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Legal Issues in the Lab

Genentech, the South San Francisco, Calif., biotech powerhouse, suffered a legal setback in June when a court ordered the company to pay more than $500 million (US) in damages to the nonprofit City of Hope National Medical Center in Duarte, Calif. A Los Angeles County Superior Court jury ruled that Genentech breached a 1976 contract with the institution when the company failed to pay the cancer center royalties from numerous third-party licenses that the company fraudulently concealed. In 197

By | July 22, 2002

Genentech, the South San Francisco, Calif., biotech powerhouse, suffered a legal setback in June when a court ordered the company to pay more than $500 million (US) in damages to the nonprofit City of Hope National Medical Center in Duarte, Calif. A Los Angeles County Superior Court jury ruled that Genentech breached a 1976 contract with the institution when the company failed to pay the cancer center royalties from numerous third-party licenses that the company fraudulently concealed.

In 1976, Genentech agreed to sponsor efforts by Arthur D. Riggs and Keiichi Itakura, researchers in City of Hope's Department of Molecular Biology, to synthesize the gene for human insulin. It took two years for the biologists to successfully synthesize the sequence, insert it into Escherichia coli, and induce the bacterium to produce significant volumes of human insulin. Under the contract, Genentech owned the patents in exchange for paying a 2% licensing royalty on net sales of polypeptides manufactured using City of Hope-synthesized DNA. The research resulted in more than 100 patents granted to Genentech.1

In 1982 Eli Lilly and Co. began marketing the human insulin as Humulin. It was the world's first human healthcare product created using recombinant DNA technology and has since become a blockbuster drug for Eli Lilly. Over the years, Genentech paid City of Hope more than $300 million in royalties derived from sales of genetically produced insulin and human growth hormone (HGH), which the medical center also helped to develop.

LONG-PENDING SUIT In 1999, a year after the insulin royalties expired, the medical center filed suit against Genentech, claiming the company had failed to pay it an additional $457 million in royalties and interest due from the licensing of its technologies to more than 20 other companies, including Schering-Plough for Intron A interferon and GlaxoSmithKline for hepatitis B vaccine. Genentech maintained that the agreement was limited to human insulin, HGH, and somatostatin, which never was commercially produced. The jury sided with the medical center, which argued the contract was wide-ranging, and awarded it $300.1 million in compensatory and $200 million in punitive damages.

Genentech vows to appeal the decision. "We strongly disagree with the result in this case," said Arthur D. Levinson, Genentech chairman and chief executive, in a statement. "Genentech has lived up to the letter and spirit of the contract and paid City of Hope everything it was entitled to under the 1976 agreement. We will appeal the judgment and have great confidence in our position." Gil N. Schwartzberg, City of Hope president and chief executive, said in a statement: "We are pleased with the jury's decision. ... Both compensatory and punitive awards will support our biomedical research aimed at curing life-threatening diseases."

This is not the first time Genentech has been hit with expensive legal problems. Three years ago the company paid $200 million to the University of California, San Francisco, to settle an unrelated patent infringement lawsuit over genetically engineered HGH. In that case, a former Genentech research scientist testified he broke into a UC-San Francisco laboratory where he previously worked, removed genetic samples, and used them to help produce HGH at Genentech. Company officials did not dispute the break-in occurred but insisted the purloined materials were not used in their processes.2

ON AN INDIVIDUAL LEVEL Troubles of a different, criminal sort are facing two former Harvard Medical School researchers. Chinese national Jiangyu Zhu and Kayoko Kimbara of Japan, both permanent US residents, were arrested in June and charged with stealing reagents and genetic materials from the lab of Frank McKeon at Harvard's Department of Cell Biology, where they were had been working as postdocs. The two are accused of conspiracy, theft of trade secrets, and interstate transportation of stolen property.

According to a Federal Bureau of Investigation affidavit filed in Boston, from February 1997 to December 1999 Zhu and Kimbarathe were part of a research project seeking to develop new immunosuppressive drugs to control organ rejection and to study the genes that regulate calcineurin, a signaling enzyme. The two researchers allegedly identified seven genes that encode proteins that bind to calcineurin, but they hid the results from McKeon.

Over Christmas break in 1999, the pair allegedly stole 20 cartons of biological materials and documents from the Harvard lab and shipped them to the University of Texas, San Antonio's Institute of Biotechnology, where they had been offered research positions. Zhu also allegedly sent three of the hidden gene sequences to an unnamed Japanese biotech company for commercial evaluation. The company produced antibodies against two of the genes and sent them back to Zhu in Texas. Neither the University of Texas nor the Japanese company has been implicated in any wrongdoing.

"Zhu and Kimbara took and conspired to take proprietary and highly marketable scientific information belonging to Harvard with them to Texas, with the intention of profiting from such information by collaborating with a Japanese company in the creation and sale of related and derivative products," the complaint states.

If convicted, each faces up to 25 years in prison and fines of up to $750,000. Kimbara's attorney, Eric Acker, who works in the San Diego office of Morrison & Foerster, said he is withholding comment. Zhu's attorney, Dan Marmalefsky, who works in the Los Angeles office of the same law firm, could not be reached for comment.

Ted Agres (tedagres@lycos.com) freelance writer in Washington, D.C.

References
1. See, for example, A.D. Riggs, "Method for microbial polypeptide expression," US Patent No. 4,366,246, Dec. 28, 1982.

2. T. Agres, "Science on the sly," The Scientist, 16[12]:16-18, June 10, 2002.
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