Varied interpretation of science led to lawsuit

Listed honey products company Comvita New Zealand Ltd has switched from Waikato University to Auckland University for its future scientific research in the fallout over a convoluted search for the "mystery molecule" key to biologically active manuka honey.

In essence, Comvita expected Waikato University - a world leader in research which made some manuka products the world's most valuable honeys - to identify the bioactive compound that made it special, but Waikato's scientists were beaten to it by German researchers.

The company was last week granted $1 million in relief from a $3.5m contract with Waikato University's commercial arm, Waikatolink, after Justice Rhys Harrison ruled in the High Court at Tauranga that the university company engaged in misleading or deceptive conduct on three separate grounds.

"We no longer have a working relationship with Waikatolink or the University of Waikato and have instead forged a close working relationship with the University of Auckland where we conduct our research on honey and other products," Comvita chief executive Brett Hewlett said yesterday.

But he said that Comvita had retained ownership of "certain patents" that formed part of the original agreement.

Three of the 11 patents the company own related to the wound care and skincare products - which comprise 11 percent or $8.8m of annual turnover - were purchased or licensed from the university.

The two companies signed a comprehensive intellectual property and research agreement in December 2006 covering uses of medical honey in the field of woundcare and skincare, with provision for $3.5m to be paid in instalments, plus an additional $500,000 if certain milestones could be met.

But the companies ended up in court with Comvita saying it had relied heavily on the representations made by Waikatolink about progress its research team made in isolating and classifying the active compound.

"Those representations were subsequently proven to be either false or misleading and hence we sought to get some relief from our obligations to pay Waikatolink," Mr Hewlett said.

The Waikato research was split between the godfather of the manuka honey industry, biochemist Professor Peter Molan, and a carbohydrate chemist, Dr Marilyn Manly-Harris, but Waikatolink treated the work of the two scientists as separate streams of research.

At a time when the manuka honey industry was marketing on the basis of a mysterious "unique manuka factor" (UMF) which could combat infection and enhance healing, identification of the specific molecule responsible for the healing was seen as pivotal to further commercial development.

Prof Molan told Comvita's chief technical officer, Dr Ralf Schlothauer, in February 2006 he was on the brink of discovering the molecule, and they set up a joint science committee.

Although Dr Manly-Harris was also a member of the committee, she and Prof Molan did not attend together, though she had disclosed her belief that she had isolated "peaks" related to the UMF activity.

"This lack of internal communication meant a lack of cohesion in research direction," Justice Harrison said in his ruling.

On July 15, 2006 - after 23 years of research - Prof Molan said he believed the mystery molecule was a tannin, with a molecular weight of 484, and on July 19 Waikatolink's board decided it now had a much more valuable asset for sale and pulled out of joint venture talks with Comvita.

The judge said he thought Waikatolink chief executive Mark Stuart had been evasive with Mr Hewlett and if it had made a proper disclosure of the research, Dr Schlothauer could have worked out the UMF compound for himself.

On July 24 Prof Molan warned he might have been wrong about the active compound, but management did not pass this on to its board, and after travelling overseas, he said on September 20 that 484 was not the active compound, though it was likely related.

The two companies met on September 28, when Waikatolink said Prof Molan had made a major breakthrough and was close to identifying the molecule.

"Waikatolink's conduct was ... misleading, deceptive or false in three material respects," the judge said. It should have become aware the Prof Molan's target compound was wrong.

In April 2007, after Comvita had paid the first $1.5m to Waikatolink for intellectual property, Dr Schlothauer made a Google search and found that a German scientist Professor Thomas Henle at the Technical University of Dresden had identified the compound methylglyoxal MGO as a marker for the "unique manuka factor".

In mid 2007, Dr Manly-Harris independently concluded MGO was the UMF molecule.

About the same time, a Te Awamutu company, Manuka Health, formed a partnership with the university to measure levels of the compound in NZ manuka honey and to certify the products of rival honey processors, and Justice Harrison said Comvita lost interest in exploiting discovery of the MGO compound once it learned it was MGO.

He said Comvita contributed to its own "loss" - the obligation to pay the remaining $2m - because it could have had Dr Schlothauer make his own inquiries earlier, and it "flew blind" in terms of whether it was paying fair value for Prof Molan's intellectual property. It could also have protected itself with an appropriate contract.

Its 50 percent responsibility translated into compensation of a $1m deduction from the $2m to be paid.

Comvita later said it had made provision in its March 2008 financial accounts for the $2m payment, and it will now release half of that money, increasing its net earnings before tax by $1m in the current financial year.