The U.S. Court of Appeals for the Seventh Circuit affirmed a decision that there was no breach of contract and no fraudulent misrepresentation by a professor who obtained a license to use genetic sequencing data at an academic rate, but who used the data in a commercial venture rather than for purely academic purposes. Integrated Genomics, Inc. v. Gerngross, Case No. 09-3718 (7th. Cir., Feb. 24, 2011) (Rovner, J.).

Integrated Genomics (IG) granted Dartmouth College professor Tillman Gerngross a non-exclusive license to use genetic sequencing data for Pichia pastoris, a common yeast. IG charged the professor an academic rate of $5,000, which IG alleges was much less than it would have charged for commercial use of the data. The only written record of the license was a letter from the professor agreeing to restrict publication of the licensed data to no more than 10kb of sequencing data per year. The professor did not disclose his intent to use the licensed data for the benefit of GlycoFi, a biotech company the professor co-founded, nor did IG ask about the professor’s commercial affiliations.

Four years later, Merck & Co. acquired GlycoFi for $400 million. Pursuant to the acquisition, Merck became the owner of all of GylcoFi’s assets, including the computers that held the licensed data. IG demanded additional compensation from Merck. After Merck rebuffed, IG sued the professor for fraudulent misrepresentation by failing to disclose his intended use of the sequencing data for commercial purposes and for breach of the license agreement by “publishing” the licensed data to his company and to Merck. The district court ruled in favor of the professor on the breach of contract claim at summary judgment and on the fraud claim after trial. IG appealed.

The 7th Circuit upheld the district court’s finding that the professor’s communication of the licensed data to his company and to Merck did not constitute “publication” as the term was used in the license agreement. The court concluded that “publication” should be given its common and ordinary meaning of disclosing information to the public, which the court found the professor had not done by using the licensed data in connection with his company and by communicating the data to Merck.

On the fraud claim, the court noted that “[i]t is entirely possible that a different factfinder might have concluded that Gerngross’s failure to disclose the commercial purpose for which he sought the Pichia data was material, and that IG likely would have charged Gerngross a substantially higher price for the data had he been more forthcoming.” The court, however, found the evidence also supported the contrary conclusion. When the parties were negotiating the license, IG was under significant financial distress and may have charged the academic rate, even if the professor had been more forthcoming. Further, IG sought commercial licenses at much higher rates, but those offers to license failed. Accordingly, the court affirmed the district court’s finding that even if the professor 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.