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SUNY Files Suit Against Luminex, Tm Bio for Contract Breach, Failure to Pay Royalties

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
The Research Foundation of the State University of New York last week filed a lawsuit against Luminex and its subsidiary Luminex Molecular Diagnostics related to DNA analysis technology originally developed by SUNY researchers, according to court documents.
 
The lawsuit was filed last week in the US District Court for the Northern District of New York by the SUNY Research Foundation, which handles sponsored research and technology transfer issues for the SUNY system.
 
The complaint stems from a 1992 licensing deal signed between SUNY and Tm Technologies, a subsidiary of Tm Bioscience, which Luminex acquired in early 2007 for roughly $44 million in stock (see BioCommerce Week 3/14/2007). The agreement provided Tm with exclusive rights to SUNY’s DNA analysis technology with the right to sublicense to third parties.
 
It is unclear how much of Luminex’s revenue is derived from products that SUNY claims incorporate its patented technologies. But SUNY alleges that the firm’s core xMAP technology contains “various features” that are covered by patents it owns and that Luminex has never paid required royalties to the Research Foundation.
 
Luminex reported $53 million in total revenues in 2006. According to the company’s 2006 annual report, as of Dec. 31, 2006, it had over 50 strategic partners, 32 of which had released commercialized reagent-based products utilizing its core xMAP technology.
 
Those partners had sold and placed more than 4,100 xMAP-based instruments in laboratories worldwide, and accounted for approximately 75 percent, or about $39.8 million, of the company’s total revenue in 2006.
 
A Luminex representative told BioCommerce Week sister publication Biotech Transfer Week last week that the company has a policy of not commenting on ongoing litigation. Likewise, Guven Yalcintas, vice president of the tech-transfer office at the SUNY Research Foundation, wrote in an e-mail to BTW that the school was unable to comment per advice of its attorneys.
 
Genesis of the Dispute
 
The lawsuit focuses on technology developed by SUNY researchers Michael Lane, Albert Benight, and Brian Faldasz in the late 1980s and early 1990s. According to the court documents, this technology and surrounding know-how is embodied in an invention disclosure entitled “A Process by Which the Sequence Dependence of DNA Reactivity Can be Determined.”
 
Following the licensing agreement, Tm Technologies filed patent applications on behalf of SUNY, which resulted in US Patent No. 5,593,834, entitled “Method of preparing DNA sequences with known ligand binding characteristics; and 6,027,884, entitled “Thermodynamics, design, and use of nucleic acid sequences.”
 
According to the court documents, the license agreement stipulated that Tm Technologies make regular royalty payments to SUNY based on sales of products incorporating the technology. Specifically, Tm Technologies agreed to pay three percent of net sales of licensed products for five years or until the cost of any patent applications were recovered, and four percent of net sales of licensed products thereafter.
 
SUNY also claims that the contract stipulated that Tm Technologies agreed to pay SUNY amounts that would subsequently be negotiated of up to 35 percent of all gross royalty income Tm obtained from any sublicense.
 
Lastly, according to the court documents, the licensing agreement stipulated that no sublicense would be valid unless first approved by SUNY, that Tm was required to submit to SUNY biannual reports summarizing licensing activities and royalty payments, and that Tm was to provide SUNY 30 days’ notice of any assignment or transfer of rights.
 
In 1997, Tm Technologies shut down its Woburn, Mass., facilities and merged its headquarters with its parent company in Toronto. With permission from SUNY, Tm assigned the license agreement to Tm Bioscience.
 
Taking Aim at Luminex
 
In April 2001, Luminex entered the picture by striking a strategic partnership with Tm Bioscience in which Luminex licensed components of Tm’s Universal Array technology, which incorporated aspects of the ‘834 and ‘884 patents owned by SUNY, according to court documents. SUNY alleges that it did not approve the sublicense.
 
SUNY also alleges that Luminex made a series of milestone payments to Tm that year totaling approximately $900,000, an amount that, “if Luminex had been approved by [SUNY] as a sublicense would have been subject to Tm Bioscience’s sublicensing royalty obligations of up to 35 percent of the payment amounts,” the court document states.
 

“The willful, wanton, and malicious nature of Luminex’s and LMD’s conduct entitles the Research Foundation to an award of treble damages, reasonable attorney’s fees, and punitive damages against Luminex and LMD.”

Luminex and Tm further developed the technology, then known as the “Tag-It” genotyping platform and later rebranded as Luminex’s FlexMAP, and began marketing and selling products based on the technology, SUNY claims. The Tag-It technology is now incorporated in Luminex’s xTAG multiplex DNA tests, which includes assays for genetic diseases, cystic fibrosis, and warfarin sensitivity, a Luminex official confirmed for BioCommerce Week.
 
After Luminex acquired Tm Bioscience and renamed it Luminex Molecular Diagnostics, SUNY claims that it sent a letter to Tm Bioscience referencing the licensing agreement provision that Tm provide 30 days notice prior to any transfer of rights, and asking Tm to provide delinquent biannual royalty reports, which SUNY says it had not received since 1997.
 
According to the documents, Luminex responded with a letter claiming that it would be responsible for fulfilling all of Tm’s obligations under the license agreement after the acquisition closed.
 
SUNY claims that since that time, various communications from Luminex to the research foundation have claimed that Tm Bioscience had not commercialized any products under the license agreement, and that as a result no reporting would be provided and no royalty payments were due or owing.
 
SUNY is seeking declaration that the license agreement from Tm to Luminex is invalid and void from its inception; that Luminex and its subsidiary do not possess any rights or title to assets based on the SUNY technology; and that all products, know-how, and technology developed by Tm Bioscience prior to its acquisition by Luminex are owned by SUNY.
 
SUNY is also seeking declaratory judgment against Luminex that it and Tm Bioscience willfully infringed the school’s patents with regard to sales of the Universal Array and FlexMAP technology, and that Luminex continues to infringe the patents with sales of its flagship xMAP technology, various features of which SUNY claims “fall squarely within the technology licensed … to Tm Bioscience” under the original license agreement. The university system has asked for an injunction preventing Luminex from selling products incorporating SUNY’s technology.
 
“The willful, wanton, and malicious nature of Luminex’s and LMD’s conduct entitles the Research Foundation to an award of treble damages, reasonable attorney’s fees, and punitive damages against Luminex and LMD,” SUNY asserts.
 
In addition, the document states that “Because the license granted by the license agreement is … exclusive … the Research Foundation will be deprived of the opportunity to license this technology to other potential licensees. At present, these damages are largely incalculable, and therefore the Research Foundation has no adequate remedy at law.”
 
Besides the original milestone payments Luminex made to Tm in 2001 totaling approximately $900,000, it is unclear what the financial stake of the lawsuit might be.
 
Luminex also is developing a next-generation multiplexing platform, called FlexMAP 3D, which was previewed in July at the American Association for Clinical Chemistry meeting in San Diego (see BioCommerce Week 7/18/2007). It is unknown whether the new system incorporates technologies that SUNY believes infringes its patents.
 
Luminex officials have said that the firm intends to launch the new instrument next summer.
 
A version of this article appears in this week's issue of BioTech Transfer Week.
 
Edward Winnick contributed to this article.

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