NZ health service takes on GTG over licence fees

On the eve of its landmark patent-infringement case against US gene-testing company Applera Corp, Melbourne-based Genetic Technologies (ASX:GTG) has been hit with a New Zealand challenge to its right to charge licence fees for access to its non-coding DNA patents.

The Auckland District Health Board (ADHB) has launched a pre-emptive action in the NZ High Court after conducting what ADHB general council Bruce Northey has described as an "extensive analysis" of GTG's patent claims.

GTG's executive chairman, Dr Merv Jacobson, told Australian Biotechnology News from Colorado that he had only just received the documents relating to the ADHB's challenge. He had not yet appointed counsel, so could not comment on the legal issues involved.

But Jacobson questioned ADHB's decision to issue a media release announcing the NZ court challenge to the New Zealand and Australian media before he had received the documents. He said he had only learned about the challenge when NZ journalists called him for a comment. Jacobson was also critical of ADHB's account, in the media release, of negotiations with GTG over the past 18 months.

ADHB has accused GTG of using implied threats of legal action to force the ADHB to pay access and royalty fees for the GTG patents. ADHB said its challenge to GTG followed an extensive analysis of the patents' scientific and legal basis, involving members and advisers to the New Zealand health services community.

Northey confirmed that GTG's co-founder and inventor of the company's non-coding DNA gene-testing techniques, Dr Malcolm Simons, had been advising the ADHB and its legal counsel during its analysis. It had yielded a "consensus understanding" of the claims and their relevance to all the genetic tests used by the ADHB that could be subject to licence fees if GTG's interpretation of its patent rights was upheld.

But, Northey said, "Malcolm's summary was that, while the patents can be interpreted to relate to what he invented, nobody employing the methodology would be infringing the patents."

Northey said the Auckland High Court challenge was a response to GTG's demand for substantial licence fees for standard DNA tests for genetic disorders performed by 20 public health agencies in New Zealand, including the ADHB.

In a statement, the ADHB said GTG had initially demanded an upfront payment of AUD$10 million from the country's pubic health sector, plus an annual access fee of $2 million. After discussions, GTG had reduced its demand to a one-off licence fee of AUD$560,000.

"Nowhere else in the world is a public health provider paying licence fees to GTG for tests that are standard globally," Northey said. Jacobson said GTG had worked with the ADHB for 18 months, and that he had made numerous visits to New Zealand to work with them "in good faith".

He said the initial $10 million fee was a price for 20 different district health boards to be licensed in one batch, and part of a public-private partnership where $5 million would be offered back to New Zealand universities for research.

Jacobson said GTG revised its licence fee down to the one-off figure of $560,000 after Northey had corrected the original figures and provided more accurate information about the level of use of the genetic tests by the 20 health boards, which was much lower than originally estimated.

GTG has licensed its technology to two of New Zealand's leading biotechs -- dairy company ViaLactia, and livestock company Ovita. It has also issued licenses to US firms Sequenom, Perlegen, Nanogen and Myriad Genetics, and Swedish company Pyrosequencing, as well as other firms and universities.

GTG is preparing to list on the Nasdaq index later this year. Northey said the ADHB was prepared for the court case to happen "as quickly as possible".