Icahn School of Medicine at Mount Sinai v. Neurocrine Biosciences, Inc.

Filing 125

OPINION re: 78 MOTION to Dismiss defendant's counterclaims and strike certain affirmative defenses, filed by Icahn School of Medicine at Mount Sinai: Based on the conclusions set forth above, Plaintiff's motion to strike affirmative defenses 11-14 and to dismiss counter claims I - IV is granted. (Signed by Judge Robert W. Sweet on 3/17/2017) (jwh) Modified on 3/20/2017 (jwh).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

-----------------------------------x
ICAHN SCHOOL OF MEDICINE AT
MOUNT SINAI,
Plaintiff,
-againstNEUROCRINE BIOSCIENCES, INC.,
Defendant.

-----------------------------------x
A P P E A R A N C E S:
Attorneys for Plaintiff
CROWELL & MORING LLP
590 Madison Avenue
New York, NY 10022
By:
Chierne Suzuki, Esq.
Honor Costello, Esq.
CROWELL & MORING LLP
275 Battery Street, 23 rct Floor
San Francisco, CA 94111
By:
Gregory Call, Esq.
Mark T. Jansen, Esq.
Pilar R. Stillwater, Esq.
Attorneys for Defendant
LATHAM & WATKINS LLP
885 Third Avenue
New York, NY 10022
By:
Benjamin Naftalis, Esq.
Daniel G. Brown, Esq.

15 Civ. 9414

OPINION

LATHAM & WATKINS
12670 High Bluff Drive
San Diego , CA 92130
By : Jake Ryan , Esq .
Stephanie N. Grace , Esq.
LATHAM & WATKINS
555 Ele v enth Street , NW , Suite 1000
Washington , DC 20004
By: Michael A. Morin , Esq.

Sweet, D.J.

The Plaintiff Icahn School of Medicine at Mount Sinai
("Mt. Sinai" or the "Plaintiff") has moved pursuant to F . R .
Civ. P. 12(f) to strike Defendant Neurocrine Biosciences, Inc.'s
("Neurocrine " or the "Defendant") affirmative defenses for
patent invalidity, non-infringement, and misuse, and moved
pursuant to F. R. Civ . P. 12(b) ( 1 ) to dismiss Defendant's
corresponding dec larat ory judgment counterclaims.

Based on the

conclusions set forth below, Plaintiff's motion to strike
affirmative defenses 11-14 and to dismiss counterclaims I-IV is
granted.

Prior Proceedings

The Defendant's motion to dismiss the complaint was
denied on June 13, 2016 , finding that Mt . Sinai adequately
alleged that Neurocrine had breached and violated the licensing
agreement regarding an alleged sublicense to Abbott
Internati onal Luxembourg S. a. r. l .

("Abbott"), now AbbVie In c .

("AbbVie"), v iolated the licensing agreement, created a de facto
sublicense, and alleged adequate damages, though it limited the
scope of the license to the two patents.

1

The instant motion to strike affirmative defenses and
dismiss counterclaims was heard and marked fully submitted on
November 3, 2016.

Pleadings

Plaintiff , formerly known as Mt. Sinai School of
Medicine of the City University of New York, is a New York
education corporation , organized under the New York Education
Law and chartered by the Board of Regents of the State of New
York.

Its sole member is Mt . Sinai Health System , Inc., a not -

for-profit corporat i on organized under the laws of the State of
New York.

Mt . Sinai owns and controls certain rights in

technology for the identification, discovery, and screening of
drug compounds that interact in the human body with receptors
for the hormone known as GnRH.

Mt. Sinai's drug-discovery tools

are foundational in the identification, screening, and
development of drugs for the treatment of a number of endocrine
disorders, and Mt. Sinai has the exclusive right to grant
licenses to the patented technology directed thereto.
~

20 . )

2

(Compl.,

Neurocrine is a corporation organized and existing
under the laws of the State of Delaware, having a principal
place of business at 12780 El Camino Real, San Diego, CA 92130.
Neurocrine is in the business of, among other things, developing
pharmaceuticals for use in neurological and endocrine diseases
and disorders.

(Comp l.,

<j[

22 .)

AbbVie is a corporation organized and ex isting under
the laws of the State of Delaware, having a principal place of
business at 1 North Waukegan Road, North Chicago, Illinois
60064 .

AbbVie is in the business of, among other things,

pharmaceutical development , manufacturing and sales.

Mt . Sinai and Neurocrine entered a patent li cense
agreement for certain drug discovery too ls on August 27, 1999
including Mt . Sinai 's ' 366 patent and '58 3 patent, which were
issued in May 1998 and November 1999.

