Integrated Genomics Inc. v. Gerngross

• Decision Date: 24 February 2011
• Docket Number: No. 09–3718.,09–3718.
• Citation: 636 F.3d 853
• Parties: INTEGRATED GENOMICS, INC., Plaintiff–Appellant,v.Tillman GERNGROSS, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

636 F.3d 853

266 Ed. Law Rep. 48

INTEGRATED GENOMICS, INC., Plaintiff–Appellant,

v.Tillman GERNGROSS, Defendant–Appellee.

No. 09–3718.

United States Court of Appeals, Seventh Circuit.

Argued April 15, 2010.Decided Feb. 24, 2011.

Marianne C. Holzhall (argued), Annette M. McGarry, Attorneys, McGarry & McGarry, Chicago, IL, for Plaintiff–Appellant.Michael P. Boudett (argued), Attorney, Foley & Hoag, Boston, MA, for Defendant–Appellee.Before BAUER, ROVNER, and HAMILTON, Circuit Judges.ROVNER, Circuit Judge.

In 2002, Integrated Genomics, Inc. (“IG”) granted Tillman Gerngross, a bioengineering professor at Dartmouth College, a license to use genetic sequencing data that it had developed on a common yeast. Gerngross did not disclose to IG that he intended to use the data in connection with a private business venture rather than for purely academic purposes. Gerngross was charged an academic rate for the license which, IG alleges, was much less than it would have charged him for commercial use of the data. Four years later, Gerngross's business was sold for many millions of dollars. IG filed suit against Gerngross, contending that he had defrauded IG by failing to disclose that he intended to use the sequencing data for commercial purposes and that Gerngross had breached his license agreement with IG by “publishing” the licensed sequencing data to his business and to its buyer. The district court entered summary judgment in favor of Gerngross on the contract claim and, after a trial on the fraud claim, found that even if Gerngross was deceitful in failing to disclose his intended use of the data, the evidence did not clearly and convincingly show that IG would have charged him more for the license had it been aware of that use. We affirm.

I.

Gerngross joined the faculty of the Thayer School of Engineering (“Thayer”) at Dartmouth in 1998. In 2000, he and a fellow faculty member formed a private corporation, GlycoFi, with the aim of genetically modifying yeasts in such a way that they would manufacture or “express” human proteins with therapeutic and industrial uses.¹ Dartmouth agreed to “incubate” the business, lending its own facilities and personnel to the venture in exchange for an equity stake in the company. Early on, all of GlycoFi's research was performed by a laboratory team at Dartmouth, and all of the supplies and materials used by that team were purchased through the university; the company reimbursed the university for its expenses on a monthly basis. Eventually, GlycoFi would acquire its own facilities and employees, although even then, some work continued at Dartmouth.

Among the species of yeast organisms that Gerngross and his team sought to genetically modify was Pichia pastoris ( “Pichia”), a common yeast with characteristics that were amenable to the modification effort. Toward that end, Gerngross sought out genetic sequencing data for that organism. This is IG's business: it maps the genomes of various organisms and sells the data for both commercial and non-commercial, including academic, uses. In the spring of 2002, Gerngross learned that IG was working on the genomic sequence of Pichia and approached the company about acquiring a license of its data. At that time, IG was the sole source from which sequencing data on this organism could be licensed. This is not to say that IG's data was indispensable to GlycoFi's efforts: Gerngross testified that modifying a yeast organism so that it would express human proteins involved introducing various new genes into the organism and eliminating certain existing genes that were not wanted; genomic sequencing data was of no help to the first of these tasks but could be of help to the second. Moreover, according to Gerngross, GlycoFi could have constructed the sequencing data it needed from both limited genetic data on Pichia that was already in the public domain as well as data on similar organisms. But Gerngross believed that obtaining the data from IG might “[s]ave a few weeks here or there.” R. 135 at 132. He thus approached IG about obtaining a license for use of its Pichia data.

