No Punitive Damages in Genentech Case

Last week, the California Supreme Court upheld a $300 million verdict on a breach of contract claim against the biotechnology company Genentech (HQ pictured) but struck the $200 million award of punitive damages, according to the San Francisco Chronicle.  The dispute relates to the discovery of a process for producing insulin made in the 1970s by two scientists working at the City of Hope National Medical Center, a cancer research center, City of Hope contracted with Genentech to patent and market products derived from the process in return for a 2 percent royalty.  Genentech paid City of Hope more than $300 million in royalties relating to the product the two scientists had synthesized but did not pay royalties relating to other products that were created using the engineering process that the two scientists had created. 

The jury had awarded punitive damages based on a finding that Genentech had breached a fiducity duty to City of Hope.  The Supreme Court refused to permit plaintiffs to get around the limitation on contractual damages by characterizing a breach of contract claim as one alleging a fiduciary breach.  Summarizing the opinion, the Chronicle reports:

The court said a company that markets another firm’s scientific discoveries in exchange for royalties has no special obligation to protect the other’s interests, apart from its duty to adhere to the contract. Without any such obligation, the justices said, punitive damages cannot be awarded for a breach of contract.

And there was much rejoicing among the amici.

[Jeremy Telman]