Genentech, UC Settle Long Patent Dispute

Ending one of the most contentious legal disputes in its history, the University of California Board of Regents on Friday unanimously agreed to a $200-million settlement of a long-running patent infringement case against Genentech Inc.

The lump-sum payment is believed to be the largest legal settlement for the university system and includes a $50-million “donation” toward construction of a building to be named by Genentech on UC San Francisco’s new Mission Bay research campus.

Despite its size, the settlement falls short of the $2.8 billion that the university might have received in a federal jury trial scheduled for January that would have decided whether Genentech had infringed on a university patent in developing genetically engineered human growth hormones. But university officials noted that a trial was risky for both sides and that there might have been no payment at all.

“A bird in the hand is worth two in the bush, and the bush might have never showed up,” UCSF Chancellor J. Michael Bishop said. He pointed out that the $200 million was in line with 3% royalty payments plus interest--terms similar to those negotiated with companies when the growth hormone gene was discovered two decades ago.

But there were hints Friday of some internal debate over whether the sum was large enough.

“I’m sure there were people who questioned whether we might have done better in court, but there is some value in getting it behind us,” UC President Richard C. Atkinson said.

During negotiations, which excluded the trial lawyers involved in the case, the university suggested that part of the settlement include a donation toward a large research laboratory.

“We proposed this as a gesture of goodwill . . . a symbol we are looking to the future,” said UCSF Vice Chancellor for Research Zach W. Hall on Friday.

“We were pleased with the gesture and honored to accept it,” added Genentech Chairman and Chief Executive Arthur D. Levinson.

Both sides described the dispute as “an old story” that began when UCSF scientists determined the makeup of the gene for human growth hormone while the company was racing to insert the same gene into bacteria to produce large amounts of the hormone.

The five university scientists who contributed to the discovery will each receive about $17 million from the settlement. One of those researchers, Peter H. Seeburg, now at the Max Planck Institute in Heidelberg, Germany, admitted in an initial jury trial that as a Genentech employee he returned to the university and took copies of the human growth hormone gene. Genentech scientists denied that the material was used to develop human hormone products.

The civil trial ended with jurors’ agreeing that the university growth hormone patent was valid but falling one vote short of finding the company guilty of infringement.

Sales of Genentech’s growth hormone drugs, including Protropin and Nutropin, accounted for $214 million of its 1998 revenue of $1.15 billion. Though Genentech has more than $1 billion in cash, the settlement amount is more than the $182 million in net income the company reported for 1998. Investors reacted positively to the settlement, which the company will write off in its fourth quarter. San Francisco-based Genentech’s stock closed at $87.06 Friday, up $5.50.