview

Instruments, Inc., 517 U.S. 370, 372 (1996). In construing a claim, the court starts with
the claim language itself. Comark Commc’ns, Inc. v. Harris Corp., 156 F.3d 1182, 1186
(Fed. Cir. 1998).

The ordinary meaning of the claim language generally controls

interpretation. See Phillips, 415 F.3d at 1312 (“We have frequently stated that the words
of the claim ‘are generally given their ordinary and customary meaning.’”) (quoting
Vitrionics Corp. v. Conceptronic, Inc., 90 F.3d 1576, 1582 (Fed. Cir. 1996)); Digital
Biometrics, Inc. v. Identix, Inc., 149 F.3d 1335, 1344 (Fed. Cir. 1998) (“The actual words of
the claim are the controlling focus.”).
In addition, “the specification is always highly relevant to the claim construction
analysis” and is usually “the single best guide to the meaning of a disputed term.”
Phillips, 415 F.3d at 1315. The baseline inquiry is how a person of ordinary skill in the
art, who “is deemed to read the claim term not only in the context of the particular claim
in which the disputed term appears, but in the context of the entire patent, including the
specification,” would understand a claim term at the time of invention. 14 Id. at 1313.
That said, the court must avoid the “fine line between reading a claim in light of the
specification, and reading a limitation into the claim from the specification.”
Liebel-Flarsheim Co. v. Medrad, Inc., 358 F.3d 898, 904 (Fed. Cir. 2004) (quoting Comark
Commc’ns, 156 F.3d at 1186-87.

The parties’ experts generally agree that a person of ordinary skill in the art would have at least
an undergraduate degree in the biological sciences, engineering or chemistry, as well as at least
three years of experience with cell sorting or sperm cells. (Robinson Report (dkt. #294) ¶ 11;
Ludwig Report (dkt. #296) ¶ 24; Nolan Report (dkt. #297) ¶ 25.) The differences among the
characteristics of the person of ordinary skill in the art proposed by the parties’ experts are not
material for the purposes of the present motions.
14

49

First, the parties dispute the proper construction of “sort strategy,” which appears
in claims 2 and 3 of the ‘987 patent:
“sort strategy”
Plaintiffs ABS and Genus’s Proposed
Defendant ST’s Proposed Construction
Construction
“a decision process for determining whether “decision process for determining how
two sperm that arrive together will be particles or groups of particles are to be
photo-damaged”
sorted”

The language of independent claim 1, as well as dependent claims 2 and 3, reads as
follows:
1. A method of sorting a mixture of stained sperm cells
having either characteristic A or characteristic B into at least
one population, the method comprising the steps of:
a. flowing a fluid stream containing stained sperm cells
through a flow path at a fluid delivery rate;
b. exciting fluorescence emissions from the stained sperm
cells having characteristic A and the stained sperm cells
having characteristic B flowing in the flow path;
c. detecting the fluorescence emissions from the excited
sperm cells;
d.
classifying the stained sperm cells as either having
characteristic A or having characteristic B based upon the
fluorescence emissions;
e. selecting stained sperm cells in the flow path based on
their classification; and
f. photo-damaging the selected sperm cells to produce an
enriched population of sperm with respect to either
characteristic A or characteristic B.
2. A method of sorting a mixture of stained sperm cells
according to claim 1 wherein the step of selecting stained
50

sperm cells in the flow path to photo-damage further
comprises the step of photo-damaging sperm cells based upon
a sort strategy.
3. A method of sorting a mixture of stained sperm cells
according to claim 2 further comprising the step of varying
the sort strategy as a function of at least one of the following:
a. the purity of the said at least one population with respect
to either characteristic A sperm cells or characteristic B sperm
cells; and
b. the quantity of undamaged characteristic A sperm cells or
undamaged characteristic B sperm cells in the said at least
one population relative to the total quantity of characteristic
A sperm cells or characteristic B sperm cells in the fluid
stream.
(Horowitz Decl. Ex. 22 (dkt. #261) [hereinafter “’987 patent”] at 212:58-213:25
(emphasis added)).
The parties essentially disagree whether a “sort strategy” as limited by claims 2
and 3 can be applied to a single sperm cell that arrives at the point at which a decision
whether to fire the kill laser must be made (ST’s construction) or must be applied only to
“coincident cells” that arrive closely together (ABS’s construction). ABS admits that its
proposed construction of “sort strategy” is narrow, but argues that it is nevertheless urged
in light of the specification, as well as the interaction between claim 1 and claim 2.
Specifically, ABS argues that the step of “photo-damaging the selected sperm cells to
produce an enriched population of sperm with respect to either characteristic A or
characteristic B” described in claim 1 necessarily implies the application of a “decision
process for determining how particles or groups of particles are to be sorted.” In other
words, ABS argues that ST’s construction of “sort strategy” would give claim 1 and claim
51

