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Court Refuses to Uphold Promega s Exclusive License to Benitec Tech Until Lawsuit Resolved

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Promega suffered a setback last week in its legal dispute with Benitec after the court hearing their case denied Promega’s request for a preliminary injunction to uphold its status as the exclusive global licensee of Benitec’s expressed RNAi technology until the case is settled.

The ruling, which forces Promega to wait for the case to be decided in its favor before it can regain control of the technology, is the latest wrinkle in the companies’ 8-month-old court battle.

Last July, Benitec sued Promega for allegedly failing to meet its payment requirements under a 2003 deal that gave Promega the exclusive rights to use and sublicense Benitec’s expressed RNAi technology in areas outside human therapeutics. In exchange for the license, Benitec received $350,000 plus royalties and milestones.

According to Benitec’s lawsuit, filed in the US District Court for the District of Delaware, in failing to make the required payments, Promega forfeited its exclusive license to the IP for a non-exclusive license to simply use the technology (see RNAi News, 7/30/2004).

Promega continues to maintain it did not breach its contractual obligations, stating in court filings that it did not fully pay a $50,000 fee required by the companies’ agreement because it had deducted the cost of a US income tax payment made on behalf of Benitec.

Promega later countersued Benitec and in November asked the court to preserve its rights as the exclusive licensee of the Benitec technology while the case wends its way through the legal system.

However, on March 8, the court denied Promega’s preliminary injunction request, saying the firm failed to demonstrate that it is likely to prevail in the dispute. Additionally, in making its decision the court found that Promega did not show that it would suffer irreparable harm if the injunction was not granted, and that granting the injunction would not have a favorable impact on the public interest.

A spokeswoman for Promega told RNAi News that the company is evaluating the injunction request denial and has no immediate comment on the matter.

Benitec CEO Sara Cunningham told RNAi News in an e-mail this week that her company is “pleased with the denial of the preliminary injunction.” In line with Benitec’s effort to move past its litigious image, she added that “our primary focus is RNAi drug development, and we will continue to out-license and cross-license in that field to strengthen our own position and to grant others” the freedom to operate.

Likelihood of Success

According to a filing by the US District Court for the District of Delaware, Promega said it would win its case against Benitec because a specific portion of its agreement with Benitec “confirms that Benitec was liable for the … taxes” paid by Promega on its behalf.

Additionally, Promega held that communications between the companies’ executives confirm that Benitec assumed liability for the taxes. “Specifically, Promega contends that John McKinley, Benitec’s [former] CEO, told Richard Schiffreen, Promega’s director of technology and development, that Promega was not liable for Benitec’s taxes,” the court filing states. “As evidence of … McKinley’s statement, Promega’s offers … Schiffreen’s contemporaneous notes of the conversation and an e-mail … dated June 22, 2003.”

Additionally, the court filing states that Promega contends that it wired $47,500 to Benitec to satisfy a $50,000 fee associated with a UK patent issuance minus $2,500 in income taxes Promega paid on Benitec’s behalf. “Promega alleges that Benitec accepted [the] wire transfer … without objection,” the filing states.

According to the District Court, Promega has argued that even if Benitec was complying with the companies’ agreement when it converted Promega’s technology license to non-exclusive status, “Benitec’s behavior leading up to and following the alleged automatic conversion constitutes a breach of the implied duties of good faith, fair dealing, and cooperation.”

Responding to these assertions, the court noted that it has found the language of the companies’ agreement “clear and unambiguous that Promega cannot withhold sums for tax payments unless based on Benitec’s net income. At this point in the proceedings, the court finds that Promega has not brought forth convincing evidence that the taxes in question were based on Benitec’s net income.”

The court also stated that while it does not doubt that executives of the companies discussed Promega’s “ability to recoup [the payments it made for Benitec] at some point in the future … Promega’s unilateral action in withholding the amount of taxes from its minimum royalty payment appears to have had the effect of breaching the license.”

Furthermore, the court found that Promega’s good faith and fair dealing argument is an attempt to “inject a new obligation into the [companies’] contract — the obligation to warn the other party if any of its intended actions will breach the contract.”

The court stated that after reviewing Promega’s claims and Benitec’s responses, the facts, and the law, it has concluded “that Promega has not shown a likelihood of success on the merits” of its claims.

While this finding is clearly not in Promega’s favor, Richard Warburg, an IP lawyer and partner at the San Diego office of Foley & Lardner, cautioned that it doesn’t mean Promega won’t prevail in the end. “It just means that a reasonable jury could come down one way or the other,” he told RNAi News this week.

“With a preliminary injunction … you can lose, but still win big time at trial,” he noted.

Irreparable Harm

In its request for the preliminary injunction, Promega stated that it would lose its position and opportunities in the RNAi marketplace if it lost the ability to handle sublicenses to Benitec’s expressed RNAi technology, the court filing indicates. Additionally, Promega alleged that the damages it would suffer are “complex” and that “any judgment may be uncollectible from Benitec.”

The court noted, however, that where “interests involving money damages are at stake, preliminary injunctive relief is usually not appropriate,” and cited a case in which the nature of the action involved the loss of the majority of business revenue, but the harm was not deemed irreparable.

The court determined that “Promega has not shown that the non-economic injuries it alleges, such as [loss] of control of reputation, loss of trade, and loss of goodwill, are reasonably imminent or otherwise non-speculative.” For these reasons, the court concluded that “Promega has not made a sufficient showing of irreparable harm to allow the court to find that this factor weighs in favor of granting a preliminary injunction in the lawsuit.”

Public Interest

According to the court filing, Promega maintained that the preliminary injunction it requested would not harm the public because “Benitec was a party to an exclusive licensing agreement and received a hefty licensing fee.” Further, in absence of the injunction, “those seeking to license [the Benitec] technology will be confused as to whether to deal with Benitec or Promega and may decide to delay licensing or withdraw from the market.”

The court stated that while the litigation “is a private contractual dispute that has no substantial public impact, the court finds that the public interest weighs in favor of enforcing a contract that has been shown to be valid at this preliminary juncture.” For this reason, the court concluded that “granting a preliminary injunction in the … case will not have a favorable impact on the public interest.”

— DM

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