Both patents have now

expired.

The complicated process of discovering and developing
new drug treatments requires basic research such as is performed
by Mt. Sinai and its scientists.

The application of that

science to particular conditions such as endometriosis and

3

uterine fibroids was performed by Neurocrine.

The testing,

approval, and manufacture of the new drug is performed by a
major pharmaceutical company, in this instance Abbott
International Luxembourg S.a.r.l.

("Abbott "), now AbbVie.

Gonadotrop i n releasing hormone (" GnRH " ) is implicated
in numerous endocrine diseases in c luding prostate cancer ,
ovarian cancer , breast cancer, and endometriosis.
38, 40-43.)

(Compl . ':lI':lI 3 ,

Stuart C . Sealfon, M.D., a world-renown neurologist

at Mt. Sinai, was the first to make stable cell lines expressing
the cloned receptor for GnRH ("GnRH-R" ) and invented a method to
identify drug compounds that modulate the receptor's molecular
(Id. ':lI':lI 39 -40.)

signaling using the ce ll lines.

Dr . Sealfon's

patented inventions, assigned to Mt. Sinai, are foundational
drug -dis covery tools . Both Parties recognized the Sealfon tools
as essential for Neurocrine to identify and develop new drugs
that inhibit GnRH activity and can be used to treat endocrine
disorders.

(Id . ':lI':lI 5,

40 -4 6 , 50.)

The parties , on August 27 , 1999, entered into a
Nonexclusive License Agreement ("License Agreement") which
provided that Neurocrine may "grant sublicenses under the
License only with the prior written consent" of Mt. Sinai .

4

(Compl. Ex. 1 , D.I. 1-1 ("License Agreement " ) §2 .l (c).)

Mt.

Sinai alleges that during their negotiations, the Parties
recogn ized that i f Neurocrine identified a promising drug
candidat e , Neurocrine likely would sublicense (for additional
consideration to Mt. Sinai) the remainder of the drug
development efforts, which require expensive Phase 3 clinical
trials, to a major pharmaceutical corporation .

( Compl . '!I'll 4 7,

54 , 57 . )

Neurocrine allegedly used the licensed Sealfon tools
to identify "Elagolix" as a strong candidate for treating
endocrine disorders .

(Compl. '!I 58 . )

Neurocrine had contractual

obligation to provide annual development reports, including a
"complete written list of Licensed Products discovered in the
previous year" (License Agreement § 3 .5; which it breached;
Compl . '!I'll 67 - 76) , Neurocrine allegedly discovered Elagolix not
later than early 2001 (Compl . '!I 60) .

In June 2010 , Neurocrine entered an agreement with
AbbVie allegedly regarding some of the rights under Neurocrine ' s
license agreement with Mt. Sinai to further develop Elagolix.
On June 15, 2010 , Neurocrine and AbbVie publicly announced their
agreement , under which "Abbott will receive worldwide exclusive

5

rights [from Neurocrine] to develop and commercialize Elagolix
and all next-generation GnRH antagonists, for women's and men's
health." (Compl. '1I 77 and Compl. Ex. 2, D.I. 1-2

("Press

Release") at 1.) Neurocrine did not seek or obtain Mt. Sinai's
consent before entering the agreement with AbbVie.

(Id.

'1!'1!

54-

57, 71).

Elagolix is currently undergoing FDA testing and has
not yet been approved for sale in the United States.

The

parties dispute whether Mt. Sinai is seeking royalties from
future sales of Elagolix, or damages from a breach of the
contract for what would have been reasonable compensation for
the breach in 2010.

Applicable Standard

On a motion to strike pursuant to Rule 12(f), the
Court "may order stricken from [a] pleading any insufficinet
defense or any insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter."
v. Claire's Boutiques, Inc., No. 05 Civ. 2355

846354, at *2

(S.D.N.Y. Mar. 31, 2006).

Pony Pal, LLC.

(CSH), 2006 WL

A motion to strike may

be granted where there is no question of fact and no substantial

6

question of law, the "resolution of which could allow the
defesnse to succeed."
(S.D.N.Y. 1992).

S.E.C. v. Toomey,

866 F. Supp. 719, 722

However, "Motions to strike affirmative

defenses are generally disfavored and should be denied unless
there is a clear showing that the challenged defense has no
bearing on the subject matter and that permitting the defense to
stand would prejudice the plaintiff."

Emmpresa Cubana del

Tabaco v. Culbro Corp., 213 F.R.D. 151, 154-155 (internal

citations omitted).

