It's Not Final 4 But WashU, Wisconsin Fight on Other Court

(Bloomberg) -- For more than a decade, two Midwestern research universities happily collected patent royalties after partnering in medical research. Now, their lawyers sit at opposing tables in a federal courthouse in Delaware, treating each other in something less than a collegial manner.

Washington University in St. Louis is challenging the Wisconsin Alumni Research Foundation, which handles licensing for the University of Wisconsin-Madison, citing "shabby treatment" by its former partner. It’s seeking more than $38 million of the royalties the foundation gets from the sale of an AbbVie Inc. kidney-disease drug.

It’s rare for universities to sue one another, especially when those institutions joined in a patent-licensing deal with a corporation. But the value of patents, coupled with tightening revenue streams, is inspiring more schools to fight for a greater share of royalties. In another case in the same courthouse, Cornell University is accusing a business partner of defrauding it in a settlement of a suit over patent royalties.

"It is striking how little litigation there is between academic institutions," Michael A. Jacobs, a lawyer for Washington University, said in his opening statement this week. “This is basically a case about sharing" -- and about whether the foundation misled his client “through obfuscation," he said.

Cornell Chases Lucrative Royalties Lost on ‘Secret Side Deals’

Washington University and Wisconsin, both academic powerhouses, bring in enviable revenue from scientific discoveries.

Wisconsin, which in 1925 became the first university to dedicate an arm to patent licensing, collected $106.5 million through its foundation between 2014 and 2016, according to a survey by the Association of University Technology Managers. During the same stretch, Washington University’s program brought in $45.7 million.

Wisconsin’s foundation, known as WARF, is no stranger to litigation. In 2015, Apple Inc. was told to pay WARF $234 million for infringing the school’s patent on microprocessor technology. A year earlier, a consumer watchdog group unsuccessfully tried to challenge the validity of a WARF patent for stem cells derived from human embryos.

The trial in Wilmington has its roots in a collaboration between researchers at Washington University and Wisconsin. In the early 1990s, they worked together on therapeutics for conditions associated with kidney disease. The scientists jointly applied for a patent in 1995, and the schools signed an agreement in which WARF would take the lead in obtaining the patent and licensing in return for a larger share of any royalties, according to the complaint.

Patent Owners

WARF licensed the patent to Abbott Laboratories in 1998 for use in connection with the drug Zemplar. AbbVie was spun off from Abbott in 2013. The lawsuit is complicated because the patent is one of almost three dozen tied to Zemplar, with royalties distributed among patent owners.

Under the deal, WARF gets 15 percent of royalties for administration costs. Of the rest, WARF collects two-thirds and Washington gets a third, according to court papers.

Washington University claims WARF breached their agreement by undervaluing the patent when initially licensing it to Abbott, and that it was misled by WARF’s representation because it couldn’t gauge valuation on its own. Jacobs said that WARF told Washington University in 2013 that the patent was "meaningless and largely irrelevant," though it assured Abbott in 1998 that the patent "directly supports" Zemplar.

WARF’S lawyer, Robert F. Shaffer, argued that Washington University wants to rewrite the "unambiguous" terms of the contract, in which allocation of royalties among all patents in the portfolio was fair.

‘Didn’t Ask’

"A deal is a deal," Shaffer said. “They didn’t ask during the course of negotiations" for a particular method of valuation, he added.

The drug generated $409 million in sales in 2011, according to data compiled by Bloomberg. A representative for AbbVie, which isn’t a party in the case, didn’t immediately respond to a request for comment.

Washington University points to a 2012 lawsuit in which Abbott and WARF accused Hospira Inc. of infringing the same patent. In that case, Abbott and WARF said the patent was valuable, Jacobs said.

U.S. District Judge Joseph F. Bataillon seized on WARF’s reliance on the patent in the Hospira case. "You guys made a big deal" about the value of the patent previously, Bataillon said to Shaffer. "Now, you reap what you’ve sown."

Shaffer called the decision to use the patent in the Hospira case “a litigation strategic decision." By then, Shaffer said, WARF had been paying Washington University for more than a decade.

Washington University’s share, after an incremental benefit analysis, would be $1.2 million, Shaffer said. WARF paid $1.5 million in royalties during the lifetime of the deal, so Washington University is "really not entitled to any more," he said.

The case is The Washington University v. Wisconsin Alumni Research Foundation, 13-cv-2091, U.S. District Court, Delaware (Wilmington).

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