It is undisputed that Gerngross presented himself to IG's representatives as a professor at Dartmouth, and after hearing conflicting testimony on the question of whether Gerngross disclosed that he was seeking the Pichia data for use by GlycoFi, the district court found that he did not. R. 123 at 4. Gerngross's primary contacts at IG were Dr. Yuri Nikolsky, a co-founder of the company who served as its vice president for business development from 1997 until he left the company in August 2002, and Dr. Yakov Kogan, a research scientist at IG who succeeded Nikolsky as the individual in charge of business development in September 2002 and continued in that capacity until April 2003, when he too left the company. Gerngross testified that he initially spoke with Kogan in the spring of 2002, and when he did so he mentioned to Kogan that he was involved in a commercial venture. But Kogan did not recall speaking with Gerngross at that time; ² and both he and Nikolsky testified that they were aware of Gerngross' academic affiliation only. As noted, the district court credited IG's witnesses over Gerngross on this point.

If Gerngross did not volunteer his affiliation with GlycoFi, neither did IG inquire. Dr. John Campbell, who assumed responsibility for business development when Kogan departed the company in 2003, testified that many academics are involved with startup commercial ventures, just as Gerngross was. Yet, Nikolsky, who negotiated the Pichia license with Gerngross, could not recall asking him what he planned to do with the Pichia data or whether he intended to use it for commercial purposes. “[A]t the time I was a sales guy, so I didn't ask a whole lot of questions,” he admitted. R. 143–4 at 15. To be fair, Campbell testified that, in his experience, dual-affiliation customers were careful to draw lines between their academic and commercial activities, so that there would be no need for a vendor like IG to ask in what capacity the customer was seeking to purchase its data for purposes of establishing a price. Nikolsky at one point in his testimony appeared to contradict Campbell on that point, suggesting that even if an academic were seeking to license data for an industrial use, his academic affiliation alone would determine what IG would charge him for a license. “In our agreement what mattered was affiliation. If the affiliation was a university, that would be considered academic.” R. 143–4 at 56; see also id. at 72–73. But at another point in his testimony, Nikolsky seemed to retract that assertion, explaining that in his experience academics typically were not affiliated with industry, and that if IG knew that an academic was working with a commercial venture, he would be charged a higher price. “If you knew that the person is working [for an] industrial company, he would be charged [a] much higher price, yes.” R. 143–4 at 66. In any case, given that Gerngross (per the district court's finding) did not disclose his intent to use the data for the benefit of GlycoFi, IG treated him as an academic rather than a commercial customer.

As a general rule, IG charges and has charged commercial licensees more than it does academic licensees for the same data. How much more depends on the circumstances, and IG's witnesses gave a broad and indeterminate range of prices that the company might have charged someone like Gerngross for a commercial license of the Pichia data. Nikolsky, for example, testified that IG gave academics “huge discounts,” R. 143–4 at 40, and that industrial customers typically were charged a price that was higher by several times than the fee charged to academics. But Nikolsky could not say what the price would have been for a commercial licensee who, like Gerngross, wanted nothing more than the Pichia data IG already had—i.e., an “off-the-shelf” sale that required no additional work on IG's part. Neither could Kogan. Nikolsky hypothesized that if a commercial customer had sought an exclusive license for particular data—one which would have precluded IG from licensing the same data to anyone else—the price might have run from hundreds of thousands of dollars to over one million; if, on the other hand, the customer wanted a non-exclusive license, as Gerngross did, “[t]hen the price would go down dramatically.” R. 143–4 at 57. Dr. Michael Fonstein, IG's co-founder and president until March 2003, testified that he had engaged in negotiations to license the Pichia data commercially to an interested company for a price in the range of half a million to 1.5 million dollars; those negotiations never resulted in a sale, however. In fact, although IG had successfully negotiated commercial licenses on data for other similar organisms, Fonstein was unable to recall any commercial sale of the Pichia data, and perhaps because of that he found it difficult to quantify what the difference in price would have been for a commercial versus an academic license. Campbell similarly testified that although he had engaged in discussions about the sale of an exclusive commercial license of the Pichia data, no such transaction was ever completed. Campbell said that IG did sell a number of non-exclusive commercial licenses on the Pichia data, but he did not name a price for those licenses.³

Contributing to the uncertainty as to the price IG might have charged Gerngross in 2002 for a commercial license of the Pichia data is the fact that IG was experiencing significant financial stress in 2001 and 2002. Nikolsky explained that the price for genetic sequencing data was dropping rapidly in those years as a result of technological advances in sequencing and increasing competition in the field. IG, which was one of the larger sequencing firms, began to shed large numbers of employees. Kogan testified that he and some of IG's other remaining employees went unpaid as a...