2 the same scope, rendering the latter meaningless in violation of the presumption under
the doctrine of claim differentiation. See World Class Tech. Corp. v. Ormco Corp., 769 F.3d
1120, 1125 (Fed. Cir. 2014) (“The doctrine of claim differentiation creates a
presumption that distinct claims, particularly an independent claim and its dependent
claim, have different scopes.”). With respect to the specification, ABS argues that every
reference to a “sorting strategy” in the specification concerns how to deal with coincident
cells. (Pl.’s Opening Br. (dkt. #270) at 30 (citing ‘987 patent at 74:49-57, 74:67-75:5,
76:54-56).)
On the face of the language of claim 1 itself, step (f) does not require the use of a
“sort strategy” to produce a population of sperm of the desired sex. Instead, claim 1
indicates that the cells that are “selected” based on their classification at step (e) are
photo-damaged at step (f), and so it appears that the most relevant question to address
the parties’ disputed construction of “sort strategy” is whether the “selection” of cells
described in claim 1 is also a “sort strategy.” That the drafter did not use the term “sort
strategy” to describe the selection of the desired characteristic at step (e) suggests that
the answer might be “no.” If so, this would lend support to ST’s proposed construction
that a sort strategy could apply to individual and coincident cells, since there would be
no arguable claim differentiation problem.
The specification, however, leaves the answer unclear, at least based on apparently
inconsistent language relied on by each party. For example, ST cites excerpts from the
following passage from the specification in support of its argument that a sorting strategy
can apply to individual, as well as coincident, cells:
52

In general, the microprocessor 131 is programmed to
implement control and sorting strategies which are intended
to optimize the efficiency of the system 1 in terms of
throughput and/or loss of desirable particles to meet any cost
requirements of the sorted product. This may involve, for
example, balancing the need for high purity of at least one
collected population and the need to recover at least a
minimum percentage of desirable particles from the sample
being sorted.
Achieving such a balance is important,
particularly in the context of commercial applications where
cost and profitability are important considerations.
To this end, the microprocessor 131 implements a control
strategy which is a series of instructions and/or algorithms
that control system variables such as fluid delivery rate and/or
sort parameters. The microprocessor also implements a
sorting strategy which defines the decision process for
determining how each particle or group of particles is sorted.
Each particular control strategy may employ one or more sort
strategies. Various sorting strategies may be used upon such
factors as the selected control strategy, the particle detection
system and/or information relating to the particle distribution
in the fluid stream.
(‘987 patent, 79:27-48.)
ST asserts that among the “various sorting strategies” to which the above passage
refers are “high purity,” “high recovery” and “constant flow rate,” which, it explains, can
apply to individual as well as coincident cells. If true, that would appear to resolve the
parties’ claim construction dispute with respect to “sort strategy.” 15
As ABS points out, however, a chart in the specification that includes those
strategies lists them as control, rather than sorting, strategies. (Id. at 85). Indeed, the
same chart names under each of the control strategies any applicable sorting strategies -respectively, “coincident accept, coincident reject and variable coincident accept.” (Id.)
The parties identify no difference between “sort strategies” and “sorting strategies,” nor do
there appear to be any material differences between the two terms.

15

53

Accordingly, the chart appears to support ABS’s construction of sort strategy more than
it does ST’s.
Based on the language of the patent generally and arguments presented by the
parties, the court is nevertheless persuaded by ST’s proposed construction. First, given
that the process of “selecting” sperm cells based upon their classification at step (e) of
claim 1 does not necessarily require the application of a sort strategy, something required
in both claims 2 and 3, the doctrine of claim differentiation supports ST’s proposed
construction.

Second, although ABS is correct to point out that a chart in the

specification describes the three strategies ST lists as “control,” rather than “sorting”
strategies, it is at best unclear whether the three strategies listed in the chart are intended
to describe the full range of sorting strategies claimed by the invention, especially since
the terms are not mutually exclusive and the passage in the specification quoted above
mentions the possible utilization of “various” -- not just three -- sorting strategies. 16
Finally, the same passage goes on to explain that a sorting strategy “defines the decision
process for determining how each particle or group of particles is sorted,” which suggests that
a sorting strategy can apply to a single sperm cell as well as coincident cells.

