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News from the US — ACS loses legal battle
The RSC's sister organisation in the US, the American Chemical Society, stands to lose a significant amount of its financial reserves, having been unsuccessful in pursuing protracted and expensive litigation against three former employees. Don Lewis explains this unfortunate story below.
On April 1, 2009, ACS agreed to pay a $36 million bond to stay execution of an Ohio judgment in the case of ACS v LeadScope. Payment of the bond will allow ACS to continue to pursue various post-trial motions without first satisfying the judgment.
ACS management has been criticized by both the public and its membership for prosecuting this case with a lack of openness. There are also suggestions that ACS was on the wrong side of this case and that management of the affair is now compromising ACS finances.
In 1977, three ACS employees working within the Chemical Abstracts Service division (CAS) left ACS to form LeadScope, Inc., a chemical informatics company. LeadScope eventually developed and launched several successful chemical informatics software programs and databases, useful in the drug discovery area. These LeadScope products potentially competed with ACS chemical informatics products.
In 2002, ACS filed a suit against LeadScope in Ohio, alleging that the three former ACS employees misappropriated ACS proprietary information when they terminated their ACS employment and used the information to develop, patent, and market LeadScope software products in the area of chemical informatics. LeadScope denied the allegation and counterclaimed that the ACS engaged in defamation, tortious interference with business relations, unfair competition, and deceptive trade practices against LeadScope.
Six years of litigation then ensued, culminating with a six week trial.
On March 27, 2008, an Ohio jury found that ACS's claim lacked merit, but that the first three counterclaims by LeadScope were valid. The jury further found that the ACS was liable to LeadScope Inc. for $19 million in compensatory damages and $7.5 million in punitive damages. The judge overseeing the trial subsequently ruled that the ACS was also liable for Lead-Scope's attorney fees. The legal expenses incurred to date by the ACS's own legal counsel were not disclosed.
Furthermore, no estimate of future legal costs for either party has been disclosed for the on-going post-trial motions. Interest on the original judgment is running at about $7,000/day.
The first news of this litigation in C&E News occurred on March 28, 2008, i.e., one day after the trial findings. With out commenting on the merit or wisdom of the action, various members of the ACS Division Chemistry and the Law (CHAL) have questioned the lack of openness by ACS management regarding the initiation and conduct of the action. CHAL has not been consulted by ACS management on this action.
In pursuit of its mission of advancing science through openness, ACS has served its members well by publishing and disseminating chemical information and by the provision of chemical informatics services.
Issues of pricing and marketing practices for these enterprises have been reasonably managed by the ACS with some openness so as to balance the needs of enterprise sustainability and advancement of ACS mission. However, if ACS business practices have been accurately characterized by the Ohio jury, there is now a new problem. Business practices that intentionally interfere with the development of chemical informatics software by third parties do not advance science.
The Ohio jury findings would argue that ACS management could benefit from increased openness, particularly in enterprises of high profitability.
Science and ACS members might have been better served if the 1977 ACS chemical informatics project had been completely open.
There is a sense that, in the present instance, the ACS mission may have been ignored by ACS management.
The Ohio jury may succeed where ACS's critics have failed. ACS unrestricted reserves declined from $212 million at the end of 2007 to $60 million at the end of 2008, due to a combination of investment losses and accounting changes. No provision was made for the Lead-Scope judgment or the $35.5 million bond. The Ohio jury's damage findings, together with economic necessity, may compel ACS to reform its business practices in order to maintain its enterprise sustainability.
Dr. Donald G Lewis,
Catalyst Law Group,
San Diego, CA
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