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Thursday, April 25, 2024 | Back issues
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CA Supremes Toss $200 Million Punitive Award for City of Hope

SACRAMENTO (CN) - The California Supreme Court upheld a $300 million breach-of-contract award to City of Hope National Medical Center in a patent dispute over genetically engineered proteins, but ruled that defendant Genentech does not have to pay $200 million in punitive damages.

The awards were affirmed by a Court of Appeal, but the state Supreme Court threw out the punitive damages on Thursday. The case originated in Los Angeles Superior Court.

City of Hope claimed the world's second-largest biotechnology company breached a 1976 contract by stiffing the hospital for its promised 2 percent royalties from sales of synthetic human proteins, including insulin and human-growth hormone. City of Hope scientists had invented a process to genetically engineer human proteins from synthetic DNA. Genentech had agreed to help fund the research, and to make and sell the biotechnology drugs.

Genentech obtained several patents for the proteins, naming City of Hope's scientists as the inventors, and entered into licensing agreements with numerous drug companies, including Eli Lilly and Monsanto Co.

City of Hope claimed Genentech paid royalties on the sales of proteins that used DNA synthesized by the medical center, but paid no royalties for other products, such as a hepatitis B vaccine, that were based on techniques pioneered by City of Hope scientists but did not use synthetic DNA.

City of Hope also claimed it had to press Genentech to pay royalties on its multimillion-dollar settlements with drug companies in patent disputes.

A jury in 2002 awarded City of Hope more than $300 million in unpaid royalties and $200 million in punitive damages.

The state Supreme Court found that City of Hope was entitled to actual damages, but ruled that the punitive damages award must be reversed because it hinged on a theory of fiduciary duty, when no such duty existed under the contract.

The court wrote: "In this complex case, which has 25,567 pages of reporter's transcript plus 12,267 pages of clerk's transcript and has generated 18 friend-of-the-court briefs, the primary issue is whether, as the jury found, a fiduciary relationship necessarily arose when City of Hope, in return for royalties, entrusted a secret scientific discovery to Genentech to develop, to patent, and to commercially exploit. Our answer is 'no.' That conclusion invalidates the jury's punitive damages award, which was based on City of Hope's tort claim for breach of fiduciary duty. In addition, that conclusion requires us to determine whether the evidence that City of Hope introduced at trial to prove that Genentech had breached a fiduciary duty so prejudiced the jury as to require setting aside the jury's award of compensatory damages for breach of contract. Here too, our answer is 'no.'"

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