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MIT Sues Dharmacon Over Payments for RNA Interference-Related IP License

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The Massachusetts Institute of Technology is suing Dharmacon for failing to pay sufficient royalties on the sale of its RNAi products, according to court documents obtained by RNAi News.

According to MIT’s lawsuit filed in the US District Court for the District of Massachusetts, the research institute in December 2001 granted Dharmacon co-exclusive rights to use its siRNA technology for internal research or to sell research reagents based on the technology for educational and research purposes.

In its suit, MIT states that Dharmacon’s license requires the company to pay MIT a “running royalty of 7 [percent] on net sales of licensed products.” This includes “any products that are siRNA, regardless of how the siRNA product is selected, purified, or treated, and including kits that contain any siRNA component.”

MIT added in its complaint that Dharmacon is obliged to make royalty reports and payments quarterly.

“Dharmacon began paying royalties as of December 10, 2001, and continued throughout 2002 to pay the 7 [percent] royalty on all its sales of siRNA, including on the full price of siRNA contained in kits,” the lawsuit states.

Based on Dharmacon’s sales of nearly $10 million in siRNA products from the time the deal was signed through 2002, MIT said in the suit, the company paid $645,577 in royalties. An audit commission by MIT at the end of 2002 “confirmed that, with some relatively minor adjustments, Dharmacon had … been reporting and paying royalties on all its siRNA products.”

However, MIT alleges that “after paying royalties on all its products for four quarterly royalty periods, Dharmacon abruptly announced its re-interpretation of [the parties’] license agreement.” MIT said that in a letter dated Aug. 21, 2003, Dharmacon stated it believed it had been overpaying on royalties since the licensing deal was struck, and that it was granting itself a credit of $283,263.35 for these overpayments.

“Dharmacon declared that it would apply the alleged credit against reduced royalties due in the future,” the suit states. “More specifically, Dharmacon asserted for the first time that the license agreement excluded from royalties ‘Dharmacon’s full prices for its combination products that incorporate value-added components and technology.’”

MIT said in its lawsuit that it then sought from Dharmacon an “explanation of its position,” as well as a list of products the company wanted to exclude from royalty obligations. “Dharmacon asserted that it is not required to pay the 7 [percent] royalty on the full sales price when it sells certain of its purified siRNA products, certain siRNA products selected using Dharmacon’s methods, as well as when siRNA is a component of a kit.”

Dharmacon’s refusal to pay full royalties on these products is a breach of the parties’ licensing agreement, the lawsuit states, and has “deprived … [the] owners of the [IP] … millions of dollars in revenue. [The] breach, if not cured, will cause … continuing harm in the form of lost royalties.”

In its suit, MIT is asking the court to order Dharmacon and its parent company Fisher to “account for its sales of all siRNA products, and to pay as damages the full amount of royalties due on those products.” MIT is also seeking interest on the damages, and a declaration that Dharmacon is obliged to pay a 7 percent royalty on the sale of all Dharmacon products incorporating siRNAs.

William Marshall, site manager and executive vice president of research and operations at Dharmacon, declined to comment on the lawsuit. Calls to MIT seeking comment were not returned.

The intellectual property covered by the MIT license includes US patent application no. 09/821,832; US patent application no. 10/255,568; and PCT application no. US01/10188.

According to the abstract of the primary US patent application, the technology relates to “a Drosophila in vitro system which was used to demonstrate that dsRNA is processed to RNA segments 21 [to] 23 nucleotides in length. Furthermore, when these … fragments are purified and added back to Drosophila extracts, they mediate RNA interference in the absence of long dsRNA. Thus, these … fragments are the sequence-specific mediators of RNA degradation,” the abstract states.

“A molecular signal, which may be their specific length, must be present in these 21 [to] 23 [nucleotide] fragments to recruit cellular factors involved in RNAi,” the abstract adds. “This … invention encompasses these … fragments and their use for specifically inactivating gene function. The use of these fragments (or chemically synthesized oligonucleotides of the same or similar nature) enables the targeting of specific mRNAs for degradation in mammalian cells, where the use of long dsRNAs to elicit RNAi is usually not practical, presumably because of the deleterious effects of the interferon response.”

The patent lists as inventors Rockefeller University’s Thomas Tuschl, who worked at the Max-Planck Institute at the time the IP was filed in March 2001; the University of Massachusetts Medical School’s Phillip Zamore; MIT’s Phillip Sharp; and MIT/Whitehead for Biomedical Research Institute researcher David Bartel.

The technology is jointly owned by MIT, the Whitehead Institute, the Max-Planck Institute, and the University of Massachusetts, but MIT is authorized to act on behalf of the other institutions. Aside from Dharmacon, the IP is also co-exclusively licensed to Ambion, Qiagen, and Proligo.

— DM