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When the backers of California’s stem cell initiative were seeking voter support last year, they not only promised cures for dread diseases, but also licensing revenue for the state. A statement posted on the initiative proponents’ CuresforCalifornia.com Web site says that “California will benefit for decades from patents and royalties that result from the research.” But most biotech IP lawyers say it is foolhardy and wildly optimistic to predict that royalty revenue will come to California in the uncertain area of stem cell-derived therapies. “No one has figured out how to commercialize this technology and generate substantial revenues,” says Donald Ware, a biotech litigation partner in Boston’s Foley Hoag. “People have looked at cell therapies … but no industry has taken off.” Proposition 71 established the California Institute for Regenerative Medicine, which will distribute $300 million in grants per year over the next decade for in-state stem cell research. Scientists will work with human embryonic stem cells — those miracle cells that can become any kind of tissue in the body — seeking therapies for such conditions as spinal-cord injury, Parkinson’s disease, and diabetes. Under the name Cures for California, a coalition of movie stars, universities, venture capitalists, disease-advocacy groups, medical associations, and biotech companies waged a $30 million campaign for Proposition 71, which passed with a 59 percent voter approval in November. In their campaign materials proponents touted a report from the Los Angeles-based Analysis Group Inc. that predicted stem cell research will yield California “royalty revenues of from $537 million to $1.1 billion.” Nicholas Seay is cautious about the prospect of California getting any of its money back from licensing revenue, at least any time soon. Seay, a partner in Milwaukee’s Quarles & Brady who prosecuted the University of Wisconsin’s stem cell patents, has been looking at the economics of this new science for much of the last decade. “I have a hard time imagining [payback from licensing revenue] in the time frame envisioned,” he says. In any case, the initiative’s vague language gives no clues as to how any licensing deals will be structured. “It doesn’t tell us one hell of a lot,” complains Brian Cunningham, former general counsel of Genentech Inc., and a biotech partner at Palo Alto, Calif.’s Cooley Godward. Gerald Dodson suggests that his colleagues’ concerns may be overstated. Dodson, a partner in the Palo Alto office of San Francisco’s Morrison & Foerster, has spent much of the last decade representing the University of California in high-profile biotech patent battles. In December 2004, Dodson was asked to speak at a meeting about Prop 71 hosted by the National Academies at the University of California at Irvine. “I said money can be made from this and come back to the state,” Dodson says. “I told them this doesn’t have to be a situation in which the taxpayers get fleeced.” Dodson insists that any vagueness in Prop 71 relating to IP licensing is not a problem. “If you had a working group of IP lawyers, I don’t think it would have been better. They’d start writing details into it and one would have tried to outdo the other,” he says.

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