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fraudulent misrepresentation.1 The Court held a bench trial on September 23 and 24,
2009. This constitutes the Court’s findings of fact and conclusions of law pursuant to
Facts
1
The Court granted summary judgment in Gerngross’s favor on Integrated Genomics’
other claims.
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commercial customers several times more than what it charged academic customers
as coverage. Any level of coverage has gaps in the sequence because the process
can only map out a small segment of the genome at a time. The greater the coverage,
therefore, the fewer the gaps in the sequence. Genomic sequencing data also
increases in value if it has been annotated. Annotation provides information about the
since 1998. Gerngross also co-founded GlycoFi, Inc. The idea behind GlycoFi was to
proteins in a way similar to human cells. Gerngross also served as GlycoFi’s chief
Dartmouth. Dartmouth also agreed to pay for equipment and staff salaries and
benefits. GlycoFi reimbursed Dartmouth for these expenses at the end of each month.
that it was working on sequencing the genome of the yeast Pichia pastoris. Gerngross
testified that he spoke first with Yakov Kogan, who later became involved in business
that time. Gerngross later negotiated with Yuri Nikolsky, then Integrated Genomics’
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vice president of business development, a deal to purchase a copy of the Pichia data
available at that time on a CD for a single payment of $5,000. Nikolsky also promised
effort. The Court was unpersuaded by that testimony. Both Nikolsky and Kogan recall
commercial venture or even about his affiliation with GlycoFi. Rather, all of those
might have been able to discover through investigation of other sources that Gerngross
had an affiliation with GlycoFi. But that is less than clear. In any event, the evidence
that Gerngross’s GlycoFi affiliation could have been discovered elsewhere does not
suggest that he advised Integrated Genomics of that affiliation when he negotiated and
made the deal to purchase the Pichia data, let alone that he intended to use that data
only his Dartmouth affiliation in his dealings with Integrated Genomics. He was, in fact,
a professor at Dartmouth and was using a Dartmouth laboratory staffed at least in part
by Dartmouth students and personnel, and Dartmouth was paying, at least in the first
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instance, GlycoFi’s expenses. And when Gerngross and his colleagues published the
results of research that was being conducted via GlycoFi, Gerngross acted in his
That said, however, the Court finds that Gerngross did not disclose to Integrated
Genomics his affiliation with GlycoFi or his intended commercial use of the Pichia
pastoris data. Rather, his dealings left Integrated Genomics’ personnel, and would
have left any reasonable person in their position, with the belief that Gerngross was
As indicated earlier, Nikolsky and Gerngross agreed on a price of $5,000 for the
Pichia data in CD form. This was in the range of prices that Integrated Genomics
quoted to academic customers. Nikolsky testified that it was common in the industry at
the time to quote a higher price to commercial customers than to academic customers.
Integrated Genomics’ evidence did not clearly show, however, that it would have
charged Gerngross a higher price had he disclosed his affiliation with GlycoFi. Among
other things, there was evidence that Integrated Genomics sometimes quoted lower
“academic” rates to customers with dual academic and commercial affiliations in the
hope of getting higher-priced commercial business in the future. Nikolsky also testified
that a customer’s affiliation with an academic institution, rather than his intended use of
the data, was the decisive factor in determining whether a customer was considered an
academic institution.
The evidence also showed that at the time Gerngross and Nikolsky negotiated
the deal for the Pichia data, Integrated Genomics was in some financial trouble and
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was described by some of its employees as being in disarray. Overall, the evidence
indicated that Integrated Genomics’ sales practices did not follow any hard-and-fast
rules, that the company essentially would take whatever it could get for the data in
question, and that it was not particularly careful about imposing restrictions on its
After agreeing on a price, Nikolsky sent Gerngross a draft written agreement, but
Gerngross did not sign it. (Neither party retained a copy of the draft.) Gerngross
testified that he told Nikolsky that the contract was unacceptable because he wanted to
use the data in a commercial effort. Nikolsky did not recall any such conversation, and
for the reasons stated above, the Court was unpersuaded by Gerngross’s testimony
Genomics would give Gerngross a CD containing the data, subject only to restrictions
which he stated,
This is to state the restrictions that apply to the data that we are obtaining
from Integrated Genomics Inc. My research group at Dartmouth College
is restricted to the publication of no more than 10kb of sequencing data
from the Pichia genome per calendar year. This restriction is void if the
genome data becomes available from a public domain at not [sic] charge.
Joint Ex. 1. The letter did not impose, and Integrated Genomics did not insist on, any
restrictions regarding commercial use of the data. Rather, the only restriction that
the data. Significantly, Integrated Genomics did not attempt to obtain any confirmation
that Gerngross would not use the data for commercial purposes.
