Opinion ID: 2634389
Heading Depth: 1
Heading Rank: 3

Heading: Parties' Actions After Contract's Execution

Text: The collaboration between Genentech and City of Hope resulted in extraordinary scientific and commercial success. The groundbreaking scientific developments by City of Hope's Drs. Riggs and Itakura enabled Genentech to obtain a number of patents based on that scientific discovery. Based on these patents, Genentech granted licenses to various companies. Genentech informed City of Hope that in August 1978 it had granted Eli Lilly a license to produce human insulin. But Genentech did not tell City of Hope about other licenses it had granted, such as one it granted to other companies for the production of interferon, which was then viewed as a potential cure for cancer and the sales of which Genentech projected as potentially exceeding its revenue from all other sources combined. In its October 14, 1980, prospectus for its initial public offering of stock, Genentech described its royalty obligation to City of Hope as contingent upon the existence of one or more patents arising from the funded research which would, but for Genentech's ownership of the patent(s), be infringed by the activities underlying the royalty payment. On October 24, 1986, Dr. Eric Jurrus of City of Hope wrote a letter to Kiley, by then Genentech's general counsel, requesting, among other things, a list of all products Genentech had produced or is now producing which involve any methods of genetic engineering or replication of DNA provided to Genentech by City of Hope, as well as a list of companies Genentech has third party licenses with which relate to methods of genetic engineering or DNA provided to Genentech by the City of Hope. In November 1986, Dr. Jurrus and Ed Irons, an attorney for City of Hope, met with Genentech's Kiley. Thereafter, Irons wrote three letters to Genentech requesting unspecified documents, which, at the November meeting, Kiley apparently had promised to produce. In April 1987, Irons traveled from City of Hope's headquarters in Duarte, Southern California, to Genentech's headquarters in South San Francisco, where he reviewed files from a patent application; Kiley had told a subordinate not to show Irons any third party licenses. By the late 1980's and early 1990's, Genentech had obtained a large number of United States and foreign patents in which City of Hope's scientists Riggs and Itakura were identified as the inventors, and Genentech had entered into a substantial number of licensing agreements with third parties, including companies such as Eli Lilly, Hoffman-La Roche, Monsanto Company, and Boehringer Ingelheim. City of Hope received $302 million in royalties on Genentech's sales and on sales by Genentech's licensees of somatostatin, insulin, and a human growth hormone that used DNA synthesized by City of Hope. But City of Hope received no royalties from sales by Genentech and by Genentech's licensees of other products, such as interferon and hepatitis B vaccine, that were based on the genetic engineering technique pioneered by City of Hope scientists Riggs and Itakura but did not use DNA synthesized by City of Hope. On an unknown date in the 1990's, Genentech sued Eli Lilly, alleging infringement of the Riggs-Itakura patents by producing and selling human growth hormone. In December 1994, the two parties settled the lawsuit. As part of the settlement, Eli Lilly agreed to pay Genentech approximately $145 million, as well as a 6 percent royalty on future sales of human growth hormone. City of Hope then asserted that under Article 7.02 of its contract with Genentech it was entitled to 2 percent of Genentech's $145 million patent infringement settlement with Eli Lilly and a 2 percent royalty on Eli Lilly's future sales of human growth hormone. After initially rejecting City of Hope's claim, Genentech agreed to pay City of Hope $3 million and a 1.75 percent royalty on Eli Lilly's future sales of human growth hormone. In 1998, Genentech settled for $20 million a lawsuit it had brought against a group of companies collectively called Novo Nordisk for infringing the Riggs-Itakura patents. When Genentech rejected City of Hope's claim for a share of that settlement, City of Hope brought this action against Genentech.