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Hope for Genentech

The California Supreme Court on 2 February reopened a legal battle between the City of Hope hospital in Duarte, California, and San Francisco-based Genentech Inc. Five of seven judges on the court voted to review a $500 million verdict against Genentech, offering the biotech company a glimmer of hope for some relief.

In the early-70s, City of Hope researchers invented ways to produce human proteins like insulin in bacteria. In 1976 the right to patent went to Genentech, then a fledgling company. The agreement, however, proved to be highly ambigious. Decades later, it is unclear whether Genentech should have payed royalties over billons of dollars of sales from outside producers, even if no such payments had been required if Genentech had manufactured the drugs itself.

In 2002, a jury sided with City of Hope and awarded $300 million in compensation. More importantly, they punished Genentech with an extra $200 million because the firm supposedly had breached a special fiduciary duty, not just a contract. Last year, an appellate court agreed.

The case has gotten widespread attention in the high-tech industry because of the fear that all signatories to royalty agreements now run the risk of paying multimillion punitive damages if found to be in breach. “The City of Hope decision reflects bad law, bad economics, and bad social policy,” says Paul Connuck, IP attorney and partner at New York law firm Kramer Levin Naftalis & Frankel, adding “it’s all but inevitable it will be overturned or at least materially modified.”

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