(‘987

This overlap finds further support in the specification: 80:41-48 (“In general, as will be pointed
out below, there are many control strategies which may be employed to maximize particle
throughput and there are many sorting strategies that may be employed with each particular control
strategy.”); 86:23-26 (“Thus, as discussed earlier, particles such as sperm cells may be accepted or
rejected for sorting into a population of desired cells based on the probability that such particles
belong in the usable population”). Further descriptions abound. See 127:18-21 (“Different
control sorting strategies can be employed in a photo-damage system, including the ‘high
recovery’ and ‘high purity’ sorting strategies discussed above in the context of a droplet sorter.”);
127:46-51 (“It should be noted that multiple particles in a first series or multiple particles in a
second series could be ‘closely spaced,’ but since the particles in any such series have the same
characteristic (A or B), they are treated as a single-particle series, at least for sorting strategy
purposes.”)
16

54

patent, 79:42-43.) Accordingly, the court adopts ST’s proposed construction of “sort
strategy.”
b.

“further comprises the step of photo-damaging sperm
cells based upon a sort strategy”

Next, the parties dispute the construction of a phrase in claim 2 of the ‘987
patent:
“wherein the step of selecting stained sperm cells in the flow path to
photo-damage further comprises the step of photo-damaging sperm cells based
upon a sort strategy”
Plaintiffs ABS and Genus’s Proposed
Defendant ST’s Proposed Construction
Construction
“wherein the step of selecting stained “No construction necessary.
In the
sperm cells in the flow path to alternative, ‘wherein the step of selecting
photo-damage
includes
a
step
of stained sperm cells in the flow path to
photo-damaging sperm cells based upon a photo-damage further comprises applying a
sort strategy (in addition to the sort strategy.”
photo-damaging step of subpart ‘f’ of claim
1)”

ABS argues that claim 2 contains a drafting error, since the quoted phrase requires
two different lasers to perform two different “laser-kill” steps. ABS again acknowledges
that its proposed construction is harsh, since the two laser requirement would not only
be “pointless” but also, in the words of ST’s expert, would serve no “beneficial purpose,
and may even cause collateral damage to the desired cells.” (Pl.’s Opening Br. (dkt.
#270) at 33.)

Still, ABS claims adoption of its proposed construction is necessary,

because despite containing an error, the court must construe claim 2 as it was actually
drafted. See Chef Am., Inc. v. Lamb-Weston, Inc., 358 F.3d 1371, 1374 (Fed. Cir. 2004)

55

(“Thus, in accord with our settled practice, we construe the claim as written, not as the
patentees wish they had written it.”)
In response, ST argues that re-drafting claim 2 is not necessary because it first
requires selection of the cells based upon the sort strategy, then the actual
photo-damaging of those cells, and not two photo-damaging steps. ST’s explanation,
however, does not dispense completely with ABS’s concern regarding step (f) in claim 1,
which discloses “photo-damaging the selected sperm cells,” meaning that claim 1 also
requires both a selecting step and a photo-damaging step. Even so, it does not appear
that ABS advances the proper construction of the language of claim 2.
The central difference between claims 1 and 2 again appears to hinge on the
apparent difference between “selecting” the desired characteristic of sperm cell to be
photo-damaged and photo-damaging based on a “sort strategy.”

The claim language

appears to require the two terms to be interpreted differently, with the application of a
sort strategy being a more narrow method by which cells to be photo-damaged are
identified.
Thus, although perhaps inartfully explained, ST’s interpretation of claim 2 is the
better one for a person of ordinary skill in the art’s understanding of the claim,
particularly in light of its language and the specification, and especially since ABS
concedes that applying two laser-kill steps would be counter-productive.

See

Ortho-McNeil Pharma, Inc. v. Mylan Labs., Inc., 520 F.3d 1358, 1363 (Fed. Cir. 2008)
(applying the interpretation that it appeared the patentees intended, distinguishing Chef
America as a case in which “the only possible interpretation of the claim led to a
56

nonsensical result”). Based on its language, claim 2 limits the photo-damaging of cells
selected based on their classification in claim 1 to photo-damaging selected cells that are
further identified for damaging by a sort strategy, and two lasers carrying out two
laser-kill steps are not necessary.

Therefore, the court adopts ST’s proposed

construction, “wherein the step of selecting stained sperm cells in the flow path to
photo-damage further comprises applying a sort strategy,” and ABS’s motion for
summary judgment of non-infringement on claims 2, 3 and 4 will be denied.
c.

