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TOUGH TO SWALLOW

In 1972, when Nixon was in the White House and the notion of a black hole first was conceived, two promising young scientists met and became close friends. One was an academic who went into university research. The other worked for a huge drug company. Over the years, both rose to the top of their professions.

Today the two men reportedly aren't speaking and sit at the center of a dispute that could be worth more than $100 million.

The academic is Robert Allen, a physician and researcher at the University of Colorado Health Sciences Center in Denver. Fifteen years ago, after nurturing a close relationship with friend and fellow scientist Leon Ellenbogen, Allen was hired by Ellenbogen.

His job was to perform a series of studies for Ellenbogen's employer, which manufactured a popular iron supplement for pregnant women called Materna. At the time, the company, American Cyanamid, was responding to charges that Materna didn't work as well as advertised. (It didn't, as it turned out.) Although he was still working for the university, Allen and his colleagues were paid tens of thousands of dollars for their work.

Recently, the University of Colorado has dredged up the past. That's because the school says that at the conclusion of those studies a decade and a half ago, Ellenbogen swiped the fruits of the professor's work. Among other charges, CU claims that Ellenbogen went so far as to "cut and paste" tables and graphs from an article Allen published on the subject. Since then, the university claims, American Cyanamid has earned nearly $100 million off a new and improved Materna--money that CU now claims rightfully belongs to it.

In the year and a half since it was filed, the lawsuit has become increasingly bitter and complex. Much of it may hinge on an elusive document that has come to be known as the Mystery Memo. The case could be decided as early as this week, when a federal judge is scheduled to either name a winner or let it proceed toward a trial.

CU stands to earn millions of dollars from the litigation. But in deciding to exhume a decade-old incident, the university has raised some uncomfortable questions about itself. The dispute between CU and American Cyanamid, for example, lays bare the overclose relationships and blurry lines of idea ownership that can develop when public-employee professors conduct research for private corporations.

Also, compared with other universities, CU has been a latecomer to the game of transferring technology from its labs to the market. The recent lawsuit shows what happened when CU caught a glimpse of a potential gold mine that it missed a decade ago.

Repeated attempts to interview Allen and Ellenbogen have been unsuccessful. Lawyers representing the University of Colorado and American Cyanamid Company decline to permit their clients to speak, citing the ongoing legal battle. But numerous court documents and interviews suggest that until recently the two scientists were colleagues, even close friends.

Allen, a native of Detroit, attended college in Massachusetts and received his medical degree from Washington University School of Medicine in St. Louis. After winning several fellowships around the country he returned to the Missouri university as a fellow and then as an assistant professor.

In 1972 he met Leon Ellenbogen, who had spent most of his working life at American Cyanamid. Today Ellenbogen, who lives in New Jersey, has worked for more than four decades for the drug company, where he holds the title of chief nutritionist.

The two "became good friends who trust one another," according to court testimony. Ellenbogen became acquainted with Allen's wife and children, eating dinner at their Denver home numerous times. When it came time for Ellenbogen's son to apply for medical school, Allen wrote a letter of recommendation for him.

Despite their divergent career paths--Allen in academia and Ellenbogen in private industry--the men cultivated a close intellectual relationship. They "often exchanged scientific articles with one another, including occasions where one would send his confidential pre-publication manuscript to the other," court documents say.

More than exchanges of research, however, they enjoyed a business relationship. For instance, legal filings note that Ellenbogen "periodically sent valuable raw material, free of charge, to Dr. Allen for Dr. Allen's laboratory" at CU. For his part, "Dr. Allen performed numerous medical studies for Cyanamid at Dr. Ellenbogen's request," for which Allen and his colleagues were well-paid. Several of those studies dealt with a vitamin supplement for pregnant women called Materna.

