City of Hope Nat. Med. Center v. Genentech

• Decision Date: 24 April 2008
• Docket Number: No. S129463.,S129463.
• Citation: 43 Cal.4th 375,181 P.3d 142,75 Cal.Rptr.3d 333
• Court: California Supreme Court
• Parties: CITY OF HOPE NATIONAL MEDICAL CENTER, Plaintiff and Respondent, v. GENENTECH, INC., Defendant and Appellant.

75 Cal.Rptr.3d 333

43 Cal.4th 375

181 P.3d 142

CITY OF HOPE NATIONAL MEDICAL CENTER, Plaintiff and Respondent, v. GENENTECH, INC., Defendant and Appellant.

No. S129463.

Supreme Court of California.

April 24, 2008.

Superior Court, Los Angeles County; Edward Y. Kakita^*, Judge.

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Jerome B. Falk, Jr., Steven L. Mayer, Amy L. Bomse, San Francisco; Keker & Van Nest, Robert A. Van Nest, Susan J. Harriman, Kara M. Andersen, Steven A. Hirsch, San Francisco; Skadden, Arps, Slate, Meagher & Flom, Raoul D. Kennedy, Jeff G. Randall, Palo Alto; Quinn Emanuel Urquhart Oliver & Hedges, Kathleen M. Sullivan, Daniel H. Bromberg and Victoria Maroulis, Redwood Shores, for Defendant and Appellant.

Paul, Hastings, Janofsky & Walker and Kevin C, McCann, San Francisco, for Biotechnology Industry Organization as Amicus Curiae on behalf of Defendant and Appellant.

Susan Liebeler; Daniel J. Popeo, Paul D. Kamenar; Zacks Utrecht & Leadbetter and Paul F. Utrecht, San Francisco, for Washington Legal Foundation as Amicus Curiae on behalf of Defendant and Appellant.

Hugh F. Young, Jr.; Gibson, Dunn & Crutcher, Theodore J. Boutrous, William E. Thomson and J. Christopher Jennings, Los Angeles, for Product Liability Advisory Council, Inc., as Amicus Curiae on behalf of Defendant and Appellant.

Leopold, Petrich & Smith and Louis P. Petrich, Los Angeles, for Motion Picture Association of America, Inc., as Amicus Curiae on behalf of Defendant and Appellant.

Wilmer Cutler Pickering Hale and Dorr, Nader Mousavi, Los Angeles, Mark C. Fleming, Seth P. Waxman and Edward C. DuMont for Biogen Idee Inc., as Amicus Curiae on behalf of Defendant and Appellant.

Thomas W. Burt, Timothy G. Fielden; Munger, Tolles & Olson, Gregory P. Stone and Rohit K. Singla, San Francsico, for Microsoft Corporation as Amicus Curiae on behalf of Defendant and Appellant.

Fred J. Hiestand, Sacramento, for The Civil Justice Association of California as Amicus Curiae on behalf of Defendant and Appellant.

Pillsbury Winthrop Shaw Pittman, Bruce A. Ericson and Robert J. Nolan, San Francisco, for California Healthcare Institute as Amicus Curiae on behalf of Defendant and Appellant.

Sheppard, Mullin, Richter & Hampton, Martin D. Katz, Lisa N. Stutz, Los Angeles, Jean-Paul Jassy and Jeremiah Reynolds, Santa Monica, for Intel Corporation as Amicus Curiae on behalf of Defendant and Appellant.

D. Bruce Sewell, Janet Craycroft; Thomas R. Lavelle, San Jose; Fred Main, Sacramento; Erika Frank; Jim Hawley; National Chamber Litigation Center and Robin S. Conrad, for Chamber of Commerce of the United States of America, California Chamber of Commerce and

Technet as Amici Curiae on behalf of Defendant and Appellant.

Skadden, Arps, Slate, Meagher & Flom and Jeff G. Randall, Palo Alto, for eBay, Inc., Xilinx, Inc., The Charles Schwab Corporation, Electronic Arts, Inc. Apple Computer, Inc, Applied Materials, Inc, and NVIDIA Corporation as Amici Curiae on behalf of Defendant and Appellant.

Michael S. Kwun and Thomas R. Lavelle, San Jose, for Google Inc., and Xilinx, Inc., as Amici Curiae on behalf of Defendant and Appellant.

Horvitz & Levy, Ellis J. Horvitz, Encino; Eisenberg and Hancock, San Francisco, Jon B. Eisenberg, William N. Hancock; Irell & Manella, Morgan Chu, Gregory R. Smith, David I. Gindler, Joseph M. Lipner, Los Angeles; Reed Smith Crosby Heafy, Reed Smith, Peter W. Davis, Los Angeles, James C. Martin; Akin Gump Strauss Hauer & Feld, Edward P. Lazarus and William A. Norris, Los Angeles, for Plaintiff and Respondent.

Lascher & Lascher and Wendy Cole Lascher, Ventura, for The Academy of Applied Science as Amicus Curiae on behalf of Plaintiff and Respondent.

Law Offices of Roman Melnik and Roman Melnik, for United Inventors Association and Inventions, Patents and Trademarks Company as Amici Curiae on behalf of Plaintiff and Respondent.

Raisin & Kavcioglu, Armenak Kavcioglu, Aren Kavcioglu, Encino, for Ian Ayres as Amicus Curiae on behalf of Plaintiff and Respondent.