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After Nikolsky faxed Gerngross an invoice for the Pichia data, Integrated
Genomics received a check from Dartmouth College for $5,000. Integrated Genomics
By May 2003, John Campbell, who previously led the microarray group at
Integrated Genomics, was handling business development for the company. Gerngross
called in 2003 to request an update of the Pichia data. Gerngross identified himself as
a professor at Dartmouth and said that he had an understanding at the time of his 2002
purchase of the Pichia data that Integrated Genomics would provide him with updates
free of charge. Campbell looked through the company’s records and discovered that
Nevertheless, Campbell sent Gerngross an updated version of the Pichia data and did
not charge him. Campbell made no attempt to impose restrictions on Gerngross’s use
of the data and did not inquire of Gerngross whether there any restrictions were in
place. In other words, in 2003 Integrated Genomics gave Gerngross the updated
Discussion
statement of material fact (2) known or believed to be false by the party making it; (3)
intent to induce the other party to act; (4) action by the other party in justifiable reliance
on the truth of the statement; and (5) damage to the other party resulting from such
reliance.” Gerill Corp. v. Jack L. Hargrove Builders, Inc., 128 Ill. 2d 179, 193, 538
N.E.2d 530, 536 (1989) (citations omitted). The plaintiff must prove each of these
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Inc., 391 Ill. App. 3d 630, 634, 909 N.E.2d 865, 870 (2009).
which he wished to acquire the Pichia data. Integrated Genomics failed to prove,
Gerngross identified himself as a Dartmouth professor and indicated, both in his e-mail
confirming the use restriction and otherwise, that the data would be used by his
projects in early 2002 were Dartmouth employees and students working in Gerngross’s
lab at Dartmouth, and Gerngross published research produced by that lab under his
Dartmouth title.
Gerngross did not disclose his intention to use the Pichia pastoris data for
fraud only “under circumstances creating a duty to speak.” See, e.g., Williams v.
Chicago Osteopathic Health Sys., 274 Ill. App. 3d 1039, 1052, 654 N.E.2d 613, 622
relationship between the parties. See, e.g., Magna Bank of Madison County v.
Jameson, 237 Ill. App. 3d 614, 618, 604 N.E.2d 541, 544 (1992). The burden of
proving such a relationship lies with the party asserting the fraud. Id.
relationship. In addition, it has not cited, and the Court has been unable to find, any
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Illinois case indicating that a party to an ordinary commercial transaction like this one
can be held liable for fraud for failing to disclose facts that the other side might consider
not constitute actionable fraud.” Ill. Cent. Gulf R. Co. v. Dep't of Local Gov't Affairs, 169
Ill. App. 3d 683, 689-90, 523 N.E.2d 1048, 1052 (1988). In short, Integrated Genomics
affiliation with GlycoFi or his intended commercial use of the Pichia pastoris data.
and simple omission, and that is where Integrated Genomics’ best case lies. As the
Illinois Appellate Court has stated, “[e]ven a technically true statement may constitute a
Health Sys., 274 Ill. App. 3d 1039, 1052, 654 N.E.2d 613, 622 (1995). See also, e.g.,
Brown v. Broadway Perryville Lumber Co., 156 Ill. App. 3d 16, 23 508 N.E.2d 1170,
1175 (1987); Kurti v. Fox Valley Radiologists, Ltd., 124 Ill. App. 3d 933, 938, 464
Dartmouth professor and advised Integrated Genomics that the data would be used by
his research group at Dartmouth, those representations were technically true but
misleading. Integrated Genomics has failed to show by clear and convincing evidence,
however, that the undisclosed information was material or that it would have acted
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Integrated Genomics did not establish that it had a hard-and-fast practice at the time of
charging more to dual-affiliation customers like Gerngross or that it would have charged
him more had it been aware that the data would be used in GlycoFi’s work. In addition,
use the Pichia data. The evidence reflects that at the time in question, Integrated
Genomics was not particularly careful about such matters, which is consistent with its
failure to inquire into Gerngross’s purpose. Indeed, the limited restriction that
Integrated Genomics imposed when it sold the Pichia data to Gerngross did not restrict
him from commercial use of the data. This indicates that the possibility that an
academically-affiliated customer might also use data for commercial purposes was not
For these reasons, the Court concludes that Integrated Genomics has failed to
Conclusion
For the reasons stated above, the Court finds in Gerngross’s favor on Integrated
Genomics’ fraud claim, its only remaining claim. The Clerk is directed to enter
________________________________
MATTHEW F. KENNELLY
United States District Judge