Genentech Must Pay Royalties To Med Center
6 CommentsBy Ed Silverman // April 25th, 2008 // 7:50 am
Genentech must pay the City of Hope National Medical Center $300 million for withholding royalties from the sale of breakthrough gene-splicing technology developed by the center’s scientists, the California Supreme Court ruled, The San Francisco Chronicle reports.
The unanimous ruling upheld a Los Angeles jury’s verdict that Genentech had breached a 1976 contract to pay the medical center 2 percent of all income Genentech received from licensing the technology to other companies. But the court also handed a significant victory to Genentech, and to numerous business organizations that filed supporting arguments, the paper writes, by striking down the jury’s earlier $200 million punitive damage award and reducing the damages to $300 million in lost royalties, down from the original total damages of $500 million. (Here is the ruling).
The jurors had found that Genentech not only violated the contract but also defrauded City of Hope, violating a fiduciary duty to look out for the medical center’s interests when marketing the technology its scientists developed, according to the Chron. But the court ruled that a company that markets another firm’s scientific discoveries in exchange for royalties has no special obligation to protect the other’s interests, apart from its duty to adhere to the contract. Without any such obligation, the justices wrote, punitive damages cannot be awarded for a breach of contract.
The dispute stems from discoveries made more than three decades ago. Two scientists, Arthur Riggs and Keichi Ikatura, developed a biotech process for manufacturing human proteins in the mid-1970s while working for City of Hope, a cancer research center in Duarte, near Los Angeles, the paper writes. The process was used to insert human genes into fast-growing bacteria and make them produce medically useful proteins, like insulin.
In August 1976, City of Hope signed a contract with the newly formed Genentech, which was supposed to patent and market products using the technology and pay a 2 percent royalty. Genentech paid more than $300 million in royalties on products using the DNA that the two scientists had synthesized, but didn’t pay royalties on its licenses to companies for other products - including a hepatitis B vaccine and human growth hormone - that used the same genetic engineering technique, according to the paper.
Genentech initially refused to disclose those licensing agreements to City of Hope. After the research center sued in 1999, Genentech argued that the contract did not require it to pay royalties on the licenses, the Chronicle writes.
In challenging the verdict, Genentech argued that the trial judge, not the jury, should have decided the breach-of-contract claim and that evidence of its alleged concealment of information from City of Hope was both irrelevant and inflammatory. But the Supreme Court said that the contractual dispute involved facts that a jury could properly decide and that jurors could consider concealment of information to determine how the two sides interpreted the contract, the paper writes.
Genentech’s general counsel, Sean Johnston, says he is pleased by the court’s conclusion that contract disputes over patents and other forms of intellectual property are not subject to punitive damages. “This result will be beneficial and relevant to companies and other entities engaged in research and development and licensing in all forms of (intellectual property), whether in biotechnology, software or the motion picture and recording arts,” he tells the Chron.
The case was merely “an unfortunate dispute over a complex agreement, and I don’t think that should reflect poorly on our reputation or our standing in the industry or the community. This was one of the first contracts entered into in the biotech industry,” he tells the paper. “There was not a lot of experience at the time with drafting these kinds of agreements.”
Officials at City of Hope were unavailable for comment, the Chron writes.
Scott
“Sean Johnston says he is pleased by the court’s conclusion that contract disputes over patents and other forms of intellectual property are not subject to punitive damages.”
Personally, I think Genentech should be embarrassed by this decision, not pleased by the affirmation of this dispute; it screams that the company cannot be trusted to adhere to contracts they sign, and further suggests that the people largely responsible for Genentech’s existence, City of Hope Medical Center researchers, were essentially screwed over by the company. Would anyone else want to partner with a company like that?
Paul
I cannot believe how you find ways of twisting stories. I am no lover of pharma or biotech, but doing what you do actually discredits your blog.
The way I understand it, Genentech has for 20 years paid royalties to City of Hope, and City never complained. All of a suddent they felt that they wanted more money and sued.
Genentech lost and was told to pay, which was fine. But the jurors in a trial also thought Genenetch should be punished with an extra 200 million fine.
This new ruling says that no, there are no grounds for punitive damages and Genentech doesn’t have to pay the extra 200 million.
Not sure what news you are reading, but seems like a different set, or there is always a deliberate effort to twist things to make a bigger deal.
The best course for the success of this blog would be to stick to facts and comment in a non-biased way about those facts. Believe me, there are plenty of bad facts to keep this blog doing its thing without having to resort to twisting the story.
Ed Silverman
Paul,
With all due respect - did you read this closely? First, there’s a link to the ruling. Second, I basically cited the Chronicle story, which is why there is a link and that I repeatedly write this: “the paper wrote” or “the Chron reports.”
You say the facts are twisted, but you don’t point to which facts may be twisted. You say I commented in a biased way, but I didn’t offer one bit of comment at all.
I don’t mind darts and arrows - that’s part of the job. But I’ve no idea what you’re talking about and would appreciate it if you’d read the posts closely before making assumptions about my motives.
Ed
Paul
Ed,
I apologize that I was not clear. My comment was not directed at you or the original report, but was more a sense of frustration with posters like Scott and others.
In re-reading my comments, I can see that they sound as directed at you - they were not intended.
To my fellow bloggers: We would have greater impact, and more satisfying and interesting reading, if we were more focused on facts and not jump to call people and companies names. Saying tghat a company lies and cannot be trusted because they lost one part of a case and one another part of the case is inappropriate.
Can we say the same of all the other cases that companies win every single day? can we say that plaintiffs in those cases cannot be trusted? No, of course, let the system work.
I respect everyone’s opinions, but would respect them more if they were sound, they commented intelligently about the issues, and refrained from personally attacking everyone involved…except for Fred Hassan, of course. :-) kidding.
Paul
p.s. Can we use a different cartoon?
Ed Silverman
Hi Paul,
Thanks for the note. It was confusing and did seem addressed to me, but I appreciate the explanation and the point you make, as well. As the evolving moderator here, I’ve attempted several times to achieve the goal you articulate. I try to run this site as if it’s a big lawn party where different conversations take place among different groups simultaneously, but one can float among them to jump in and out. But of course, the party becomes a downer when shouting or insults start flying. In the end, I think most people want a little civil discourse, but just need a gentle reminder. As for the cartoon, okay. Next time, something different.
Cheers
ed