City of Hope, a Southern California medical treatment and research center, has a long history of caring for the critically ill and conducting research on life-saving cures, with a particular commitment to the poor. In 1976, scientists at City of Hope discovered a way to coax genetically-altered bacteria into producing therapeutic human proteins, such as insulin, thereby enabling the widespread production of genetically-engineered medicines for the treatment of diabetes, cancer and other diseases. City of Hope partnered with Genentech, then a newly-formed start-up company, with the agreement that City of Hope would entrust its invention to Genentech, which would patent and market the new technology and pay royalties to City of Hope. Over the next 20 years, however, Genentech engaged in a pattern of cheating on its royalty obligations, failing to pay royalties on billions of dollars of sales made by third-party companies that obtained patent licenses from Genentech for City of Hope’s invention.
City of Hope sued Genentech for breach of contract and breach of fiduciary duty arising from Genentech’s failure to pay the royalties. A jury ruled for City of Hope and awarded $300 million in compensatory damages and $200 million in punitive damages.
On appeal, City of Hope was represented by a team of lawyers from Horvitz & Levy LLP, Reed Smith Crosby Heafey LLP, and Irell & Manella LLP. The Court of Appeal issued a published opinion affirming the judgment in its entirety. The court held there was conflicting evidence on an issue requiring a jury determination of credibility, and the judgment must be affirmed because there was sufficient evidence to support the jury’s determination that City of Hope’s chief witness was credible and Genentech’s chief witness was not.
The California Supreme Court granted review and ultimately affirmed the liability finding and the $300 million compensatory damages award, but reversed the punitive damages. The court rejected Genentech’s argument that the trial court erred in allowing the jury to decide Genentech’s liability for breach of contract. The court held that because the contract was susceptible to different interpretations and there was a contract in the extrinsic evidence, the trial court properly submitted the dispute to the jury to assess the credibility of the witnesses and resolve the factual questions surrounding the interpretation of the agreement.
On the issue of Genentch’s liability for punitive damages, the court held that a fiduciary relationship did not necessarily arise when City of Hope, a nonprofit research hospital, entrusted a secret scientific discovery to Genentech to develop, patent, and commercially exploit. Because there was no fiduciary relationship, there was no basis for tort liability and thus no basis for imposing punitive damages.