The California Supreme Court has agreed to review a judgment of $500 million against Genentech, a California biotechnology company. The judgment, which was upheld by an intermediate state appellate court, awards $300 million in compensatory damages and $200 million in punitive damages to the City of Hope, a cancer research center. Genentech and City of Hope collaborated in the 1970s on a methodology for inserting human genes into bacteria and using them to produce medically useful proteins, such as insulin. This development led to the first drugs made by the biotech industry. Genentech held the patents on these technologies and was to pay royalties to City of Hope. City of Hope claims that through fraud and concealment, Genentech cheated the research center out of hundreds of millions of dollars. (Bob Egelko, “State’s highest court steps in Genentech dispute over royalties to be heard by justices,” S.F. Chron, Feb. 3).
Genentech claims that the contract required royalty payments only on patents using DNA synthesized by City of Hope. The appeal does not focus as much on the compensatory damages for breach of contract, but stresses that assessing punitive damages sets a dangerous precedent. Genentech and amici warn that assessing tort liability may stifle innovation by “reduc[ing] investment in research and development for [intellectual property] that is not yet patented — that is, the very newest technologies with the greatest potential social value.” (Mike McKee, “Calif. Justices to Review $500 Million Judgment Against Genentech,” The Recorder, Feb. 3). The knowledge that they could be liable for punitive damages if a mistake is made could prevent a number of biotech companies and research facilities from collaborating with one another, impeding biomedical and scientific development. The ruling also affects any other type of royalty agreement.
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