UF, BP settle long-running dispute, though impact to university remains unclear
Published: Wednesday, August 6, 2014 at 5:49 p.m.
Last Modified: Wednesday, August 6, 2014 at 5:49 p.m.
A partnership with British Petroleum that should have produced a stream of royalty revenues for the University of Florida for years has evaporated with the stroke of a pen, settling a two-year court battle over $30 million in disputed fees and royalties.
The two sides in the intellectual property suit that BP brought against UF quietly reached a settlement agreement over the disputed licensing fees and royalties for a process invented by UF researcher Lonnie Ingram that converts wood pulp into ethanol.
A federal judge dismissed the suit in December, reserving the right to bring both sides into a courtroom if they don't live up to the terms of the binding settlement agreement.
Neither side ever issued a statement about the settlement at the time, and the details of the agreement have not been released, nor are they likely to ever be made public — which makes it difficult to assess what UF, and the public, lost or gained.
"The settlement agreement is not public," said Janine Sikes, assistant vice president of media relations for UF. "They entered a licensing agreement, had a dispute and settled in lieu of further litigation."
Questions about whether UF received any compensation were not answered.
"We got all the intellectual rights and patents back," said David Day, director the Office of Technology Licensing at UF. "We believe this is a great technology, and we are going forward trying to commercialize it."
John Byatt, assistant director of technology licensing, said other companies have shown an interesting in licensing the technology. "It requires a large investment in capital," Byatt said. "It is complex to try and find a good partner that has the ability to commercialize the technology."
Lonnie Ingram, a research professor and director of the Florida Center for Renewable Chemicals and Fuels, has spent decades developing a way to create an alternative to foreign fuels.
In October 1995, the UF Research Foundation entered into a licensing agreement with BioEnergy Intl. to use technology that Ingram and his team had developed, using enzymes to produce ethanol from woody and fibrous materials.
The agreement gave BioEnergy the right to develop and market the patented organism, and in exchange they agreed to pay UF one-third of "any payment, remuneration or other compensation … (as) consideration for the transfer of any right or privilege licensed" under the agreement.
BioEnergy also was required to pay UF running royalties or a percentage of gross revenues from the "manufacture, use, sale or distribution of" the UF technology or the licensed products by a sub-licensee.
Those rights were transferred by order of a U.S. Bankruptcy Court order from BioEnergy to BC International Corporation, which was based for seven years in UF's Sid Martin Biotech Incubator in Alachua. An updated licensing agreement from 1997 shows that BC International was required to pay UF $620,000 over three years for use of the technology.
BC International later was bought by the Celunol Corp., which merged with the San Diego-based Diversa Corp. From that merger came Verenium Biofuels, which acquired the licensing rights to UF's ethanol technology.
Verenium formed a joint venture with BP North America in 2008 called Galaxy Biofuels. BP North America obtained the licensing rights to the UF technology after acquiring all the capital stock of Verenium Biofuels for $98.3 million in 2010 and changed its name to BP Biofuels Advanced Technology International. In January 2011, Galaxy was merged into BP Biofuels.
BP Biofuels planned to take over a demonstration plant in Jennings, Louisiana, and a research development facility in San Diego. BP also announced it would build a biofuels plant in Highlands County in Central Florida.
Up until then, the license had produced "modest milestone payments" for UF, Day said.
"The idea all along had been that, given where energy is going in this world and this country, one of these days this will be a significant royalty stream for UF," Day said at that time.
Day said he stands by that quote at that point in time, but the energy market has changed dramatically since 2010, and the glut of natural gas has lessened the demand for ethanol.
Verenium also had sublicensed certain rights under the license agreement to Galaxy. BP paid Verenium a cash consideration of $90 million "in return for the performance by Verenium Biofuels of its obligations under the Galaxy joint development agreement," BP said.
In August 2011, UF sent notice to BP Biofuels that it owed UF $30 million under the license agreement — one-third of the cash consideration BP Biofuels made to Verenium.
BP argued that the formation of Galaxy and the joint development agreement with Verenium didn't constitute a sublicense agreement as defined by the licensing agreement with UF, and therefore it didn't owe UF any money for that.
In November 2011, Day sent a letter to BP Biofuels giving the company notice that it was in breach of the agreement and that UF would automatically terminate the agreement in 30 days if BP Biofuels didn't pay the $30 million.
Four months later, in March 2012, BP Biofuels filed suit against UF in U.S. District Court in Northern Florida. In its complaint, BP said it was suing to protect its interests and preserve its contractual rights under a licensing agreement that went back nearly 20 years between its predecessor, BioEnergy Intl., and the UF Research Foundation.
UF filed a counterclaim in June 2012 for the $30 million, saying the amount represented the 33.3 percent UF was owed for the transfer of licensing rights.
In October 2012, BP Biofuels announced it had canceled plans to build the Highlands County ethanol plant, and instead it used the money on other investment opportunities. The plant would have been the first commercial-scale cellulosic ethanol plant.
A month after the announcement, BP Biofuels filed an amended complaint and UF filed an amended answer, along with requests for extensions of time for discovery.
After the discovery period ended, BP Biofuels filed a motion for summary judgment, and UF filed a motion for partial summary judgment. The motion was denied.
In his motion denying summary judgment, U.S. District Judge Robert L. Hinkle said UF wasn't entitled to a payment on $45 million of the $90 million cash consideration BP paid Verenium because it was a permitted deduction.
The remaining issue was how much, if any, of the other $45 million was compensation "for the transfer of any right or privilege licensed under" the license agreement.
UF could be entitled to any compensation Verenium received from Galaxy under the sublicensing agreement, he said.
"Ice cream vendors like to say sprinkles are free. Economists generally disagree; they say the sprinkles come at no extra charge," Hinkle said. Seen that way, he said, the sprinkles are included in the cost along with the ice cream and the cone.
"Here Verenium issued a sublicense to Galaxy, and Verenium gave up part of its unilateral right to sublicense others," he said. "Perhaps Verenium did this for free. But it seems more likely that this was part of what the $45 million paid for. If so, UF is entitled to its share."
That doesn't mean UF is entitled to a partial summary judgment on liability, he said. A jury could find that part of the $45 million was "for the transfer of any right or privilege licensed under" the agreement, he said. But nothing required a jury to make such a finding.
"A reasonable jury could conclude that the sprinkles are indeed free, despite what most economists say," Hinkle said.
A few weeks later, Judge Hinkle received phone calls from lawyers for both parties saying that they had agreed to settle.
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