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Sunday, February 26, 2006

Ind. Decisions - More on: Judge rules Eli Lilly broke research contract

Jeff Swiatek of the Indianapolis Star had a story on Jan. 7th (see ILB entry here) headlined "Judges rules Lilly broke research contract."

Today he has a major report on the case, headlined "ELI LILLY AND CO. VERSUS EMISPHERE TECHNOLOGIES INC. - A case of broken trust: Promising alliance fell apart when collaborator found Eli Lilly guilty of duplicity," that fills nearly two pages of the Sunday Star.

Here are several quotes from the story, that is best read in full:

Dr. Michael Goldberg, the head of a tiny company called Emisphere Technologies, doesn't trust Eli Lilly and Co. anymore.

Not since he concluded Lilly tried to swipe his firm's best idea -- a drug carrier compound worth millions or maybe billions of dollars.

Not since the research contract between the companies fell apart and he found Lilly had set up a secret team to test Emisphere's compounds in ways that violated the agreement.

And especially not since Emisphere spent millions of dollars defending itself against a breach-of-contract complaint filed by Lilly, a lawsuit that backfired last month when a judge ruled Lilly was the one that breached the contract.

"You can only describe it as a bully trying to beat up on the weaker party," said an upset Goldberg of his dealings with Lilly. "None of us really believed this could happen. It was really shocking."

Lilly denies any wrongdoing in the case. Spokesman Philip Belt calls the Emisphere case "an anomaly" at Lilly. It's the only time in recent years that Lilly has sued one of its research partners, he said, and "shouldn't be seen as a new trend or indication of how Lilly does business."

Belt said Lilly won't discuss specifics of the dispute. He also wouldn't elaborate on his comment that "there are learnings to be made here" for Lilly.

The ruling by federal judge David F. Hamilton that Lilly breached its contract with Tarrytown, N.Y.-based Emisphere has sent ripples of concern through an industry where trust is the linchpin in thousands of similar exploratory deals.

From near the end of the very long report:
Throughout the legal wrangling, Goldberg and other Emisphere officials still knew nothing of the secret team. It wasn't until Lilly's suit went to trial in January 2005, in U.S. District Court in Indianapolis, that Goldberg found out about the team. "A Perry Mason moment," he calls it now.

At trial, Lilly witnesses testified that the drug maker formed the team to better understand how Emisphere's carrier compounds work. Havel said no Emisphere scientists were asked to join the team because Lilly "didn't have any confidence" they would contribute much of value.

That explanation amounted to Lilly saying, "We had to steal the technology in order to help them use it better," said Underwood, Emisphere's attorney.

The judge wasn't buying it.

Lilly's explanation for forming the secret team "was offered first at trial and it is not supported by contemporaneous documents or other evidence," Judge Hamilton wrote. "Lilly managers were very much aware of potential problems with Emisphere resulting from this secret . . . research project." * * *

Hamilton's 60-page ruling amounts to a judicial spanking of Lilly. The company "actively concealed for several years" the research it did using Emisphere- supplied materials and later created "a sanitized paper trail" to make it seem like the secret research didn't draw on proprietary Emisphere technology, the judge said.

With the partnership now dead, Lilly must turn over to Emisphere materials and data it was given during the partnership, said Underwood, the Emisphere attorney. "Getting it back from Lilly doesn't really mean a whole lot," he added. "And I'm not sure Emisphere has any great confidence Lilly will abide by those restrictions" to cease working with the carrier technology.

The judge has yet to rule on Emisphere's charge of patent infringement against Lilly. Emisphere also is expected to ask the court to order Lilly to pay damages, which are as yet unspecified but could be substantial, Goldberg said. Either company could appeal after the judge's final rulings.

Access the ruling in Lilly vs. Emisphere Technologies here.

Posted by Marcia Oddi on February 26, 2006 01:29 PM
Posted to Ind Fed D.Ct. Decisions