Courts dismiss a case "for lack of subject matter
jurisdiction under Rule 12(b) (1) when [they] lack[] the
statutory or constitutional power to adjudicate it."
v. United States, 201 F.3d 110, 113 (2d Cir. 2000).

Makarova

The Court

only has subject matter jurisdiction over claims that present an
"actual controversy" and not hypothetical claims.
Already, LLC,

721 (2013).

Nike, Inc. V.

663 F.3d 89, 95 (2d cir. 2011), aff'd, 133 S.Ct.
The party seeking declaratory relief "bears the

burden of proving subject matter jurisdiction by a preponderance
of the evidence."
426 F.3d 635, 638

Aurecchione v. Schoolman Transp. Sys. , Inc.,

(2d Cir. 2005).

7

Neurocrine Is Estopped from Challenging the Validity of the
Patents and the Twelfth and Thirteenth Affirmative Defenses Are
Stricken

Neurocine argues that its patent invalidity defenses
are relevant and cause no prejudice because if the patents are
invalid, then neither Neurocrine nor AbbVie needed Mt. Sinai's
permission to use the Mt. Sinai tools to develop the GnRH
receptor.

Citing Myriad Genetics, Neurocrine concludes that Mt.

Sinai's patents are "naturally occurring" sequences of the GnRHR gene.

Ass'n for Molecular Pathology v. Myriad Genetics, Inc.,

133 S.Ct. 2107, 2116-19 (20 13).

Further, Neurocrine argues the

patents are invalid for anticipation, obviousness, and/or
written description and enablement.

35

u.s.c.

§§

102, 103, 112.

However, this motion does not involve the merits of
the patent invalidity issue.

Instead, Mt. Sinai seeks to estop

Neurocrine from asserting the patent invalidity defense because
Neurocrine has already enjoyed the benefits of the patent
license.

The parties agree that a licensee is estopped from

asserting invalidity as a defense to contractual obligations and
royalties already owed at the time of the suit, however the
parties dispute whether the relief requested by Mt. Sinai here
for obligations that may accrue in the future.

8

The Supreme Court has held that a licensee cannot be
estopped from challenging the validity of a patent merely
because it benefitted from a license agreement.
Adkins, 395 U.S. 653,

670 (1969).

Lear, Inc.

v.

This is because the licensee

"may often be the only individual[] with enough economic
incentive to challenge the patentability of an inventor's
discovery. If they are muzzled, the public may continually be
required to pay tribute to would-be monopolists without need or
justification."

Id.

The Federal Circuit has found an exception to the Lear
v. Adkins rule for circumstances in which the licensee is

seeking to avoid contractual obligations that the licensee
already owes under the agreement.

Studiengesellschaft Kahle,

M.B.H. v. Shell Oil Co., 112 F.3d 1561, 1568 (Fed. Cir. 1997),
cert denied,

522 U.S. 996, 118 S.Ct. 560, 139 L.Ed.2d 401

(1997)

("this court must prevent the injustice of allowing Shell to
exploit the protection of the contract and patent rights and
then later to abandon conveniently its obligations under those
same rights")

("Shell Oil"); see also Advanced Card Techs., LLC

v. Versatile Card Tech., Inc.,

(S.D.N.Y. 20 0 6)

410 F. Supp. 2d 158, 161

(estopping a party from challenging the validity

of a patent for "royalty payments that were not made in respect

9

of sales accruing prior to the filing of this action " ); Revson
v . Claire ' s Stores, Inc.,

2000)

120 F . Supp . 2d 322, 326-27

(S.D . N. Y.

(same) .

The parties dispute how to characterize the relief
that Mt . Sinai seeks.

It is undisputed that Neurocrine is "not

[] precluded from raising a defense of patent invalidity
against " a claim " to recover royalties for time periods after
the filing of the Answer in this case. "

Pony Pal, LLC. v.

Claire's Boutiques, Inc. , No. 05 Civ. 2355 (CSH) , 2006 WL

846354, at *3 (S . D. N. Y. Mar . 31, 2006).

Mt . Sinai claims that it is not seeking future
royalties for Elagolix .

Instead, Mt. Sinai c l aims that it seeks

the value of an unlawful sublicense measured in 2010 at the time
Neurocrine allegedly sublicensed the rights to the patents to
AbbVie without obtaining Mt. Sinai's contractually required
consent .
2000)

Sch onfeld v . Hilliard, 218 F.3d 1 64, 176 (2d Cir .

