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Promega and Nucleonics Return Fire in Legal Battles with Benitec

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When John McKinley, Benitec’s chairman and CEO, told RNAi News in January that his company had purchased intellectual property insurance from Lloyd’s of London in anticipation of patent disputes, he may not have realized just how much it would be needed.

Companies targeted by Benitec litigation have begun firing back. One of these is Promega, which last year signed an agreement with Benitec and CSIRO to exclusively license Benitec’s DNA-directed RNAi technology for uses outside human therapeutics. The deal also gave Promega the exclusive rights to sublicense the technology.

While the arrangement was touted as key to Australia-based Benitec’s plan to become a US company, Benitec alleged in a lawsuit filed in July that Promega failed to make the minimum payments required by the deal and as a result had lost its status as the technology’s exclusive licensee.

Now Promega has launched its own legal offensive, bringing CSIRO and Ambion, a recent ddRNAi licensee, into the fray.

In its July claim, Benitec said Promega failed to pay its minimum $50,000 in royalties by the end of March, which was stipulated in the companies’ agreement. Instead, Benitec received just $9,719. In its suit, Benitec claims that Promega said it deducted amounts it paid in taxes from its royalty payments — a violation of the licensing agreement, according to Benitec — and that Promega has forfeited its exclusive rights to the ddRNAi technology as a result (see RNAi News, 7/30/2004).

Promega later told RNAi News that it believes it “remains the exclusive licensee of Benitec’s ddRNAi technology in the research market” despite Benitec’s allegations, and now has filed the suit in order to legally establish this position.

In an answer to Benitec’s suit, which includes a countersuit, filed late last month, Promega confirmed that it made a royalty payment of $9,719 to Benitec, but denied that it has failed to live up to its part of the companies’ agreement.

According to Promega, it paid Benitec an upfront license fee of $350,000 for the ddRNAi technology rights when the original deal was signed. In addition, Promega stated in its suit that it made a 10 percent US income tax payment of $35,000 on Benitec’s behalf, pursuant to a tax treaty between the US and Australia, because Benitec had no US operations at that time.

Around mid-June 2003, Promega said in its suit that “John McKinley, executive chairman and CEO of Benitec, stated that Benitec would repay Promega for the tax payment.” When that repayment never came, Promega said, Benitec was informed that Promega would recoup the tax money by deducting it, with interest, from its next royalty payment.

When it did so, “Benitec did not object or even respond,” Promega alleged in a court filing, which was obtained by RNAi News. “Benitec simply accepted Promega’s royalty payment and continued to do business with Promega.”

It wasn’t until late July this year that McKinley sent Promega a letter informing the company that Benitec considered their arrangement to have become a non-exclusive one due to the royalty payment issue, according to Promega’s complaint. And even then, Promega added, McKinley did not inform Promega of the suit.

Promega noted in its complaint that Benitec has not yet served the company with the lawsuit, and that “in recent statements to the press, Benitec has stated that it will not pursue its lawsuit.” In August, McKinley told RNAi News that Benitec did not intend to pursue the litigation, and that the issue was settled as far as his company is concerned (see RNAi News, 8/13/2004).

Although Promega maintains that its licensing arrangement with Benitec is in full effect, the company said in its complaint that Benitec has interfered with its business operations by brokering licensing deals for the ddRNAi technology on its own.

One such deal is Benitec’s settlement of a patent infringement suit with Ambion, according to Promega. In April, Benitec filed a lawsuit charging that its US patent — number 6,573,099, entitled “Genetic Constructs for Delaying or Repressing the Expression of a Target Gene” — had been infringed by Nucleonics, Ambion, and GenScript (see RNAi News, 4/2/2004).

Benitec later settled the dispute with Ambion, as well as with GenScript, and granted Ambion a non-exclusive license to the ddRNAi technology. But Promega said in its counterclaim it had been negotiating with Ambion about signing a sublicensing deal that would help put to rest the patent infringement suit.

“Promega sent a final version of the sublicense to Ambion on July 22, 2004, which was ready for execution,” Promega’s lawsuit states. “Then, Benitec wrongfully took the Ambion sublicense for itself.”

This arrangement, Promega said, gives Ambion non-exclusive rights to use the RNAi technology to “sell plasmid vectors that do not contain inserts, which is a set of products Promega has reserved exclusively for itself under the license agreement” with Benitec.

Promega added that it has had discussions about sublicensing Benitec’s technology with a number of other companies — including Stratagene, Invitrogen, BD Biosciences-Clontech, Open Biosystems, Exelixis, and Artemis Pharmaceuticals — and that it fears Benitec will interfere, or has already interfered, in these talks.