“varying the sort strategy”

Turning again to claims 3 and 4 of the ‘987 patent, the parties also propose
different constructions for a similar phrase appearing in both claims:
“varying the sort strategy [or the fluid delivery rate] as a function of”
Plaintiffs ABS and Genus’s Proposed
Defendant ST’s Proposed Construction
Construction
“changing the sort strategy [or fluid “selecting a sort strategy [or a fluid delivery
delivery rate] based upon”
rate] based upon”

The parties’ different interpretations turn on whether claims 3 and 4 require merely
selecting the sort strategy “either at the beginning of or during the semen processing”
(Def.’s Opp’n Br. (dkt. #334) at 25) (ST’s construction) or changing it while sexed
semen processing is underway (ABS’s construction).

ABS proposes the better

interpretation.
ST asserts that ABS’s proposed construction “would exclude instances disclosed in
the specification where the sort-strategy may remain static throughout the sorting
process,” but it ignores claim 2, which calls for the application of a sort strategy without
57

any mention of “varying” it.

(Id.)

In contrast, claims 3 and 4 disclose sorting cells

according to claim 2, but then further varying the sort strategy or fluid delivery rate “as a
function of” the desired purity or quantity of cells of the desired characteristic.
Thus, under a plain reading of the language of claims 3 in 4 in relation to claim 2,
claims 3 and 4 disclose a process by which the selected sort strategy or fluid delivery rate
selected consistent with claim 2 (either before or during processing) changes in real-time
depending on the purity or quantity of the population of sperm cells of the desired
characteristic. ST’s alternative construction would render superfluous the claim elements
“varying” and “as a function of,” and indeed claims 3 and 4 in violation of the doctrine of
differentiation. Accordingly, the court will adopt ABS’s proposed construction “changing
the sort strategy [or fluid delivery rate] based upon.”
Having adopted ABS’s proposed construction, the court will grant summary
judgment of non-infringement to ABS on claims 3 and 4, since ST offers no evidence to
contradict its assertions that the GSS technology does not change the sort strategy or
fluid delivery rate based upon the sperm population being collected. See Joy Techs., Inc. v.
Flakt, Inc., 6 F.3d 770, 775 (Fed. Cir. 1993) (“A method claim is directly infringed only by
one practicing the patented method.”) (alteration in original).
d.

“desired purity” and “an acceptable quantity”

The parties also propose different constructions for two claim terms in claims 9
and 10 of the ‘987 patent. 17

Although ST has the better of the argument on the construction of these terms, ABS does not
infringe claims 9 and 10 for reasons unrelated to this claim construction dispute as set forth
17

58

“desired purity” [Claim 9] and “an acceptable quantity” [Claim 10]
Plaintiffs ABS and Genus’s Proposed
Defendant ST’s Proposed Construction
Construction
“Indefinite. “Desired” and “acceptable” are Not indefinite. Refers to the purity desired
purely subjective.
by the operator [or the quantity acceptable
to the operator] as demonstrated by the
examples [or quantities] set forth in the
specification.

In pertinent part, claim 9 discloses a method of sorting cells according to claim 1 and
further comprising the step of adjusting the fluid delivery rate when the purity of the
sperm cell population is “greater than a desired purity” or “less than the desired purity.”
Similarly, claim 10 discloses a method of adjusting the fluid delivery rate depending on
the “acceptable quantity” of undamaged sperm cells of the desired characteristic in the
population.
ABS contends that because the specification does not describe how to determine
the “desired purity” or “an acceptable quantity,” or limit the range of purity or quantity
claimed, claims 9 and 10 are “fatally indefinite.” See Interval Licensing LLC v. AOL, Inc.,
766 F.3d 1364, 1374 (Fed. Cir. 2014) (invalidating claims depending on a phrase that
“when viewed in light of the specification and prosecution history, fail[ed] to ‘inform
those skilled in the art about the scope of the invention with reasonable certainty.’”)
(quoting Nautilus, Inc. v. Biosig Instruments, Inc., 572 U.S. ___, 134 S. Ct. 2120, 2130
(2014)); see also Noah Sys., Inc. v. Intuit Inc., 675 F.3d 1302, 1311 (Fed. Cir. 2012)
(“Whether a claim complies with the definiteness requirement of 35 U.S.C. § 112 ¶ 2 is a
matter of claim construction[.]”).
below.

59

As a starting point, claims which include terms of degree are not “inherently
indefinite.”

Interval Licensing LLC, 766 F.3d at 1370.

Rather, “[c]laim language

employing terms of degree has long been found definite where it provided enough
certainty to one skilled in the art when read in the context of the invention.” Id. (citing
Eibel Process Co. v. Minn. & Ont. Paper Co., 261 U.S. 45, 65-66 (1923)).
ST does not dispute that neither the language of claims 9 and 10, nor the
specification limit the range of the desired purity or acceptable quantity to any particular
values.