Rodriguez, Horii & Choi, Los Angeles, and Reynolds T. Cafferata for Tamar Frankel as Amicus Curiae on behalf of Plaintiff and Respondent.

Alschuler Grossman Stein & Kahan, Stanton L. Stein, Michael J. Plonsker, David S. Gubman, Santa Monica, and Carla

A. Veltman, Los Angeles, for Writers Guild of America, West, Inc., Directors Guild of America, Inc., and Screen Actors Guild, Inc., as Amici Curiae on behalf of Plaintiff and Respondent.

Turner Green Afrasiabi & Arledge and Peter R. Afrasiabi, Costa Mesa, for Memorial Sloan-Kettering Cancer Center, Los Angeles Biomedical Research Institute, Board of Trustees of the University of Illinois, Loma Linda University Adventist Health Sciences Center and California Association of Nonprofits as Amici Curiae on behalf of Plaintiff and Respondent.

KENNARD, J.

In June 2002, after a jury trial, plaintiff City of Hope National Medical Center (City of Hope) obtained a judgment against defendant Genentech, Inc. (Genentech), for breach of fiduciary duty and for breach of contract.¹ The judgment awarded City of Hope $300,164,030 in compensatory damages and $200 million in punitive damages. The Court of Appeal affirmed. Genentech challenges that affirmance.

In this complex case, which has 25,567 pages of reporter's transcript plus 12,267 pages of clerk's transcript and has generated 18 friend-of-the-court briefs, the primary issue is whether, as the jury found, a fiduciary relationship necessarily arose when City of Hope, in return for royalties, entrusted a secret scientific discovery to Genentech to develop, to patent, and to commercially exploit. Our answer is "no." That conclusion invalidates the jury's punitive damages award, which was based on City of Hope's tort claim for breach of fiduciary duty. In addition, that conclusion requires us to determine whether the evidence that City of Hope introduced at trial to prove that Genentech had breached a fiduciary duty so prejudiced the jury as to require setting aside the jury's award of compensatory damages for breach of contract. Here too, our answer is "no."

Genentech also asserts the trial court erred by (1) submitting interpretation of the contract to the jury; (2) instructing the jury that if, after applying other rules of interpretation, "there remains an uncertainty in the language of the contract, that language must be interpreted against the party who caused the uncertainty to exist"; and (3) admitting evidence of the resolution of a prior dispute between the parties. We conclude that the trial court did not err in any of those three instances.

We affirm that part of the judgment awarding City of Hope $300,164,030 in damages for Genentech's breach of contract. Because punitive damages cannot be awarded for breaching a contract, however, our conclusion that there was no fiduciary relationship requires us to set aside the jury's award of $200 million in punitive damages to City of Hope.

I

A. Parties' Initial Contacts and Negotiations

In the mid-1970's, Drs. Arthur Riggs and Keichi Itakura, two scientists employed by plaintiff City of Hope, developed a groundbreaking process for genetically engineering human proteins, enabling the production of large quantities of various medicines of great therapeutic and commercial value. By 1976, Riggs and Itakura began preparing a confidential grant application relating to their scientific discovery. As they neared completion of the application, Dr. Herbert Boyer, a leader in the field of genetic engineering who had previously worked with Drs. Riggs and Itakura telephoned Riggs in early 1976 and learned of the scientific discovery by Riggs and Itakura. In February 1976, Drs. Riggs and Itakura filed their confidential grant application with the National Institutes of Health. Soon thereafter, in April 1976, Dr. Boyer and venture capitalist Robert Swanson incorporated defendant Genentech, Inc. (Genentech) to commercially exploit biotechnology.

In May 1976, Swanson, Genentech's president, sent City of Hope a proposal to provide funding to City of Hope to use the scientific process of Drs. Riggs and Itakura to complete the process of synthesizing two proteins, somatostatin and insulin, and to secure patents "necessary for commercialization" as each product was developed. Discussions then followed between Swanson and City of Hope's patent lawyer John Hall concerning a possible agreement. On June 25, Hall sent Swanson a "Summary of Points for Agreement Between Genentech, Inc. and City of Hope," with a copy to Genentech patent lawyer Tom Kiley. On June 30, 1976, Genentech's Swanson and Kiley met with City of Hope's Hall to further discuss contract issues. Thereafter, on July 22, Genentech sent City of Hope a draft of an agreement that Genentech had prepared. The accompanying cover letter noted that the draft agreement, in Article 6.01, left blank the royalty rate to be paid to City of Hope because Genentech was considering City of Hope's proposal of a 2 percent flat rate.

After the parties discussed the draft, Genentech on July 28, 1976, sent City of Hope a second draft agreement. The cover letter mentioned that Article 6.01 now included sales by Genentech's affiliates and payment of 2 percent royalties to City of Hope. Unchanged was Article 6.09, providing that Genentech would obtain from its licensees and pay to City of Hope the "same royalty" that City of Hope would receive if Genentech itself were to carry out the licensed activity.

B. Contract Between Genentech and City of Hope

On August 5, 1976, Genentech and City of Hope executed the contract. Below, we summarize the provisions pertinent here.

Article 1.03 sets forth the general objectives ,of the parties. As to Genentech, it states: "GENENTECH proposes to engage in the manufacture and sale of certain polypeptides. To do so, it requires synthetic DNA which codes for the production of a particular polypeptide when incorporated in a bacterial or other plasmid." The...