Materna was, and is, manufactured by Lederle Laboratories, a division of American Cyanamid Company, a New Jersey-based pharmaceutical giant that in 1993 employed 26,500 people and had sales of $4.25 billion. The prescription vitamin supplement, which currently costs about $12 for a bottle of thirty pills, has been sold since the early 1970s, and its advertised function is to help expectant mothers get enough iron.

In the late 1970s, a competitor, Stuart Pharmaceutical, which makes Stuartnatal, another iron supplement, challenged Materna's effectiveness. The rival company suggested in an advertising campaign that the iron a woman absorbed by taking Materna was less than she would get by taking Stuartnatal.

Initially, according to internal correspondence between officials at American Cyanamid, Ellenbogen doubted this was true. But he decided to check out the claims nevertheless. The man Ellenbogen settled on for the project was Robert Allen.

It was a natural choice. Allen, who is now 56 years old, had moved to the University of Colorado Health Sciences Center as a professor of medicine and director of the hospital's hematology division in 1977. He'd also become something of an expert on testing vitamins, particularly B-12, securing a handful of patents that explained specific ways to measure their chemical characteristics. In an internal memo, Ellenbogen described Allen as a "noted" and "influential" scientist.

In August 1979 Allen agreed to test Materna's iron absorption, as well as that of its competitor, for American Cyanamid. In exchange, Ellenbogen paid Allen and a CU colleague, Dr. Paul Seligman, another hematologist, a total of $10,000. A month later they performed a similar study for the company, for which they received a $5,000 check. The results showed that neither vitamin was particularly good at providing pregnant women with enough iron.

From that point, however, the question of who invented the reformulated version of the Materna vitamin grows fuzzy as precise laboratory measurements become tangled up in the far less scientific--but much more lucrative--process of determining who now owns the drug. In the subsequent scramble for millions of dollars in royalties, neither side comes out looking particularly capable or forthright.

For years, most universities did not expend a lot of energy trying to make money off their academic staffs. A big reason was philosophical: Many professors liked to think of themselves as beyond the commercial jockeying and crass marketing required of business.

Another factor was the law. Until the early 1980s all university discoveries whose research had been paid for by federal money belonged to the federal government. But the government was notoriously slow about exploiting the inventions, and after a short time they simply trickled into the public domain, free for the taking.

That provided little opportunity for faculty members to think about profiting from their work. "There was no incentive to go through the government," says Duke Leahey, who heads technology-transfer efforts at Washington University and who is past president of the Association of University Technology Managers. "The faculty member just wanted to publish and get credit through the normal academic route."

The system also prompted professors who did think about it to search aggressively for private funding outside the government so they could make money. The price of corporate sponsorship often was steep.

"It was very common in the old days, before universities were interested in reaping any rewards from faculty work, for companies to sponsor faculty work," explains John Holloway, a lawyer who handled CU's patents for seven years in the 1980s before retiring. "But the quid pro quo was that the companies owned any discoveries."

Although inventions by its faculty were owned by the university, the University of Colorado didn't even process its faculty's own discoveries until 1992. That function was handled by a for-profit Maryland company called University Patents Inc. In exchange for a percentage of any profits realized by an invention, UPI handled CU's licensing paperwork.

Because the job was being done by an outside company, the success of the system depended heavily on CU's professors themselves. It was left up to them to report the fruits of their work to the university, which, in turn, sent the information to University Patents. In fact, it was a condition of a professor's contract with the University of Colorado that he disclose the discoveries that came out of his lab so the school might someday make money. It didn't always work that way.

It shouldn't come as any surprise that the university's story line of how Materna came to be reformulated is one of honorable and intellectually curious scientists driven to search for knowledge without regard for profits.

According to this version, after Allen and Seligman completed their work in early 1979 for American Cyanamid--in which they determined that the vitamin supplements weren't working as advertised--the professors remained intrigued. So they set about figuring out exactly why the iron in Materna--as well as in other iron supplements for pregnant women--was not being absorbed well.