Instead, it argues that “[t]he manipulation of the sorting strategy is being

claimed, not the purity level,” adding that a person of ordinary skill in the art would
understand that claims 9 and 10 disclose a balancing procedure to reach the desired
purity or acceptable quantity.
The court agrees.

The language of claims 9 and 10 discloses a procedure for

achieving a certain purity or quantity, and while the specifics of that purity or quantity
are left undefined, ABS offers nothing to suggest that the terms must be further defined
to be understandable to a person of ordinary skill in the art. Indeed, the level of desired
purity or acceptable quantity depends completely on the demands of the machine
operator, driven in turn by the particular demands of a downstream customer, which is
only underscored by ABS’s argument that “two individuals could do the exact same thing
on the exact same machine, and an operator who was satisfied with low purity would
infringe claim 9, while a more demanding, dissatisfied operator would not.”
Opening Br. (dkt. #270) at 37.)

60

(Pl.’s

Claims 9 and 10 are unlike the claim invalidated by the Federal Circuit in Interval
Licensing LLC, which disclosed a method for a “content display system” to “selectively
display, in an unobtrusive manner . . . an image or images.”

In that case, the

“unobtrusive manner” language in the claim “offer[ed] no objective indication of the
manner in which content images [were] to be displayed to the user.” Id. at 1368, 1371.
Unlike in Interval Licensing LLC, the subjective terms here do not concern any indefinites
as to the operation of the claimed invention. Rather, claims 9 and 10 merely disclose a
method by which the operator can achieve his or her intended results. Accordingly, the
court agrees with ST that claims 9 and 10 are not invalid as indefinite because the terms
desired purity and acceptable quantity are subjective.
2.

‘987 Patent claims 5 and 6

ABS moves for summary judgment of non-infringement on claims 5 and 6 of the
‘987 patent on the basis that its GSS technology does not deal with “closely spaced”
sperm cells in the same manner as does ST’s technology. The relevant claims provide:
5. A method of sorting a mixture of stained sperm cells
according to claim 1, wherein the method further includes the
step of forming the fluid into a stream containing sperm cells
following generally one after another in a series which
includes sequential sets of sperm cells, including:
a. first particle sets each including one or more sperm cells
having characteristic A;
b. second particle sets each including one or more sperm cells
having characteristic B; and

61

c. third particle sets each including two or more closely spaced
sperm cells at least one of which has characteristic A and at
least one of which has characteristic B.
6. A method of sorting a mixture of stained sperm cells
according to claim 5, the method further includes the step of
either photo-damaging the second particles sets and not the
first and third particle sets or photo-damaging the second and
third particle sets and not the first particle sets.
(‘987 patent, 213:37-214:14 (emphasis added).)
ABS argues that the GSS technology does not infringe claim 6 for two reasons.
First, ABS claims that the GSS technology photo-damages both first particle and second
particle sets, while claim 6 requires no photo-damaging to one or the other. Second, ABS
argues that because the GSS technology only photo-damages one cell in a particle set, it
does not infringe claim 6, which also “requires photo-damaging the ‘third particle sets,’
not simply one of the cells in the multi-cell set.” (Pl.’s Opening Br. (dkt. #270) at 54.)
ABS explains that the GSS technology detects “multi-peak events” when “two or more
cells arrive at the detection spot very close together, in which case [it] treats them as a
single event.” (Id. at 53.) ABS further explains that the GSS technology decides whether
to fire the kill laser when it encounters multi-peak events by “treat[ing] the highest peak
as the cell.” (Id.)
The court can dispense with ABS’s second argument for non-infringement at the
outset, since it reads into claims 5 and 6 a requirement that the laser kill more than one
cell in the third particle sets, an interpretation that is simply not supported by the claim
language. In other words, a laser killing only one cell of a third particle set would still

62

infringe claim 6, since there is nothing to suggest that a laser must damage a set only by
damaging the entire set, although that may sometimes be the result.
With respect to the first argument, ABS asserts that the GSS technology will
photo-damage at least one of the cells whenever it encounters a “doublet” (i.e., two
closely-spaced cells of the same sex). But ABS does not explain how to reconcile its
assertion that when detecting a doublet, the GSS technology “makes its decision about
whether to fire the kill laser” (Id. at 54 (emphasis added)) with its assertion that “the laser
will always fire at XX (a first particle set), at YY (a second particle set) and XY (a third
particle set)” (Pl.’s Reply Br. (dkt. #349) at 29 (emphasis added)). Still, ST’s arguments
in response are also underwhelming, as its description of the process by which the
operator of the GSS technology draws a “gate” around values on a scatterplot, and then
decides whether to kill everything either outside or inside of the gated region, provides
examples of configurations under which the GSS technology would infringe claim 6, but
only if the particle sets were single cell events and not groups of cells.
Put differently, ST offers no explanation how the GSS technology could spare
both single-cell and multi-cell sets of the desired sex, while destroying only single-cell and
multi-cell sets of the undesired sex or those cells of the undesired sex along with multi-cell
sets of mixed sex cells, as is required by the language of claim 6. Based on this record
then, the court will grant summary judgment of non-infringement to ABS on claim 6.
3.

