GTG boss reflects on 'unusual' license dispute

Mutual fatigue, and the peculiar challenges involved in negotiating with New Zealand's research and health-service agencies, were behind the mediated settlement of the Auckland District Health Board's dispute with Melbourne biotech Genetic Technologies (ASX:GTG) over licensing fees for GTG's non-coding DNA gene testing and mapping technology in NZ.

GTG told shareholders yesterday that the dispute with the Auckland agency, which was representing all 23 NZ district health board, and the NZ Blood Service had been settled, and the current NZ High Court proceedings between the two parties will be withdrawn.

The company also announced that it had granted commercial licenses under its overseas non-coding patents to three of New Zealand's Crown Research Institutes -- AgResearch, HortResearch and Forest Research, and the Livestock Improvement Corporation.

GTG's executive chairman, Dr Mervyn Jacobson, currently in Switzerland, today told Australian Biotechnology News that both parties had also agreed to keep the precise terms of the settlement confidential, while allowing each to comment on its circumstances.

"In some cases these disputes develop a life of their own," Jacobson said. "They involve distraction, cost, and a certain disruption to one's normal program. There's always some background pressure to resolve them."

He said the dispute had been "rather unusual", and unlikely to happen in any other country.

"They have an unusual infrastructure where government agencies provide most of the sophisticated diagnostic health services -- there's no private competition.

"The provision of scientific research is also largely controlled by government entities, so you're dealing with a group of government-controlled companies like HortResearch, AgResearch and Forest Research. They're rather peculiar companies, because they have a mission to do research for the private sector, and to commercialise their discoveries in the free market, but ultimately, the central government has a fairly restrictive view on how they may behave.

"The various ministries that control them don't always see things the same way -- indeed, they can have diametrically opposite views.

"We went there to work with them and we jointly developed the concept of a public-private partnership.

"Initially we agreed to license our technology to the various government agencies and they would pay us normal licence fees, in return for which we would plough back a significant proportion of our fees into research in New Zealand, and we would jointly commercialise the IP coming out of that research.

"It sounded like a good idea at the time, but individual bureaucrats were unable to see the bigger picture and declined the offer of a collective agreement, opting instead to pursue minimalist individual deals."

GTG then agreed on the alternative arrangement, but in the midst of final negotiations, the Auckland District Health Board had then filed its suit against the company, Jacobson said.

"They even formed a consortium of litigants -- a 'one-in-all-in' strategy -- but them some New Zealand entities, including Vialactia and Ovita, refused to be a part of it -- they wanted to deal directly with us," he said.

Even though the ADHB and its backers had launched a lawsuit, GTG had not launched any counter-action. "Surprisingly, they then sued us a second time, seeking to revoke all our patents. Again, we were expected to counter-sue this time, but didn't."

In the end, GTG and the ADHB had finally agreed to seek a mediated settlement, and the NZ High Court had appointed a retired judge, Justice Barry Pattinson, to oversee it. Mediation began in June.

A certain degree of "getting of wisdom" on the part of both parties was also involved, according to Jacobson.

"Ultimately, New Zealand represents less than 1 per cent of GTG's global market, and maybe even as little as 0.1 per cent," he said.

"It also took time for the New Zealand agencies to understand that, while the dispute was centred on GTG's non-coding DNA patents, we have other IP they also need.

"Some wanted other IP relating to animal or plant genetics, some wanted access to our X-Y sperm separation technology. Clearly, those things weren't forthcoming while they were suing us, but once we were working together again, we could discuss everything."

The New Zealand agencies involved in the settlement had preferred to pre-pay licensing and royalty fees, based on estimated use, rather than attempt to dissect out actual usage each year, which would have been very tedious and complex, Jacobson said.

"The overall message is that drawn-out disputes are not good for either side. We needed to reach a settlement and get on with life," he said. "For whatever reason, they initially chose to negotiate, and then fight, but finally, we've reached a settlement that is very acceptable to both parties. "From GTG's perspective, it addresses one small group, in one small country. We can now get back to the big picture, including our Nasdaq listing and our global licensing strategy."

GTG's action against US company Applera is continuing,