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4-Patents: Genentech has to pay 500 million USD after patent court cases

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                                  PART I
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TITLE:  Genentech Told to Pay $200 Million in Damages
SOURCE: New York Times, USA, by Andrew Pollack
DATE:   June 25, 2002

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Genentech Told to Pay $200 Million in Damages

LOS ANGELES, June 24 -- A jury ordered Genentech today to pay $200 million 
in punitive damages to one of the nation's leading cancer centers for 
failing to pay royalties under a contract that dates back to the founding 
of the biotechnology industry.

The new damages come on top of the $300.2 million in compensatory damages 
awarded to the City of Hope National Medical Center by the jury earlier 
this month, bringing the total Genentech must pay to $500 million.

Genentech said it would ask Judge Edward Y. Kakita, who presided over the 
trial in state court here, to set aside the verdict and, if that failed, 
would appeal to a higher court.

''We strongly disagree with the result in this case,'' Arthur D. Levinson, 
Genentech's chief executive, said in a statement. He added, ''Genentech is 
a successful business and, unfortunately, that makes us a target.''

Louis J. Lavigne Jr., Genentech's chief financial officer, said the company 
could withstand the verdict because it has $2 billion in cash and 
marketable securities. He said the company would take a one-time charge 
against earnings of $500 million in the current quarter.

That appears to be enough to wipe out the year's entire reported earnings. 
Last year, the company reported earnings of $150 million. However, the 
company said the charge would not be counted in pro forma earnings, which 
were $404 million last year.

Analysts and investors seemed to brush off the verdict. Indeed, Genentech's 
stock rose $1.89, or nearly 6 percent, today, to $34.84, in part because 
biotechnology stocks in general were rising. Also, analysts said, the 
punitive damages were less than the $300 million to $580 million that City 
of Hope had sought.

''The worst-case scenario didn't happen for Genentech,'' said Eric Schmidt, 
an analyst at SG Cowen. He said investors would regard this as a one-time 
item that ''will have very little impact on the company's forward earnings 
potential, and that's what people are buying this company for.''

Glenn L. Krinsky, general counsel of the City of Hope, said the hospital 
thought the punitive damage award was ''appropriate and entirely 
defensible, and we are just thrilled with it.'' The nonprofit City of Hope, 
based in Duarte, Calif., has an annual budget of about $300 million.

Both Mr. Krinsky and his counterpart at Genentech, Stephen G. Juelsgaard, 
said they did not think the case would be settled out of court in the near 

The case centered on a contract signed in 1976, the dawn of the 
biotechnology era, when Genentech was founded. The company paid researchers 
at City of Hope to synthesize the gene for human insulin and put it into 
bacteria to have the bacteria produce insulin, which became the 
biotechnology industry's first product.

Genentech retained ownership of the patents related to the work done by the 
City of Hope and has paid the hospital $300 million since then in royalties 
on sales of insulin and human growth hormone. But the City of Hope 
contended, and the jury agreed, that Genentech should have also paid 
royalties when it licensed the patents to other companies. Moreover, the 
jury agreed that Genentech had tried to conceal those licensing deals, 
which is what entitled City of Hope to punitive damages.

The jury foreman, Herman Askew, was quoted by The Associated Press as 
saying after the verdict: ''There really is no bad guy. It's just a 
business deal that wasn't clear.''

Genentech and City of Hope are involved in another dispute related to 
technology that is used in two Genentech drugs, Rituxan and Herceptin. That 
dispute is being handled in a private arbitration and involves far less 
money, executives said.

                                  PART II
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TITLE:  A Jury Orders Genentech to Pay $300 Million in Royalties
SOURCE: New York Times, USA, by Andrew Pollack
DATE:   June 11, 2002

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A Jury Orders Genentech to Pay $300 Million in Royalties

A jury in California yesterday ordered Genentech Inc. to pay $300 million 
to the City of Hope National Medical Center, saying the company had 
deprived the hospital of royalties it deserved for work that helped lay the 
foundation for the biotechnology industry.

The jury in a state court in Los Angeles, after deliberating for 16 days, 
also ruled that Genentech had acted with malice or fraud, which entitles 
City of Hope to punitive damages in addition to the compensatory damages. 
The jury will convene next week to consider the amount of punitive damages.

''The verdict was a grand slam for the City of Hope,'' said Glenn L. 
Krinsky, general counsel of the medical center, one of the nation's leading 
cancer centers. The amount is equal to about one year's budget for the 
medical center, which is in Duarte, Calif.

Mr. Krinsky said that ''every cent'' of the verdict would be plowed into 
cancer research or in treating cancer patients, including those who cannot 
afford treatment.

He said that the center would ask for hundreds of millions of dollars in 
punitive damages and that he did not anticipate settlement discussions.

Sean A. Johnston, vice president for intellectual property at Genentech, 
said he was disappointed by the verdict. He would not comment on whether 
the company, which is based in South San Francisco, Calif., would appeal 
because the trial is not over. City of Hope said it expected Genetech to 

For Genentech, the verdict is twice its net income last year of $150 
million. Excluding certain charges, net income was $404 million. The 
company had revenue of $2.2 billion.

The verdict was announced after the close of trading. Shares of Genentech 
rose 60 cents, to $34.40.

The lawsuit stems from the earliest days of the biotechnology industry in 
1976, when Genentech, the first company formed to exploit genetic 
engineering, was a few months old. Under a contract signed that year, it 
agreed to pay the City of Hope to synthesize the gene for human insulin. 
The gene was put into bacteria, which produced the insulin. Human insulin, 
which Genentech licensed to Eli Lilly & Company, became the first drug 
produced by genetic engineering.

Under the contract, Genentech gained ownership of all patents on the 
techniques developed by City of Hope in exchange for a 2 percent royalty. 
Since then the company has paid about $300 million to the medical center 
for sales of insulin and human growth hormone, which City of Hope also 
helped produce.

City of Hope, however, contended that Genentech owed it $457 million in 
royalties and interest arising from more than 20 deals in which Genentech 
licensed the patents to other companies, like Schering-Plough, to produce 
alpha interferon, a hepatitis and cancer drug. In its suit, filed in 1999, 
the hospital also contended that Genentech had hidden the licensing deals.

The jury did not give City of Hope all it wanted; it awarded payments for 
royalties only since September 1994, not from the start of the contract.

Genentech argued that the contract called for royalties only for products 
using the DNA made by City of Hope, namely insulin and growth hormone. It 
said its licensing deals were not secret. It also argued that the hospital 
had accepted the arrangement and was suing because the patents were about 
to expire and the royalty stream was about to end.

The issue was complex. A trial last year ended in a hung jury, 7 to 5 in 
favor of Genentech, with 9 votes needed for a decision. In this trial, the 
jury voted 9 to 3 that Genentech had breached its contract and 10 to 2 that 
the company had acted with fraud or malice.

The verdict is the latest that raises questions about the ethics in the 
early days of Genentech, which is considered a paragon of the biotech 

In 1999, Genentech, after narrowly averting an unfavorable jury verdict, 
paid $200 million to settle a patent infringement lawsuit filed by the 
University of California related to the development of a growth hormone in 
the late 1970's. A former scientist at Genentech testified that he had 
sneaked into his former laboratory at the University of California at San 
Francisco and smuggled out DNA samples.

In 1999, Genentech agreed to pay $50 million to settle criminal charges 
that it had marketed growth hormone for unapproved uses from 1985 to 1994.


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