SAN FRANCISCO (Legal Newsline)-Genentech Inc. must pay $300 million to a California hospital and research center that is seeking royalty payments for genetically engineered human insulin, the California Supreme Court ruled Thursday.

However, the world's second largest biotech company does not have to pay an additional $200 million in punitive damages to City of Hope National Medical Center, the high court ruled.

The renowned cancer research center, City of Hope, sued Genentech in 1999 seeking royalties stemming from work by two researchers who developed human insulin.

The case arose from a contract dispute between Genentech and City of Hope over a sponsored research agreement hammered out more than 30 years ago.

As a part of the agreement, the City of Hope was to receive a 2 percent royalty on sales of products that resulted from the patents secured from research by Drs. Arthur Riggs and Keiichi Itakura, who produced human insulin.

In all, the City of Hope argued it deserved royalties from 35 patent- licensing agreements between Genentech and 22 other companies.

The dismissed punitive damage award was part of a 2004 decision of the California Court of Appeal.

The appeals court upheld a Los Angeles County Superior Court jury verdict in 2002, awarding approximately $300 million in compensatory and $200 million in punitive damages to the medical center and cancer research center.

The high court ruled Thursday that because there is no fiduciary relationship between the two parties, the City of Hope National Medical Center in Duarte, Calif., isn't entitled to punitive damages.

"A fiduciary relationship is not necessarily created simply when one party, in exchange for royalty payments, entrusts a secret invention to another party to develop, patent, and market the eventual product," the court ruled.

In a statement, Genentech, based in South San Francisco, Calif., said it was "pleased" with the high court's ruling.

"Genentech has maintained throughout this process that we have lived up to the letter and spirit of the contract," said Sean Johnston, Genentech's senior vice president and general counsel.

"We are pleased with the Court's finding that punitive damages are not applicable in this setting and we would like to thank the many parties that filed supporting briefs in this case," he added.

The case is City of Hope v. Genentech Inc., S129463.

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