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Sirna Fires at Protiva Motion to Dismiss SNALP Suit, Files to Keep Litigation Moving Forward

Sirna Therapeutics late last month took steps to keep in play its lawsuit against one-time partner Protiva Therapeutics by filing with a US District Court its opposition to a Protiva motion to dismiss the case over the rights to an oligonucleotide-delivery technology.
In September, Protiva asked the court to dismiss Sirna’s lawsuit since it did not include Protiva’s US subsidiary and because Sirna allegedly failed to provide sufficient evidence of Protiva’s duplicity about its ownership of the delivery technology, among other reasons (see RNAi News, 9/21/2006).

But the court may not get the chance to hear either company’s argument: Representatives from the companies and three members of the court’s alternate dispute resolution legal team are set to talk on Nov. 9. These talks could encourage Sirna and Protiva to settle their case out of court.

In its opposition to Protiva’s motion, Sirna charged that Protiva offers “only the flimsiest rationale for why [the subsidiary] Protiva USA is necessary to this” litigation. Additionally, the “burden of showing that Protiva USA is necessary to this [legal] action” has not been met, “particularly because the interests of Protiva, [its President and CEO Mark] Murray, and Protiva USA are completely aligned,” Sirna adds.
Sirna also stated that Protiva misled Sirna about its ownership of the SNALP technology on four separate occasions, leading the firms to sign their licensing deal. Finally, Sirna said Protiva is relying on a “tortured interpretation” of the language of the licensing contract to make its case.
The Dispute
The companies’ legal battle centers on Protiva’s so-called SNALP delivery technology, which Sirna licensed for use with three RNAi-based drugs in exchange for $1 million — payable in a $100,000 upfront fee with the remainder held in escrow in the form of cash and Sirna stock — and certain rights to its own RNAi technology.
Despite encouraging results from its experiments with SNALPs (see RNAi News, 7/29/2005), in March Sirna sued Protiva alleging that the licensing deal was invalid because Protiva did not own the intellectual property needed to strike the licensing deal in the first place (see RNAi News, 3/2/2006).).

According to Sirna, Inex Pharmaceuticals, Protiva’s former parent, owns the technology for RNAi applications. Protiva and Inex are currently engaged in a legal battle over the SNALP technology in Canadian and US courts (see RNAi News, 3/30/2006, 5/4/2006, and 9/14/2006).

Sirna has also said it is working on its own nanoparticle delivery technology, which appears to be very similar to the SNALP technology. The company has been tightlipped on the specific details of its technology, but said it will use it in its hepatitis C drug candidate (see RNAi News, 1/19/2006). Protiva has said in a countersuit that Sirna stole certain trade secrets in order to develop this technology.
‘Flimsy’ and ‘Tortured’
When Protiva asked the US District Court for the Northern District of California to dismiss Sirna’s lawsuit, it said that the Sirna action failed to name a key player in the dispute: a heretofore unpublicized subsidiary, Protiva USA, which Protiva said was founded to market and license various technologies including SNALPs.
Protiva conceded that its subsidiary was not a signatory to the deal with Sirna, but noted that it “still claims an interest in the SNALP technology rights involved.”
According to Protiva, the unit’s “absence [from the Sirna suit] impairs its ability to protect its interest in [the] intellectual property rights [at issue], since the scope of Protiva’s licensing agreement with Inex is at risk of being affected in this case. Protiva USA may find itself bound by a judgment regarding Protiva’s intellectual property rights — without any opportunity to defend its position.”
To Sirna, however, the subsidiary’s “only actual business activities appear to be undefined ‘business development’ and ‘clinical development’ performed by … Murray, the president and CEO of both Protiva and Protiva USA.
“Protiva USA … cannot claim a bona fide interest in the subject matter of this lawsuit … [as] it does not claim any ownership interest in the intellectual property rights at issue,” according to Sirna’s opposition to the motion to dismiss. The assertion that Protiva USA “will be prejudiced by the preclusive effect of any ruling by this court regarding Protiva’s interests in the SNALP technology is equally flimsy.”
Sirna stated that “the mere possibility that an adverse ruling against Protiva will harm Protiva USA’s purported economic interests in marketing or distributing Protiva technology [is not satisfactory] because the risk of economic harm to an absent person does not make that person necessary.
“Even if Protiva USA had a legitimate interest in participating in this action … Protiva USA is not necessary because any interests that it has are adequately represented by Protiva” and Murray, Protiva USA’s sole employee, Sirna added.
In its motion to dismiss, Protiva also claimed that although Sirna claims it was misled by Protiva and Murray that Protiva held the necessary IP for using SNALPs for RNAi applications, this allegation is “directly contradicted by the language of the agreement between the parties.”
Specifically, the escrow clause in the companies’ agreement provided “a contractual protection for Sirna,” Protiva said in its motion. “Sirna expressly understood that at the time that [Protiva] entered into [its] agreement with Sirna, Protiva did not have all the rights that it now claims Protiva needed. Sirna specifically contracted for the very risk it alleges it was unaware of.”

“Protiva USA … cannot claim a bona fide interest in the subject matter of this lawsuit … [as] it does not claim any ownership interest in the intellectual property rights at issue.”

However, in its opposition Sirna stated that through negotiations of the licensing deal, “Protiva officers and employees told Sirna representatives that Protiva held all intellectual property rights that [it] was licensing to Sirna.”
Further, Sirna said that on two separate occasions, including one the day before the contract was signed, Murray told Sirna officials that “Protiva held all necessary licenses and contracts to perform under the strategic alliance agreement, including any necessary licenses from Inex.”

Sirna also pointed to language in the companies’ contract that states that “Protiva has full legal right, power, and authority to execute, deliver, and perform its obligations under this agreement.”

Protiva’s claim that the existence of the escrow clause suggests Sirna knew that Protiva required additional licenses from Inex for the SNALP technology is a “tortured interpretation” of the contract. A more reasonable interpretation, Sirna said, would be that the escrow provision existed as an “exercise in caution.
“What was hidden from Sirna was that Inex also staked a claim to all of the RNAi technology developed by Protiva,” Sirna added, making its caution with the escrow provision “prophetic.”
Sirna asked the court to deny Protiva’s motion to dismiss the suit.
Out-of-Court Resolution?
While the court is slated to hear Protiva’s motion to dismiss the Sirna suit in mid-November, the dispute might not even make it that far. According to a court filing, a phone conference has been scheduled for Nov. 9 between representatives from the companies and three members of the court’s alternate dispute resolution legal team.
According to the filing, the conference is designed to help the companies “select or design an ADR process most likely to benefit the … case” and lead to an out-of-court settlement. The ADR options available to Sirna and Protiva include binding or non-binding arbitration, mediation, and early neutral evaluation of the case by outside legal experts.

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