Opinion ID: 205433
Heading Depth: 2
Heading Rank: 2

Heading: Fraudulent Misrepresentation Gerngross's Academic Affiliation

Text: IG's claim of fraudulent misrepresentation is premised on the notion that Gerngross presented himself to IG as an academic and told its employees that the Pichia data would be used by his research group at Dartmouth, without disclosing that the work he and his research group were doing was for the benefit of a commercial venture (GlycoFi) then being incubated at Dartmouth. Had it realized that Gerngross intended to use the data for commercial purposes, IG maintains, it would have charged him much more for the data; and that is precisely why, IG asserts, that Gerngross kept his affiliation with GlycoFi to himself. In order to prevail on its claim, IG bore the burden of proving: (1) Gerngross made a false statement of material fact; (2) that he did so knowing or believing the statement to be false; (3) that he made the statement with the intent to induce IG to act; (4) that IG took action in justifiable reliance on the truth of the statement; and (5) IG suffered damage as a result of its reliance on the statement. See, e.g., Doe v. Dilling, 228 Ill.2d 324, 320 Ill.Dec. 807, 888 N.E.2d 24, 35-36 (2008). IG agrees that it was obligated to prove each of the elements of its fraud claim by clear and convincing evidence. See Avery v. State Farm Mut. Auto. Ins. Co., 216 Ill.2d 100, 296 Ill.Dec. 448, 835 N.E.2d 801, 856 (2005); Ass'n Ben. Servs., Inc. v. Caremark RX, Inc., 493 F.3d 841, 853-54 (7th Cir.2007); Barrington Press, Inc. v. Morey, 752 F.2d 307, 309-10 (7th Cir.1985). Although there is no evidence that Gerngross made any affirmatively false statement to an IG representative, a false statement may include a half-truth which, although technically accurate, is misleading because it omits important qualifying information that, had it been known, would have caused the plaintiff to act differently. Williams v. Chicago Osteopathic Health Sys., 274 Ill.App.3d 1039, 211 Ill.Dec. 151, 654 N.E.2d 613, 622 (1995) (citing Lindsey v. Edgar, 129 Ill. App.3d 718, 84 Ill.Dec. 876, 473 N.E.2d 92, 95-96 (1984), and Huls v. Clifton, Gunderson & Co., 179 Ill.App.3d 904, 128 Ill.Dec. 858, 535 N.E.2d 72, 76 (1989)). Gerngross's presentation of himself to IG as an academic is thus claimed to be fraudulent because he omitted the qualifying information that the purpose for which he was seeking the Pichia data was a commercial rather than an academic purpose. The district court, as we have noted, agreed that there was [a] solid argument for the proposition that Gerngross's failure to disclose his commercial intentions was misleading, but found that IG had not proved by clear and convincing evidence that the omission was material or, relatedly, that it would have acted differently had it been aware of the omitted information. R. 123 at 8. The court's determination that there was no fraud, as an application of a legal standard to the particular facts developed at trial, is a determination that we review for clear error. See SEC v. Maio, 51 F.3d 623, 636 n. 16 (7th Cir.1995) (citing Ambrosino v. Rodman & Renshaw, Inc., 972 F.2d 776, 785 (7th Cir.1992)); Barrington Press, 752 F.2d at 310. We cannot say that the district court's determination was clearly erroneous. Certainly there is evidence to support the conclusion that IG, as a general rule, charges more to commercial than academic users of its data. And there is ample evidence that Gerngross in his dealings with IG emphasized his academic connections while remaining silent about GlycoFieven after GlycoFi had begun to emerge from its incubation at Dartmouth, as it had done by the spring of 2003, when Gerngross sought the update of the Pichia data from IG. It is entirely possible that a different factfinder might have concluded that Gerngross's failure to disclose the commercial purpose for which he sought the Pichia data was material, and that IG likely would have charged Gerngross a substantially higher price for the data had he been more forthcoming. But the evidence also supports the contrary conclusion, and it thus leaves ample room for the district court's conclusion that fraud had not been proven. First, IG did not require Gerngross to sign an agreement precluding him from making commercial use of the Pichia data. As we have noted, the record indicates that IG typically did include such a use restriction in its agreements with academic licensees: Kogan, Fonstein, and Campbell all identified that as a standard provision in academic licenses, although Nikolsky was uncertain on that point. Whether there was such a provision in the proposed contract that IG gave to Gerngross, and that he refused to sign, is unknown. Neither party produced a copy of that contract, Nikolsky could recall little about the details of his negotiations with Gerngross or the terms of the proposed agreement, and Gerngross likewise could remember nothing specific about the provisions other than that he found them on the whole to be too favorable to IG. But regardless of why Gerngross said he would not sign the proposed contract, the record is devoid of evidence that Gerngross agreed to any restriction on his use of the Pichia data. The letter that Gerngross prepared and sent to Nikolsky is the sole evidence of any agreement between Gerngross and IG, and that letter sets forth a single provision which restricted only the amount of data that Gerngross could publish, nothing more. The fact that IG was willing to give up the commercial-use restriction it