Jury Considers Genentech Penalty
Jurors began deliberations on punitive damages against Genentech Inc. on Wednesday after closing arguments in which an attorney for City of Hope National Medical Center asked for a penalty of between $300 million and $580 million.
Attorney Morgan Chu, tapping into public disgust with corporate America, told jurors the amount would “send a clear message” to Genentech and other California corporations that they must “play by the rules.”
The jury last week ordered Genentech to pay compensatory damages of $300.2 million for withholding royalties from City of Hope under a 1976 contract. Jurors also found Genentech violated a fiduciary duty to the Duarte hospital and acted with malice or fraud, for which the biotechnology company faces punitive damages.
Susan Harriman, an attorney for South San Francisco-based Genentech, said the company had been stung by the jury’s findings and pleaded with jurors not to impose additional penalties.
“Please don’t punish us,” she said at least twice during her argument.
But Chu told jurors that an award of less than $300 million would be little more than a “slap on the wrist” to Genentech, which, he reminded them, has a net worth of $5.8 billion.
The high end of the range proposed by Chu represents 10% of Genentech’s net worth.
“You have an opportunity to strike a blow for justice,” Chu told the panel.
The dispute involves a contract that led to the discovery that launched the biotechnology age. With funding from Genentech, two City of Hope scientists discovered a method of producing biotechnology drugs from ordinary bacteria. City of Hope gave Genentech the patents on the invention in exchange for a 2% royalty on sales of products that stemmed from the discovery.
Jurors found that Genentech licensed the patents to 22 companies but hid the deals from City of Hope to avoid paying royalties on the 35 drugs produced by the third parties.
Closing arguments took place after two key legal rulings forced Genentech to scrap plans for its defense. The jury was not present for the rulings.
On Tuesday, Judge Edward Y. Kakita said he would not allow testimony from Genentech on the minimal royalties it received on 12 third-party deals.
Based on that ruling, Genentech did not call its damages expert to counter testimony from City of Hope’s expert, Michael Wagner.
Wagner, the only witness for City of Hope, testified Tuesday that Genentech, with $1 billion in cash and no debt, was strong enough to pay a punitive damage award.
Wagner told jurors he found support for his opinion in Genentech’s first-quarter filing with the Securities and Exchange Commission.
In that document, the company said the outcome of the City of Hope case would not have a “material adverse impact” on the company’s financial position.
However, in a new document filed with the SEC on Wednesday, the company said: “If punitive damages are awarded to the City of Hope, such award could have a material adverse effect on ... the company’s financial position, current and future results of operations and cash flows.”
In a second key ruling Wednesday, Kakita said Genentech could not offer testimony about the reforms underway at the company as a result of last week’s verdict.
In closing arguments for Genentech, Harriman urged jurors to consider “what Genentech did right.”
She said the company paid City of Hope more than $305 million in royalties on human insulin and human growth hormone, drugs not involved in the dispute.
“This is not a case where one party completely stiffed the other side,” she said.
Harriman told jurors that they were not obligated to award City of Hope punitive damages. But she did suggest an alternate figure. She said Genentech earned about $333 million in royalties on sales of the 35 disputed drugs.
“If you award $33 million [in addition to the $300-million compensatory award], you would have stripped Genentech of all it earned ... every last penny,” Harriman said. “That’s a very harsh punishment.”