‘987 Patent claims 9 and 10

ABS simply argues that the GSS technology does not infringe claims 9 and 10 of
the ‘987 patent because it does not adjust the fluid delivery rate “in response” to either
63

the desired purity or acceptable quantity of the sperm population collected, but rather
holds the fluid delivery rate constant throughout the laser killing process. In response,
ST observes that “ABS again does not argue that the GSS system is not capable of
increasing or decreasing fluid delivery rate based on the purity of a given population of
sperm or the acceptable quantity of undamaged sperm cells” (Def.’s Opp’n Br. (dkt.
#334) at 40 (emphasis added)), but rather just that by maintaining the fluid delivery
rate in fact it is held constant throughout the laser killing process. (Pl.’s Opening Br.
(dkt. #270) at 55 (citing Robinson Report (dkt. #295) ¶ [85]).)
ST also argues that a “chart from ABS’s own documents” concerning the
relationship between event rate and purity “is meant to allow an operator to increase or
decrease the flow rate based on the desired purity of the final sample.” (Def.’s Opp’n Br.
(dkt. #334) at 40-41.) In response to ST’s insistence on the importance of that chart,
ABS argues that the chart “shows the relationship between ‘Interval Length (t, us)’ and
‘Percentage of Events Occurring in Interval (t)’ for various event rates,” the relationship
between event rate and purity. (Pl.’s Resp. Supp. PFOF (dkt. #350) ¶ 309.) Moreover,
ABS emphasizes its expert’s conclusions that the operator of the GSS system only makes
modifications to pressure for the purpose of maintaining rather than varying the fluid
delivery rate and that “[t]he fluid delivery rate is not based on purity of a sample.” (Id.
at 308 (citing Robinson Report (dkt. #295) ¶¶ 82-83, 85).)
On this record, the court agrees with ABS that ST has produced insufficient
evidence to establish that the GSS technology adjusts the fluid delivery rate based upon
the purity or quantity of the population of collected sperm.
64

Summary judgment of

non-infringement on claims 9 and 10 in ABS’s favor is therefore appropriate. See Joy Techs,
6 F.3d at 775.
C.

‘092 Patent Claims 1 and 40 Additional Claim Construction

With respect to the ‘092 patent, ABS now moves the court to construe additional
terms for which the parties did not propose constructions as part of the summary
judgment briefing. The court will deny ABS’s motion to construe “sampling” in each of
the independent claims of the ‘092 patent as moot, since it appears that ABS only seeks
to construe sampling to support its non-infringement arguments with respect to the GSS
v1.5 technology, which the court excluded from this case (Def.’s Opp’n Br. (dkt. #412)
at 4), and since ST confirms that it “will not distinguish the ‘092 patent from the
asserted prior art on the basis of the ‘sampling’ limitation” (id).
The court will, however, grant ABS’s motion for claim construction with respect to
a phrase in claim 1 and claim 40 of the ‘092 patent:
“detecting waveform pulses [Claims 1 and 40]
Plaintiffs ABS and Genus’s Proposed
Defendant ST’s Proposed Construction
Construction
“identifying pulses in waveforms that are “applying logic to distinguish waveform
present in the time-varying analog output pulses that represent live cells from
of the photodetector”
waveforms that represent noise, debris, or
dead cells”

The relevant language in which this phrase appears in claims 1 and 40 reads as
follows:

65

1. A system for sorting a mixture of stained particles,
including stained particles having characteristic A and stained
particles having characteristic B, the system comprising:
...
f. an analog to digital converter for sampling a time-varying
analog output from the photodetector and providing an
output including digital information corresponding to the
time-varying analog output wherein the time-varying analog
output and the corresponding digital information include a
series of waveform pulses, the waveform pulses being
indicative of characteristic A or characteristic B; and
g. a digital signal processor for analyzing and classifying the
digital information and providing a sorting signal to the
sorting system as a function of the analyzed and classified
digital information wherein the digital signal processor
includes instructions for detecting the waveform pulses
corresponding to the digital information, instructions for
extracting features in the detected waveform pulses, and
instructions for discriminating the detected waveform pulses
as a function of their extracted features.
....
40. A method for sorting a mixture of stained particles
including stained particles having a characteristic A and
stained particles having a characteristic B, the method
including the steps of:
...
d. analyzing and classifying the digital information, wherein
the step of analyzing and classifying further comprises
detecting waveform pulses represented by the digital
information, extracting features of the waveform pulses from
the digital information, and discriminating the detected
waveform pulses as a function of their extracted features[.]
(Horowitz Decl. Ex. 23 (dkt. #261-2) [hereinafter “‘092 patent”] 211:64-212:34,
223:17-39.) The specification of the ‘092 patent defines a waveform pulse as “a
66