This time, however, the two men did it without any financial help from the drug company. "After surprising Cyanamid with the results of [the first two studies]," the university asserts, "Drs. Allen and Seligman devised a study independent from Cyanamid to determine the reason for the poor absorption of iron from Materna. This study...was performed in October and November 1979."

Despite the professors' supposed independence from the company, however, the university admits that Allen and Seligman maintained a close relationship with American Cyanamid. For example, Allen kept his friend Leon Ellenbogen informed of his ongoing work with Materna "as a professional courtesy."

The CU scientists, the university's story continues, quickly determined that women were not getting enough iron from the old Materna because of the presence of two other chemicals in the vitamin pills, calcium carbonate and magnesium oxide. Again, because of their close friendship, Allen told Ellenbogen of his findings in a letter dated December 4, 1979. The letter also suggested, in general terms, a reformulation for Materna that might increase iron absorption.

Two months later, in February 1980, the university says that Allen performed one more independent study, this time to test his proposed new formula for Materna. Again, CU insists its faculty did the work without any input, or money, from American Cyanamid. Nevertheless, the following month--March 1980--Allen wrote another letter to Ellenbogen in which he reveals his newly invented formula to the drug company's nutritionist.

The final chapter of CU's version of the story shows American Cyanamid once again becoming involved with the reformulation of its product. In mid-1980 the company asked Allen and Seligman to compare the old Materna with the new formulation that they had come up with on their own time.

The researchers agreed, and were paid $15,000 for their work, which was completed in October 1980. The CU professors then did one final comparison study for the drug company, in March 1981, for which they were paid their largest commission yet, $30,000.

In numerous court documents, American Cyanamid draws a different picture of the research road to a new formula for Materna. Although only a few of the actual facts diverge from the university's version, the viewpoint is decidedly different. It shows a private pharmaceutical company playing an active role in academic labs. In this version, Cyanamid was the driving force behind scientific creativity, and Allen and Seligman merely highly qualified technicians.

To begin with, Cyanamid says, it never lost track, or control, of the work being done on Materna at CU. Specifically, the company insists that it continued funding Allen and Seligman's work throughout the entire evaluation of the vitamin, including the crucial middle studies in which the two men supposedly discovered how to make Materna more efficient.

More than that, the drug company asserts that Ellenbogen, not Allen, designed all the experiments carried out by the Colorado professors. In one court document, Cyanamid refers to CU's professors as "clinicians" who simply followed Ellenbogen's directions.

Finally--and most significantly--Ellenbogen contends it was he who suggested the new Materna formulation, and not Allen. The March 1980 letter in which Allen supposedly describes the blueprint for the new Materna is just a rehash of ideas that they discussed earlier on the telephone, Ellenbogen claims. "I believe the decision to reduce calcium and magnesium did indeed originate from me," he testified in a sworn deposition.

Despite the discrepancies in the two stories, what does appear clear is that Allen and Ellenbogen were speaking different languages when it came time to capitalize on the invention. For their part, after performing more than $60,000 worth of work for American Cyanamid, Allen and Seligman immediately began converting their research into the common university currency: a published article.

In July 1981 the two men, with research assistants named as co-authors, submitted a draft of an article describing their results of the Materna experiments to the New England Journal of Medicine. Because of their close working relationship, "Dr. Allen then sent a copy of the submitted manuscript to Dr. Ellenbogen as a courtesy," the lawsuit says.

The Journal, which must sift through many more manuscripts than it can print, declined to publish the article. So in December 1981 Allen submitted it to Obstetrics and Gynecology, another medical journal, which agreed to publish it. The article appeared in the March 1983 issue of the magazine.

American Cyanamid, meanwhile, was behaving very much like a drug company. In October 1981--three months after Ellenbogen received a courtesy copy of Allen's manuscript--the company held a press conference in New York City during which it introduced the new, reformulated version of Materna.

