Genentech, UC Near Deal to Settle Patent Dispute

In what would be one of the largest patent infringement settlements in history, Genentech Inc. agreed to pay $200 million to the University of California to end a 10-year dispute over rights to genetically engineered human growth hormone, sources familiar with the negotiations said Monday night.

The settlement, which must be approved by the UC Board of Regents, includes $150 million in cash and construction of a $50-million building on the site of the university’s new research campus in San Francisco’s Mission Bay development.

The unprecedented deal, which was reached by negotiators for Genentech and the university, would end a decade of litigation over ownership rights to one of the earliest practical applications of genetic engineering.

The five scientists who discovered the gene for the growth hormone while at UC San Francisco, would collect roughly half of the settlement--close to $20 million each.

The settlement in this widely watched case, if approved as expected, would rank among the highest ever under U.S. patent law. And it is clearly the highest affecting the fledging field of biotechnology, where patent disputes are common because of the novelty of the discoveries and the uncertainty over the scope of underlying patents. Most cases are settled rather than decided by juries--often with the two sides making concessions and allowing each side to make use of the others claimed invention.

But from the outset, this clash between one of the nation’s most prestigious university systems and one of the top biotechnology companies has been different. The university’s lawyers have claimed that the development of Genentech’s genetically engineered human growth hormone could not have been possible without the basic research done at UC San Francisco and even charged that a crucial piece of the gene for the hormone was stolen from a university laboratory.

And there is a certain irony in including the construction of a new research facility in the deal. UC San Francisco’s new research campus is intended to be a tribute to the school’s reputation for developing high-powered fundamental science and a symbol of its efforts to cooperate with industry to commercialize university discoveries. The new campus includes plans for 300,000 square feet of space for commercial companies that would collaborate with university scientists.

In June, a federal jury upheld the validity of the university’s patent for the hormone, but because of a single holdout juror, the issue of whether the South San Francisco biotech company had infringed that patent was left unsettled. The two sides were scheduled to take their cases to a jury in January in an expanded trial that would cover two Genentech growth hormone products, Protropin and Nutropin. The stakes in such a trial would be enormous. If the jury had found Genentech guilty of infringement, damages could have reached as much as $2.8 billion.

But in August, District Judge Charles Legge ordered the two sides to enter mediation in an attempt to settle their differences. Legge excluded the trial lawyers for the company and the university from participating, arguing that the attorneys “were unduly adversarial and he wanted a different ‘chemistry’ in an effort to achieve a settlement,” according to a regents’ memo.

The two versions of growth hormone that are centerpieces in the legal dispute have been cornerstones for the success of Genentech, which was founded in 1976 by UC San Francisco professor Herbert Boyer and venture capitalist Robert Swanson.

From the beginning, the company specialized in manufacturing purified human hormones, including insulin, the first of the genetically engineered drugs to be marketed.

Genentech’s human growth hormone products, Protropin and Nutropin, were approved to boost growth in youngsters suffering from hormone deficiency, renal failure or a rare inherited disorder--all conditions that result in short stature.

But in 1978, it was a team of university scientists who first isolated a large piece of the gene for human growth hormone. Building on the work of other UC researchers, they were able to figure out the genetic code for the rest. University officials soon filed for a broad patent that covered the medical applications of this discovery.

About the same time, scientists at Genentech were racing to isolate the gene and then transplant it into bacteria, which could then be grown in fermenting vats--producing unlimited supplies of a hormone almost identical to the natural one it was intended to replace.

During the first trial, one of the university inventors, Peter H. Seeburg, testified that after he left the university to work for Genentech, he went back to his UC laboratory late at night on New Year’s Eve to retrieve samples of the isolated gene. The university’s lawyers argued that this alleged theft was crucial to Genentech’s product development and proof that the company could not have proceeded without relying on the university’s invention.

The growth hormone drugs bring in about $250 million in revenue to Genentech, a $19-billion company.