waveform or a portion of a waveform containing one or more pulses or some portion of a
pulse. (‘092 patent, 52:66-53:1.)
ABS asserts that although a detected pulse typically represents a live cell, dead
cells also produce pulses and are therefore sometimes collected in a sample. ABS points
to one sentence in the specification it claims explicitly states that “detecting waveform
pulses” does not require discriminating between live and dead cells: “In general, as used
herein, X cells refer to live X cells, Y cells refer to live Y cells and ~X cells refers to the
combination of live Y cells and cells which otherwise produce a detectable fluorescence
emission 31 but which cannot be identified with a reasonable probability as being live X cells.”
(‘092 patent, 53:12-17 (emphasis added).) Similarly, ABS also points to language in
dependent claim 4 of the ‘092 patent, which provides that “characteristic A is indicative
of a live X sperm cell and characteristic B is indicative of other than a live X cell (~X).”
(‘092 patent, 212:45-47.)
Based on this language, ABS argues, characteristic B and a waveform pulse
associated with it can include dead X cells.

ABS also argues that ST’s proposed

construction is wrong because steps for further analyzing and classifying the pulses are
listed separately from detection, citing step (g) of claim 1, which requires “extracting
features in the detected waveform pulses, and instructions for discriminating the detected
waveform pulses as a function of their extracted features.” (‘092 patent, 212: 31-34.)
In response, ST makes a pragmatic argument that a person of ordinary skill in the
art would have understood that a waveform pulse is a signal likely to represent a live cell
“because such a configuration would reduce the processing load on the system, and
67

enable efficient sorting.” (Def.’s Opp’n Br. (dkt. #412) at 7.) According to ST, further
guidance can be found in the patent’s description of a “waveform pulse” as a signal likely
to represent live cells, while “waveform” refers to signals that likely do not represent live
cells. In support of this interpretation, ST also points to a passage in the specification,
which it argues similarly distinguishes between these two terms:
The first processing step is pulse detection performed by
pulse detection processor 865 to determine whether a
particular waveform is a waveform pulse corresponding to a
fluorescence emission of a cell. The processor 865 executes a
pulse detection algorithm which identifies sample sets that
are likely to represent either particles targeted for sorting into
a population or particles targeted to be avoided because they
are potential contaminants to a population.
(‘092 patent, 58:49-56.) In response to ABS’s argument, ST also points out that: (1)
the separate detection, extraction and discrimination steps perform different functions;
and (2) a pulse representing “something other than a live X cell” in claim 4 could include
combinations of male and female cells, not just dead cells.
Based on the claim language and the portion of the specification cited by ST, the
court agrees that “detecting waveform pulses” in claims 1 and 40 of the ‘092 patent
comprehends the application of some processing logic to distinguish between waveforms
and waveform pulses likely to represent live cells.

In particular, the specification

describes “pulse detection performed by a pulse detection processor” as the “first
processing step” to determine whether a waveform is a waveform pulse for the purpose of
distinguishing particles for sorting from particles to avoid. This language supports the
language in the patent itself, which distinguishes between a waveform and a waveform
pulse.

The patent and specification similarly treat “pulse detection” as a process by
68

which the system identifies particles likely to be sorted, suggesting that the step of
detecting waveform pulses uses logic to identify live cells from other waveforms. Finally,
contrary to ABS’s assertion, the subsequent extraction and discrimination steps are not
inconsistent with ST’s interpretation of the detection step, since the sex of the cell must
still be determined, and then the cell must be sorted depending on its sex.
For these reasons, the court adopts ST’s proposed construction of “detecting
waveform pulses” in claims 1 and 40 of the ‘092 patent. Since neither side moves for
summary judgment of non-infringement based on that construction, however, that issue
will await trial.
CONCLUSION
Given the number of claims and cross motions for partial summary judgment
(dkts. #235, #246), as well as ABS’s Motion Requesting Claims Construction (dkt.
#382), the following is an outline of the rulings in this opinion and claims remaining for
trial.
I.

Contract Claims
A.

ABS sought summary judgment on 4 issues:

1.
ABS’s development and expected commercialization of the GSS
technology does not breach the Agreement.
Ruling: GRANTED in part as to development and DENIED in part as to
expected commercialization.
2.
matter of law.

