Legal News

California high court trims $200 in punitives from Genentech verdict

By Jason Siegel

The California Supreme Court trimmed the $500 million jury award against biotech giant Genentech Inc. by cutting the $200 million punitive damage award in a breach of contract and fiduciary duties case over a genetic engineering dispute with City of Hope National Medical Center.

Genentech was accused of acquiring the secrets developed by City of Hope scientists in the 1970s for creating human insulin and human growth hormone in mass quantities, but cheating the medical center of millions of dollars in royalties.

The 2002 Los Angeles jury decision to slap Genentech with $200 million in punitive damages in a breach of fiduciary duties claim threw fear into Silicon Valley, the home of many biotech start-ups. The Supreme Court received 18 friend-of-the-court briefs on the case over the fiduciary duty owed by Genentech to City of Hope in the firm's promise of royalties for commercial exploitation of the scientific discovery.

The ruling April 25, in City of Hope National Medical Center v. Genentech Inc., S129463, is good news for those entering joint venture relationships that may include fiduciary obligations.

The court held that the four characteristics of a fiduciary relationship ? one party entrusts its affairs to another, there is a grant of broad discretion to another, two parties have an asymmetrical access to Information, and one party is vulnerable and dependent on the other ? were not sufficient to create the duty.

"A fiduciary relationship is not necessarily created simply when one party, in exchange for royalty payments, entrusts a secret invention to another party to develop, patent, and market the eventual product," wrote Justice Joyce Kennard.

In the mid-1970s, a deal was struck with City of Hope for its scientists, Dr. Arthur Riggs and Keichi Itakura, to expand work on the synthetic DNA material that could be developed into a number of commercial products with Genentech funding the work and holding the patents. City of Hope would receive 2% royalties on licenses for new products.

Genentech told City of Hope in 1978 that it granted Eli Lilly a license to produce human insulin using the new technique, but if failed to say it had granted other companies licenses for such things as interferon, which at the time was considered a potential cancer cure, according to the court opinion.

The court let stand the jury award for the uncollected royalties of $300 million over the years from numerous licensing arrangements, but it rejected City of Hope's claim that Genentech had a fiduciary duty from the contract and thus reversed the punitive award.

-- Pamela A. MacLean

Full post as published by Legal Pad | LA on April 25, 2008 (boomark / email).