UW-Madison’s patent-licensing arm actively concealed information from another university about their shared patent, misled its research partner about the patent’s true financial value and kept 99 percent of the patent’s royalties to itself, according to a federal judge’s ruling.
Washington University in St. Louis sued the Wisconsin Alumni Research Foundation, also known as WARF, in 2013 over a dispute about a joint pharmaceutical patent. A bench trial was held in March and the U.S. District Court in Delaware ruled in late November that WARF owed Washington University nearly $32 million.
The court’s 191-page ruling in the case, written by U.S. District Judge Joseph Bataillon, was unsealed in mid-December after minor redactions were made to protect trade secrets, providing a window into WARF rarely seen by the public because of its private, nonprofit status.
WARF is an increasingly important source of financial support for Wisconsin’s flagship university as state tax support to the University of Wisconsin System dwindles. One out of roughly every $8 in private gifts and nonfederal grant funding that UW-Madison received in the 2018 fiscal year came from WARF, according to university records.
WARF gave UW-Madison about $67.2 million in the 2018 fiscal year, according to university records, so the $31.6 million court-ordered payment to another university represents nearly half of its annual donation.
WARF attorneys filed a notice to appeal the district court’s ruling on Dec. 21, according to court records.
Asked what specifically WARF disputes in the court’s opinion, foundation spokeswoman Jeanan Yasiri Moe declined to say or respond generally to the court’s opinion.
“WARF had many opportunities along the way to settle this dispute,” said Michael Jacobs, an intellectual property attorney with the Morrison & Foerster law firm, which represented Washington University in the lawsuit. Jacobs declined to comment further, citing the ongoing litigation.
An agreement struck
WARF fuels UW-Madison’s research engine by patenting inventions from UW-Madison researchers, licensing the technologies to companies for commercialization, and returning licensing fees to the campus to fund more research.
One of WARF’s longstanding partnerships is with Abbott Laboratories, a pharmaceutical company. One of its agreements was for a kidney dialysis drug treatment known as Calcijex, but the treatment was known to have side effects and the patent was nearing the end of its life, according to court records.
More than 25 years ago, Abbott approached UW-Madison biochemistry professor Hector DeLuca about developing a next generation drug for kidney dialysis. In 1993, WARF and Abbott struck a new agreement licensing a drug developed by DeLuca. But court records show Abbott was missing key research on the drug in order to submit an application to the U.S. Food and Drug Administration.
Enter Washington University researcher Eduardo Slatopolsky, who designed and carried out a study using DeLuca’s drug that led to the patent of a new drug treatment used for kidney dialysis. DeLuca’s role was limited to supplying the chemical compound, formulation and dosage information, according to court records.
In January 1995, Slatopolsky sent DeLuca a draft of a journal article on his research to receive input. DeLuca made two minor English corrections and one biochemical correction, according to Slatopolsky’s deposition.
DeLuca took Slatopolsky’s draft journal article to a WARF patent attorney to pursue a patent on their co-invention. DeLuca is listed first on the 1995 patent application filed by WARF attorneys, records show.
Shortly after filing the 1995 patent application, WARF approached Washington University about an agreement governing how the universities would work together.
The court concluded WARF did not inform Washington University about its 1993 agreement with Abbott nor did it share with Washington University the role that Slatopolsky’s study would play in helping Abbott obtain approval from the FDA.
“The record is replete with numerous situations where WARF did not communicate material information,” the judge wrote.
The universities’ agreement stipulated two-thirds of the patent’s revenues would go to WARF and one-third to Washington University.
WARF’s former managing director said the split was made in WARF’s favor because DeLuca developed the compounds of the drug used in Slatopolsky’s study and because “it’s (DeLuca’s) overall project.”
WARF then signed a 1998 agreement with Abbott that superseded its 1993 agreement. The court concluded WARF’s new agreement granted Abbott the exclusive rights to the patent WARF shared with Washington University.
That same year, Abbott launched the kidney dialysis drug known as Zemplar.
Also in 1998, a Washington University licensing case coordinator asked WARF for a copy of WARF’s agreement with Abbott.
WARF licensing associate Gayle Kirkpatrick, who previously had worked for Abbott, cited confidentiality provisions that prevented her from sharing the documents, according to court records.
Neither the 1993 nor the 1998 agreement WARF struck with Abbott include confidentiality provisions. The court called them “non-existent.”
A WARF tech transfer expert later conceded in testimony that “Washington University had no reason to think WARF wasn’t being straightforward with them.”
Financial value obscured
Another issue that arose for Washington University is that WARF never assigned a specific value to their joint patent.
Instead, based on WARF’s 1998 agreement with Abbott, WARF bundled the patent with 29 others, records show.
Kirkpatrick also cited an unidentified agreement that included a 70-30 revenue distribution, meaning 30 percent of all revenue it took in went to the 30 bundled patents and 70 percent went to WARF’s “core patents,” according to court records.
The judge noted he was unable to find any 70-30 distribution in the record.
Washington University officials pressed WARF to explain how it calculated the amount each university received in the early 2000s after it started receiving royalty checks for a couple hundred dollars.
WARF sent a 2001 valuation letter in response that was “full of inaccurate and misleading statements,” the court wrote.
Washington University “learned the truth only through civil discovery” when it received WARF’s actual valuation policy and learned of its valuation practices.
Of the 30 bundled patents, WARF neatly assigned each one to receive 1 percent of the revenue, even though some were about to expire or had already expired.
Then, WARF applied the 1 percent value assigned to the joint patent to its original agreement with Washington University, which stipulated one-third of revenue be sent to St. Louis.
Over the duration of the patent’s life, which expired in 2015, Washington University received one-third of the 1 percent, or a little over $1 million, and WARF received $426.5 million.
“WARF improperly favored its own affiliated university and its own inventors at the expense of Washington University and Dr. Slatopolsky,” the judge wrote. “Not surprisingly, WARF believed that its relative valuation approach … ‘worked beautifully’ for WARF.”
WARF argued to dismiss the suit because Wisconsin has a six-year statute of limitations for breach-of-contract actions.
The court rejected that claim, noting the extent to which WARF “actively concealed, and refused to share, the very information” Washington University needed to determine that it had a valid claim for breach of contract.
“All these events underscore the lengths to which WARF went to keep (Washington University) in the dark” about the patent’s true value, the judge wrote.
Much of what Washington University learned came through Abbott and WARF’s lawsuit against other drug companies making generic versions of Zemplar. Since Zemplar launched in 1998, court records show the drug has generated about $6.1 billion in total sales revenue for Abbott.