ST’s fraudulent inducement and promissory estoppel claims fail as a

Ruling: GRANTED.
69

3.

ABS did not breach the confidentiality provisions of the Agreement.

Ruling: GRANTED in part and DENIED in part. ABS is only entitled to
summary judgment as to the second category of information, ST’s method for calculating
straw fill volumes.
4.
unenforceable.

The

liquidated

damages

provision

of

the

Agreement

is

Ruling: GRANTED.
B.

ST sought judgment on two issues:

1.
The non-compete clause of the Agreement expressly encompasses
the GSS technology.
Ruling: DENIED
Texas law.

2.

The Agreement’s covenant not to compete is enforceable under

Ruling: DENIED
C.
Texas law.

Remaining contract claims:
1.

The validity of the non-compete clause of the Agreement under

2.
ST’s claim that the GSS technology (a) is covered by Section 18 of
the Agreement, and (b) therefore the development of the technology breaches Section 18
of the Agreement.
3.
ST’s claim that ABS breached Section 16 of the Agreement
regarding 3 types of confidential information.
II.

Antitrust Claims

A.
ST requested summary judgment as to (1) the relevant market and (2)
anticompetitive conduct.
Ruling: BOTH DENIED
B.
ABS and ST both request judgment as to whether ST’s patent acquisitions
constitute anticompetitive conduct.
Ruling: DENIED
70

C.
III.

Remaining antitrust claims: All

Patent Claims
A.

As to ‘987 patent claims 1, 7 and 8 and ‘092 patent claims 40-46:

Ruling: ST’s motion for infringement GRANTED, but ABS is maintaining
that both patents are invalid in light of prior art.
B.

‘987 claims construction and infringement:

1.
Claim 1 “sorting strategy”: The court adopted ST’s proposed
construction (“decision process for determining how particles or groups of particles are to
be sorted”). ABS did not seek non-infringement summary judgment.
2.
Claims 2 “further comprises the step of photo-damaging sperm cells
based upon a sort strategy”: The court adopted ST’s proposed construction (“No
construction necessary. In the alternative, ‘wherein the step of selecting stained sperm
cells in the flow path to photo damage further comprises applying a sort strategy.”).
Ruling: ABS’s motion for summary judgment of non-infringement on
Claims 2, 3 and 4 is DENIED.
3.
Claims 3 and 4 “varying the sort strategy [or the fluid delivery rate]
as a function of”: The court adopted ABS’s proposed construction (“changing the sort
strategy [or fluid delivery rate] based upon”).
Ruling: ABS’s motion for summary judgment of non-infringement on
Claims 3 and 4 is GRANTED.
4.

Claims 5 and 6.

Ruling: ABS’s motion for summary judgment of non-infringement on
claims 5 and 6 is GRANTED.
5.
Claims 9 and 10 “desired purity” and “an acceptable quantity”: The
court adopted ST’s construction that the terms are not indefinite.
Ruling: ABS’s argument that claims 9 and 10 are indefinite is rejected.
ABS’s request for summary judgment as to non-infringement is GRANTED.
C.

‘092 claims construction and infringement

1.
Claims 1 and 40 “detecting waveform pulses”: The court adopted
ST’s proposed construction (“applying logic to distinguish waveform pulses that

71

represent live cells from waveforms that represent noise, debris, or dead cells”). Neither
side moved for summary judgment related to infringement.
D.

Remaining patent claims:
1.

‘987 Patent
a.
b.

2.

ST’s claim that ABS infringed claims 1-4.
ABS’s invalidity defense due to prior art.

‘092 Patent

a.
ST’s claim that ABS infringed claims 1-13, 16, 18-19, 21, 2628, 32, 40, 41-46 and 49.
b.

ABS’s invalidity defense due to prior art.

IV.
Additional Claim Not Addressed At Summary Judgment: XY’s trade secret
misappropriation claim against ABS. ABS appears to have conceded liability on this
claim (see dkt. #480, at MIL #1). If that is correct, this will only be an issue during the
damages phase of the trial.
ORDER
IT IS ORDERED THAT:
1. Plaintiff’s motion requesting claims construction (dkt. #382) is GRANTED IN
PART and DENIED IN PART.
2. Plaintiff’s motion for partial summary judgment (dkt. #246) is GRANTED IN
PART and DENIED IN PART.
3. Defendants’ motion for partial summary judgment (dkt. #235) is GRANTED IN
PART and DENIED IN PART.
Dated this 21st day of July, 2016.
BY THE COURT:
/s/
William M. Conley
District Judge

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