("When the defendant's conduct results in the loss of an

income-producing asset with an ascertainable market value, the
most accurate and immediate measure of damages is the market
value of the asset at the time of breach-not the lost profits
that the asset c o uld have produced in the future.").

10

Neurocrine

argues that only past royalties are compensable under the
relevant caselaw cited above.

If the damages Mt. Sinai alleges

are distinct from royalties on Elagolix, then they are
permissib l e damages because "there is [not] a relevant
distinction between unpaid royalties and other types of damages
flowing fr om the breach of the Licensing Agreement . "

Esoteri x

Genetic Laboratories LLC v . Qiagen In c ., 133 F.Supp . 3d 349 , 362

(D. Mass. 2015) .

"The Federal Circuit ' s holding in Shell Oil is

not obviously limited to royalties and can be read to stand for
the broader principle that a licensee may not avoid liability
for damages arising out of its breach of a license agreement,
assuming th at the breach occurred prior to the date that the
licensee first challenged the validity of the patent claims."
Id.

Neurocrine argues that even if the estoppel argument
is permitted with respect to non - royalty contractual damages,
Neurocrine must be permitted its invalidity affirmative defense
to prevent injustice based on the unclean hands doctrine .

First , Neurocrine asserts that Mt . Sinai sat on its
rights f or mo re than five years before bringing this claim .
However , it is undisputed that the claim was brought within the

11

statute of limitations period for breach of contract in New
York.

As Neurocrine argued , a party cannot assert an equitable

defense related to the other party's delay where it also
contributed to that delay .

King v . Innovation Books , 976 F.2d

824 , 833 (2d Cir . 1992) ; Clarke v . Comm. Workers of Am ., 318 F .
Sup. 2d 48 , 57 - 58 (E.D.N . Y. 2004).

However , this line of cases

is inapplicable here because Mt . Sinai is not cla i ming that
Neurocrine unlawfully delayed any action since 20 1 0 ; Mt . Sinai
is asserting that it wants damages from an alleged breach that
occurred in 2010.

Neurocrine is estopped from asserting patent
invalidity to avoid its prior obligations arising under the
License Agreement and its twe l fth and th i rteenth affirmative
defenses are stricken.

Accordingly , Mt . Sinai is precluded from

asserting a cla i m for royalties on sales of Elagolix and may
only claim damages for what it could have reasonably obtained at
the time of the alleged breach in 2010.

Neurocrine's Eleventh Affirmative Defense for Non-Infringement
is Stricken

Neurocrine attempts to bring an affirmative defense
for non - infringement of the patents despite the fact that Mt.
12

Sinai did not bring a claim for infringement.

Neurocrine brings

this defense so that it can assert that it " will not owe
royalties based on sales of Elagolix . "
("Oppn . Br . ") at 16.)

(Opposition Brief

For the reasons that follow , this defense

cannot be brought since Mt . Sinai did not seek a claim for
infringement , though Neurocrine will not owe any royalties based
on sales of Elagolix.

Neurocrine has at all relevant times been licensed to
use the Mt. Sinai patented technology , and there is no claim for
infringement .

The statute dictates that there can only be a

claim for infringement when a party "without authority makes ,
uses, offers to sell, or sells any patented invention."
U. S.C. § 27l(a) .

35

Neurocrine seeks to use non - infringement as a

method to challenge the breach of contract action, which is not
permissible.

Neurocrine has relied on Pony Pal .

However , unlike

the instant affirmative defense, the action in Pony Pal was for
a declaratory judgment that "products sold by Defendant do not
fall within the scope of the Patent claims , and that , therefore,
Defendant is not in breach of the Agreement . "

Pony Pal, LLC. v .

Claire's Boutiques, Inc . , 2006 WL 846354 , at *5 .

13

Here, the

Defendant is not yet selling any products that are allegedly
violat i ng the patents .

The claim in th i s action is for breach

of contract for not obtaining Mt . Sinai ' s permission before
forming the agreement with AbbVie .

The counterc l aim for non -

infringement, Counterclaim Eleven , is stricken.

Neurocrine's Fourteenth Affirmative Defense for Patent Misuse is
Stricken

Neurocrine also seeks to assert an affirmative defense
of patent misuse because Mt . Sinai is allegedly seeking
impermissible royalties on sales of Elagolix even though Mt.
Sinai does not own any patents for Elagolix and those royalties
extend beyond the life of the two drug discovery patents
relevant in this case.
S . Ct . 2401 , 2407

Kimble v . Marvel Entertainment, LLC, 135

(2015) ; Medtronic, Inc. v. Mirowski Family

Ventures, LLC, 134 S.Ct . 843 , 851-52 (2014) .

