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Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

6. Commitments and Contingencies

Intellectual Property Agreements

Patent Assignment Agreement

In November 2014, the Company entered into a patent assignment agreement with Dr. Emmanuelle Charpentier, Dr. Ines Fonfara, and Vienna (collectively, the “Assignors”), pursuant to which the Company was assigned all rights, title and interest in and to certain patent rights claimed in the U.S. Patent Application No.61/905,835. As a result, the Assignors are entitled to receive certain low single digit clinical milestone payments and low single digit royalties based on annual net sales of licensed products and licensed services by the Company, its affiliates and sublicensees.

Charpentier License Agreements

In April 2014, the Company entered into certain technology license agreements with Dr. Charpentier pursuant to which the Company licensed certain intellectual property rights under joint ownership from Dr. Charpentier to develop and commercialize products for the treatment or prevention of human diseases. In connection therewith, Dr. Charpentier is entitled to receive nominal clinical milestone payments, low single digit percentage of sublicensing payments received under any sublicense agreement with a third party, and low single-digit percentage royalties based on annual net sales of licensed products and services by the Company and its affiliates and sublicensees.

During the years ended December 31, 2019, 2018 and 2017, the Company paid an immaterial amount of fees to Dr. Charpentier, which were recorded as research and development expense.

Research, Manufacturing and License Agreements

The Company has engaged several research institutions and companies to identify new delivery strategies and applications of the gene-editing technology. The Company is also a party to a number of research license agreements which require significant upfront payments, and may require future royalty payments and potential milestone payments from time to time. In addition, the Company is also a party to intellectual property agreements, which require maintenance and milestone payments from time to time. Further, the Company is a party to a number of manufacturing agreements that require upfront payments for the future performance of services.

 

In association with these agreements, on a product by product basis, the counterparties are eligible to receive up to low eight-digit potential payments upon specified research, development and regulatory milestones. In addition, on a product by product basis, the counterparties are eligible to receive potential commercial milestone payments based on specified annual sales thresholds. The potential payments are low-single digit percentages of the specified annual sales thresholds. The counterparties are also eligible to receive low single-digit royalties on future net sales.  

 

Under certain circumstances and if certain contingent future events occur, Vertex is eligible to receive up to $395.0 million in potential specified research, development, regulatory and commercial milestones and tiered single-digit royalties on future net sales.  Refer to Note 7 for further discussion on the Company’s arrangements with Vertex.

 

Litigation

The Company licenses a U.S. patent application from Dr. Charpentier that was subject to interference proceedings declared by the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office (“USPTO”). Following motions by the parties and other procedural matters, the PTAB concluded in February 2017 that the declared interference should be dismissed because the claim sets of the two parties were not directed to the same patentable invention in accordance with the PTAB’s two-way test for patent interferences. In April 2017, Dr. Charpentier, the Regents of the University of California (“UC”), and the University of Vienna (collectively “UC”) appealed the PTAB decision to the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”). In the appeal, UC asked the court to review and reverse of the PTAB’s February 2017 decision, which terminated the interference without determining which inventors actually invented the use of the CRISPR/Cas9 genome editing technology in eukaryotic cells. The Federal Circuit conducted a hearing on the appeal on April 30, 2018. On September 10, 2018, the Federal Circuit affirmed the PTAB’s decision to terminate the interference proceeding.

In June 2019, we received notification that the USPTO initiated a new interference proceeding at the PTAB, which the PTAB redeclared in August 2019. The ‘115 interference involves fourteen (14) pending U.S. patent applications co-owned by the CVC Group and thirteen (13) patents and a patent application owned by the Broad. Specifically, the PTAB declared the ‘115 interference between the CVC Group’s pending U.S. Patent Application Nos. 15/947,680; 15/947,700; 15/947,718; 15/981,807; 15/981,808; 15/981,809; 16/136,159; 16/136,165; 16/136,168; 16/136,175; 16/276,361; 16/276,365; 16/276,368; and 16/276,374, and the Broad’s U.S. Patent Nos. 8,697,359; 8,771,945; 8,795,965; 8,865,406; 8,871,445; 8,889,356; 8,895,308; 8,906,616; 8,932,814; 8,945,839; 8,993,233; 8,999,641; 9,840,713, and U.S. Patent Application No. 14/704,551. This list includes the same twelve Broad patents and application that were involved in the ‘048 interference. In contrast, none of the issued U.S. patents the CVC Group owns are subject to this proceeding. The CVC Group’s inventions that are the subject of the ‘115 interference were first filed with the USPTO in May of 2012, while the Broad filed its first application seven months later in December of 2012. However, the 14 CVC Group patent applications that are involved in the ‘115 interference are continuing patent applications that were filed in 2018 and claim priority to the CVC Group’s original 2012 filing, while the Broad’s involved patents and patent application were filed between 2013 and 2015.  Because the PTAB accorded neither party the benefit of any of its first filing dates, but instead accorded only the benefit of the actual filing dates of the involved patents and patent applications, the CVC Group was by default named the Junior Party. Both parties have filed motions requesting the benefit of their earliest priority dates (CVC in May of 2012 and the Broad in December of 2012) during the interference proceeding.

In February 2018, several parties filed oppositions in the European Patent Office to the grant of the Company’s in-licensed European patent. Opposition proceedings can lead to the revocation of a patent in its entirety; the maintenance of the patent as granted, or the maintenance of a patent in amended form. Opposition proceedings typically take years to resolve, including the time taken by appeals that can be filed by any of the parties. The Company cannot guarantee the outcome of the oppositions to its in-licensed European patent, and an adverse result could preclude the Company from enforcing its rights in Europe against third parties.

On December 15, 2016, the Company entered into a Consent to Assignments, Licensing and Common Ownership and Invention Management Agreement (the “Invention Management Agreement”) with the Regents of the University of California, University of Vienna, Dr. Charpentier, Intellia Therapeutics, Inc. Caribou Biosciences, Inc., ERS Genomics Ltd. and one of our subsidiaries. Under the Invention Management Agreement, the Company is obligated to share costs related to patent maintenance, defense and prosecution. For the years ended December 31, 2019, 2018 and 2017, the Company incurred $2.9 million, $2.4 million and $1.2 million, respectively, in shared costs. The Company recorded accrued legal costs from the cost sharing of $1.5 million and $1.9 million as of December 31, 2019 and December 31, 2018, respectively. The Company is unable to predict the outcome of these matters and is unable to make a meaningful estimate of the amount or range of loss, if any, that could result from an unfavorable outcome.

In addition to the above, in the ordinary course of business, the Company is from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements, employment and other matters. While the outcome of those proceedings and claims cannot be predicted with certainty, the Company is not party to any legal or arbitration proceedings that may have significant effects on its financial position. It is not a party to any material proceedings in which any director, member of executive management or affiliate of the Company is either a party adverse to it or its subsidiaries or has a material interest adverse to it or its subsidiaries.