Two months later, American Cyanamid filed a patent application for the new vitamin supplement. In February 1984 the company was granted patent No. 4,431,634--crediting Leon Ellenbogen as the inventor. Since that time, the University of Colorado alleges, the company has sold $140 million worth of the reformulated Materna and defended the new formula against a half-dozen patent-infringement suits from other drug companies.

In his nearly two decades working for the University of Colorado, Dr. Robert Allen, through his numerous patents, has become one of the school's most financially successful employees, generating significant income for both himself and for CU. (CU says it doesn't have a specific dollar figure.) So even if the university's version of the Materna story is to be believed, CU's lawyers now find themselves in a difficult position. They must explain why, in following up on one of its most profitable professors' most profitable inventions, the school was so remarkably inept.

Allen and Seligman are under contract with the University of Colorado. As such, they are required to report any new inventions to the school. Yet, inexplicably, neither man followed this policy when they completed their allegedly groundbreaking work on Materna. (Mike Gabridge, CU's current director of technology transfer, says Allen didn't realize at the time that he'd invented something.)

As a result, university officials say the school never caught wind of Allen's supposed multimillion-dollar invention. "If Drs. Allen and Seligman are the true inventors as they claim, then [they] failed to comply with the University Patent Policy," American Cyanamid points out in a court filing. "Had [the two professors] in fact invented the reformulated Materna, it was their own failure to comply with the University patent policy, not some wrongdoing by Cyanamid, that caused them the harm."

(It apparently was not unusual for CU to ignore such infractions among its faculty. In an affidavit, John Holloway admits that neither Allen nor Seligman was disciplined for what amounted to a breach of their contracts with CU. Indeed, Holloway testified that in 25 years of working at CU, he was not aware of a single professor who had been disciplined for failing to report an invention.)

And American Cyanamid was not very secretive about its intention to market the new Materna. Allen, for example, cannot claim that the drug company hid it from him: The professor participated in the 1981 press conference during which the company introduced the reformulated vitamin.

Neither, for that matter, can Seligman. He attended a seminar in Texas in early December 1981, during which the new product was discussed. Allen's research partner also admitted in a deposition that he has prescribed Materna for his patients--and his wife--since 1985. Each bottle of Materna has the symbol for "registered trademark" on its label.

Finally, at the same time they supposedly were unaware that the drug company had patented the new Materna formula, both CU scientists continued to perform various tests on Materna and other American Cyanamid vitamin products. According to court documents, Allen and Seligman received generous paychecks from the company for this work up until 1989.

If the University of Colorado looks careless in its handling of an invention that was to become worth tens of millions of dollars, though, American Cyanamid doesn't fare much better. In particular, its attorneys have been kept busy explaining why the company's patent application for Materna, listing Ellenbogen as the inventor, looks suspiciously familiar.

In fact, when held side by side, American Cyanamid's application for the new Materna bears an uncanny resemblance to the Allen and Seligman article that eventually appeared in Obstetrics and Gynecology and that Allen had sent to Ellenbogen before publication. "One astonishing thing about the patent application is that it not only was obviously copied from the article, but it actually contains a substantially cut-and-paste replica...and tracings" from the article, the university complains in a legal filing.

(Cyanamid has replied that the information contained in the patent application may bear some similarities to the professors' article. But it says that's because the information and the form in which it was arranged by the professors is very basic. Allen and Seligman "cannot claim to have created the concept of bar graphs," the drug company says.)

Then there is the matter of the Mystery Memo.
Much of the outcome of the dispute over who invented Materna rides on determining who came up with the idea first. CU says Allen did, the proof being the March 1980 letter to Ellenbogen in which the professor supposedly explains his idea for the new vitamin formulation.

American Cyanamid responds that Ellenbogen conceived of the notion to reduce the calcium and magnesium before that. In fact, the company says, there is a very detailed internal memo to prove it. The one-page document sets forth the invention and is dated prior to the studies conducted by Allen and Seligman at the University of Colorado.