Again, the issue is whether Mt . Sinai is claiming
royalties on future sales of Elagolix or is seeking damages for
Neurocrine ' s breach by allegedly sublicensing with AbbVie
without obtaining Mt. Sinai ' s permission , as is required under
Section 2 . l(c) of the License Agreement.

14

As discussed above ,

Mt. Sinai is precluded from bringing any claims for royalties of
future sales o f Elagolix.

If Mt . Sinai is successfully able to establish that
Neurocrine breached the License Agreement by failing t o ask f or
permission t o sublicense the patents to AbbVie and Abbvie
employed Mr . Sinai ' s technology , Neurocrine argues that Mt.
Sinai ' s alleged damages force "Neurocrine at gunpoint,
conditioning its sublicense (and , according to Mount Sinai , its
ability to close the AbbVie deal) on Neurocrine ' s agreement to
pay an exorbitant and unprecedented r oya lty."
17. )

(Oppn . Br . at

Howe ver , Mt . Sinai will only be permitted to seek what it

r easonably could have bargained for at the time of the breach,
namely the value of the sublicense , and not future Elago lix

Schonfeld v . Hilliard , 21 8 F . 3d at 176.

roya l ties .

Neurocrine's Affirmative Defenses Would Prejudice Mt. Sinai

In order to establish if the moving party would suffer
prejud i ce , if "the defense is insufficient as a matter of law ,
the defense should be stricken to eliminate the delay and
unnecessary expense from litigating the invalid claim ."

Fed .

Deposit Ins . Corp. v . Eckert Seamans Cherin & Mellott , 754 F.
Supp . 22, 23

(E . D.N . Y. 1990) .

Here , the delay and "unnecessary
15

expense" of litigating the validity of the underlying patents
would greatly expand the scope of this case and would cause the
Plaintiff prejudice because these issues are far outside of the
scope of the breach of contract claim .

Id .

Some of the

additional costs leading to this prejudice include numerous
additional technical , factual,

and legal issues that would lead

to additional fact discovery, expert discovery , and substantial
motion practice.

For these reasons, there is sufficient

prejudice shown and affirmative defenses 11 through 14 are
stricken.

The Declaratory Judgment Counterclaims Are Dismissed for the
Same Reasons the Affirmative Defenses Are Stricken

The parties dispute whether the declaratory judgment
claims for patent invalidity , non - infringement, and misuse are
ripe since they may depend on sales of Elagolix, which is not
yet on the market .

The Second Circuit ' s standard for ripeness

of declaratory judgment actions is that "there is a substantial
controversy, between parties having adverse legal interest, of
sufficient immediacy and reality to warrant the issuance of a
declaratory judgment."
411 F.3d 384 , 388

Inc . v. St.

(2d Cir. 2005)

Paul Fire & Marine Ins.

Co .,

(internal citations omitted).

16

Here, the dispute about whether a successful challenge
to the patents would impact Mt . Sinai's damages for future sales
of Elagolix is a substantial controversy .

The question is

whether it is of sufficient immediacy as Elagolix is not yet
commercially available .

However, while the question of ripeness

is one of degree, "the fact that liability may be contingent
does not necessarily defeat jurisdiction of a declaratory
judgment action."

Ass o ciated Indem. Corp. v. Fairchild Indus . ,

961 F . 2d 32, 35 (2d Cir. 1992)

(internal citations omitted).

Here , despite the contingent question of whether Elagolix will
ever be sold publically, Neurocrine's claims are ripe and it is
more efficient to resolve them in this action.

Dish Network,

LLC v . Am . Broad. Cos . , No . 12 Civ. 4155, 2012 WL 2719161, at *3

(S . D. N.Y . July 9 , 2012)

("One of the primary purposes of

declaratory relief is to promote efficiency-i . e ., to allow one
action to define the legal relationships and adjust the
attendant rights and obligations at issue between the parties")
(internal citations omitted) .

While the declaratory judgment claims are ripe, they
are dismissed for the same reasons articulated above in deciding
the paral l el claims to strike affirmative defenses.

The

underlying claims for the declaratory judgment counterclaims for

17

patent invalidity , non-infringement , and misuse are the same
substant i ve legal claims as the affirmative defense claims
discussed above and are dismissed for the same reasons .

18

.

.

Conclusion

Based o n the conclusions set forth above , Plaintiff's
motion to strike affirmative defenses 11-14 and to d i smi ss
counte r claims I - IV is granted .

It is so ordered.

7

New York, NY

ROBERT W. SWEET

March / / , 2017

U.S.D.J.

19