According to Promega, Benitec filed its lawsuit “in a wrongful attempt to manufacture a dispute” and as a “pretext in order to try to negotiate a better business deal with Promega.” This action, along with its alleged interference with Promega’s licensing rights, has adversely impacted Promega, the company said.

In its countersuit, Promega is seeking damages, attorney fees, costs, and expenses from Benitec, as well as an enjoinder preventing Benitec from entering into licensing deals for the ddRNAi technology without Promega’s involvement.

Promega also names CSIRO as a defendant in its suit against Benitec, noting that although CSIRO was a party to the original licensing deal with Benitec, it was not named in Benitec’s initial lawsuit.

Promega’s suit does not seek damages from CSIRO, but states that it “may be impacted by Benitec’s wrongful behavior, and by the declaratory judgment and other relief requested by Benitec and Promega in this case.”

Finally, Promega’s suit is seeking damages from Ambion, which allegedly “intentionally, knowingly, and for unworthy or selfish purposes, has entered into a license or sublicense with Benitec for ddRNAi technology despite being informed of Promega’s exclusive rights.”

Benitec’s McKinley told RNAi News this week that he had no comment on the Promega situation. Ambion president Bruce Leander told RNAi News he had no comment, as well. Officials from CSIRO were not available.

Two-Front War

While its battle with Promega continues, Benitec is still contending with Nucleonics, which has not budged in its defense against Benitec’s lawsuit over the ‘099 patent.

In the latest salvo in the dispute, Nucleonics, which has long maintained that it does not need a license to Benitec’s patent, announced this week that it has asked the commissioner of patents in Australia to re-examine Benitec’s core Australian patent, number 743316, entitled “Control of Gene Expression.”

The Australian patent covers “recombinant DNA [used] to post-transcriptionally modify or modulate the expression of a target gene in a cell, tissue, organ, or whole organism, thereby producing novel phenotypes,” according to its abstract. “Novel synthetic genes or genetic constructs, which are capable [of] repressing, delaying, or otherwise reducing the expression of an endogenous gene or target gene in an organism when introduced thereto” are also covered by the patent, the abstract states.

Nucleonics CEO Robert Towarnicki told RNAi News that “we think [Benitec’s] patents are invalid around the world, and [by asking for a re-examination in Australia, we are taking] an opportunity to start going after that IP wherever it is.”

Nucleonics is considering asking the US patent office to re-examine Benitec’s US patent, and that the Australian request “is just the start of the action,” Towarnicki said.

“We have multiple avenues to defend ourselves and invalidate the [Benitec] IP,” he said. “One would be the use of the court, which we’ve already started through their filing of the lawsuit.” As part of its legal defense, Nucleonics has asked the court to find Benitec’s US patent invalid.

According to Nucleonics, Benitec’s Australian patent claims are invalid “because they lack novelty and do not give an inventive step,” and that its request for re-examination cites 24 prior art publications to support its charges. Additionally, the company alleges the patent claims are “ambiguous and lack adequate support in the specification.”

One of these publications is the seminal Fire-Mello patent, which Towarnicki said Benitec is opposing in Australia. Benitec “doesn’t predate the Carnegie [Institute’s] Fire-Mello patent, and [the company] fails to cite that in [its] patent applications,” he said.

Nucleonics stated that Benitec is opposing the granting of an Australian version of the Fire-Mello patent, and the granting of an RNAi-related patent entitled “Gene Silencing” by agribiotech firm Syngenta.

Towarnicki said that he remains willing to consider settling his company’s dispute with Benitec if the price is right, but stressed that “I’m not going to spend too much money for patents that we think aren’t worth very much.”

He added that the companies have had discussions to see if there is a chance of resolving the issue amicably, “but we’ve come to the conclusion that there is not.”

McKinley said that Benitec has a policy of “providing the widest licensing possible for ddRNAi,” adding that the company doesn’t regard “the points being raised [by Nucleonics] as material. I’m not going to respond individually to the inaccuracies in [statements by Nucleonics.] We feel very secure in the way that [our patents have] been filed, prosecuted, and examined,” he said.

McKinley did confirm that Benitec is opposing the issuance of the two Australian patents, but noted that the company has no intention of filing an opposition to the US Fire-Mello patent.

“The reason one takes action in other jurisdictions is because the claims are different in that other jurisdiction than the ones that we issued in the United States,” he said. Benitec does not have a license to the US Fire-Mello patent, McKinley said.

— DM

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