Unfortunately, American Cyanamid can't find it.
"Neither Dr. Ellenbogen nor I have been able to locate a copy of [this] memorandum, which I believe would strongly substantiate that Dr. Ellenbogen's conception of the invention at issue was made prior to, and independent of, any suggestions offered by Drs. Allen or Seligman," concedes Robert Raymond, a lawyer for the company, in an affidavit.

Worse than being unable to find it--for appearances' sake, anyway--is the reason why. The original copy of the crucial memo supposedly was destroyed in July 1993--coincidentally, less than one month before the University of Colorado filed its lawsuit. American Cyanamid insists the memo was trashed by a company-wide directive aimed at cleanup of outdated documents.

CU is not impressed. "It is impossible to believe that this Mystery Memo ever existed," the university scoffs in a legal filing. "It appears that this Mystery Memo may be the one thing that Cyanamid did invent in this case."

The University of Colorado filed its lawsuit against American Cyanamid in August 1993. The university contends that Allen and Seligman had no idea their formulation for Materna had been patented by the drug company. According to court documents, the two learned of the breach of trust by happenstance when colleagues told them in the summer of 1993.

Although it seems difficult to believe, perhaps the professors were too preoccupied to notice that their work had been swiped. Yet the lax way that the University of Colorado has handled its faculty's inventions in the past also could go a long way toward explaining why the school is waging such a fierce and expensive battle against American Cyanamid ten years after the fact.

In recent years, as the commercial possibilities of biomedical research, in particular, have become clearer, research universities have increasingly tried to cash in on professors' inventions. The University of Colorado has been no different. If anything, CU has had to be more active to make up lost ground.

"We haven't been very aggressive in the past," concedes Deb Taylor, the director of marketing for Colorado's technology-transfer office in Boulder. Holloway, who headed the university's technology-transfer efforts in the mid-1980s, describes CU's past efforts as "casual."

In 1985 the job of licensing CU faculty's inventions was taken over by the University of Colorado Foundation, a nonprofit agency whose main purpose is to raise money for the university. The foundation calculated it could earn more cash for CU by not having University Patents Inc. skimming a percentage off the top of each invention's royalties.

In 1992, after some faculty dissatisfaction, the foundation handed the task over to the university itself, which, Holloway says, felt it could do the job even better. Now each campus has its own technology-transfer office, in addition to the central office in Boulder.

The university system receives about eighty invention disclosures each year. Less than 10 percent of those go to market, and less than 10 percent of those that hit the market actually make money. Still, according to Taylor, the University of Colorado system earned a little more than $1 million off its various licensing fees last year.

Much of that money comes from former CU all-stars who went on to start their own companies with the research results they originally collected on campus. Larry Gold, a former molecular biology professor, recently created NeXagen, a biotechnology company. Thomas Cech, CU's Nobel laureate in chemistry, has founded several companies.

Chemistry professor Marvin Caruthers still earns money for himself and CU off his "gene machine," which manufactures DNA. And, Materna notwithstanding, Allen's numerous other discoveries have generated piles of cash. ("Caruthers and Bob Allen are the two big money-makers for the university," Holloway says.)

A change in federal laws in 1982 also permitted professors to earn money for themselves off of federally funded research. Mike Gabridge says Colorado's researchers can earn a quarter of the royalties off their inventions. Another quarter goes to the professor's department. The rest is divided up between the university and a separate CU research fund.

Despite the money it brings in, however, Colorado still remains far behind money-churning institutions like Massachusetts Institute of Technology and the University of California, as well as similarly sized peer institutions such as the University of Iowa. According to a recent study by the Association of University Technology Managers, CU ranked 29th out of 60 universities surveyed in the amount of money earned from its faculty's inventions.

"People didn't quite understand the value to the university of these inventions," explains Taylor. A big win for CU in the case against American Cyanamid could go a long way in helping to make that clear. And a loss could make for an extremely costly lesson.