typically imposed on academic researchers is, at the least, consistent with the notion that IG was either aware of or indifferent to the possibility that Gerngross had commercial plans for the data. Second, IG's interactions with Gerngross do not reflect particular care on the part of IG employees in ascertaining the purpose for which he was seeking the Pichia data. Campbell agreed that it was common for prospective licensees to have dual affiliations with both academia and private enterprise. Even if individuals with business as well as academic ties typically were careful to separate the two in their dealings with others, as Campbell averred, one would think that a company which typically charged more for the commercial as opposed to the academic use of its data would take the initiative in ascertaining a prospective licensee's plans for the data. Yet, Nikolsky agreed that he did not ask many questions of Gerngross as to his reasons for obtaining a license to use the Pichia data. Campbell himself turned over an updated version of the data to Gerngross in 2003 without inquiry, even after he could not find any documentation of IG's agreement with Gerngross in the company's files. IG was on notice of Gerngross's commercial affiliation at least by January of that year (before Campbell turned over the update) when Gerngross made the PowerPoint presentation to IG employees which displayed his affiliation with GlycoFi as well as Dartmouth. That presentation focused on Gerngross's work with the very Pichia organism whose genetic data Gerngross had licensed from IG. But even then, no one at IG took the trouble to inquire or clarify in what capacity Gerngross was using the data. The company's lack of curiosity about Gerngross's use of the data supports the notion that the use did not matter in terms of the price charged for the license. Third, Gerngross was seeking neither an exclusive license of the Pichia data, which would have prohibited IG from licensing the same data to other customers, nor any customized work vis-à-vis that data on the part of IG. These were both factors that the witnesses identified as reasons why IG might charge a significantly higher price for a license. Gerngross was seeking a non-exclusive license for data that IG had already prepared and could provide to him with no further work on IG's part (other than to supply him with a subsequent update of whatever additional data on the Pichia genome it had assembled). Nikolsky and other witnesses agreed that the price for a non-exclusive license of off-the-shelf data would be significantly lower; and Nikolsky testified that the $5,000 price that Gerngross paid was not out of the ordinary for data of this kind. Indeed, neither Kogan nor Nikolsky, the two IG employees with whom Gerngross dealt in 2002, was willing to say in retrospect that he believed himself to have been deceived by Gerngross. It is true that both Kogan and Nikolsky were long gone from IG by the time they were deposed in this litigation. Nonetheless, they were the company's principal contacts with Gerngross, and as such their testimony is illuminating. If, as IG now maintains, the company invariably charged its clients a much higher price for a license that permitted commercial use of its data, then one would expect Kogan and Nikolsky to have testified that, yes, had they known that Gerngross was seeking the data for GlycoFi, they would have negotiated a higher fee for the license. Finally, the evidence supporting the notion that IG would have charged Gerngross a substantially greater fee for a commercial license is inconclusive. The testimony does establish subsequent efforts by IG to license the Pichia data for commercial use at much, much higher prices than IG charged Gerngross, although none of these negotiations actually came to fruition. Furthermore, IG did finalize other licensing agreements at higher prices with commercial users vis-à-vis genetic sequencing data on organisms other than Pichia. Collectively, these efforts to charge higher prices to commercial users, both successful and unsuccessful, certainly support IG's contention that it would have charged Gerngross more had it understood the capacity in which he was seeking the Pichia license. On the other hand, IG had been undergoing significant financial distress when Gerngross sought the Pichia license in 2002. Kogan testified that the company could not meet its payroll, Fonstein said that the company was struggling for survival, R. 143-3 at 16-17, and Nikolsky said that the company's need for cash was such that just whatever we could get was the price, R. 143-4 at 26. It is a fair inference from this testimony that even if Gerngross had been more forthcoming about his affiliation with GlycoFi and his intent to use the Pichia data for commercial purposes, IG would have been eager to close the sale and obtain some much-needed cash by giving him the academic rate. This may explain why neither Nikolsky nor Kogan was willing to testify that he was deceived by Gerngross or that he would have done something differently had he known what hat Gerngross was wearing in obtaining the Pichia license from IG. It may also explain why IG did not take further steps to verify the purposes for which Gerngross sought the data and/or to affirmatively restrict his use of the data. In any case, the accounts of IG's financial distress in 2001 and 2002 permit the conclusion that IG would not have charged Gerngross more for the data had it realized he meant to use the data for commercial rather than academic purposes.