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

Citations: 243 F. Supp. 3d 470; 2017 WL 1063453; 2017 U.S. Dist. LEXIS 39763Docket: 15 Civ. 9414

Court: District Court, S.D. New York; March 20, 2017; Federal District Court

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The court granted the Plaintiff Icahn School of Medicine at Mount Sinai's motion to strike the Defendant Neurocrine Biosciences, Inc.'s affirmative defenses related to patent invalidity, non-infringement, and misuse, as well as to dismiss the corresponding declaratory judgment counterclaims. The Plaintiff had previously alleged that Neurocrine breached a licensing agreement concerning a sublicense to Abbott International Luxembourg S.a.r.l. The court found that Mt. Sinai adequately demonstrated Neurocrine's violation of the agreement and established sufficient damages, despite the license being limited to two patents. 

The Plaintiff, a New York education corporation, holds rights to technology for drug discovery related to the hormone GnRH, essential for treating various endocrine disorders. Neurocrine, a Delaware corporation, develops pharmaceuticals for neurological and endocrine conditions, while AbbVie (formerly Abbott) conducts drug development and manufacturing. The parties entered a patent license agreement in 1999 for certain drug discovery tools, including two now-expired patents. The foundational drug-discovery tools, invented by Dr. Stuart C. Sealfon, are crucial for Neurocrine's drug development efforts targeting GnRH-related diseases.

On August 27, 1999, Neurocrine and Mt. Sinai entered a Nonexclusive License Agreement, stipulating that Neurocrine could only grant sublicenses with Mt. Sinai's prior written consent. During negotiations, both parties anticipated that Neurocrine would sublicense further drug development efforts if a promising drug candidate was identified, which would require costly Phase 3 clinical trials. Neurocrine allegedly identified "Elagolix," a candidate for treating endocrine disorders, using licensed tools but failed to provide the required annual development reports, constituting a breach of contract. By early 2001, Neurocrine had discovered Elagolix. In June 2010, Neurocrine entered an agreement with AbbVie to develop Elagolix without obtaining Mt. Sinai's consent, granting AbbVie worldwide exclusive rights for its commercialization. Elagolix is currently undergoing FDA testing and has not been approved for sale. There is a dispute between the parties regarding whether Mt. Sinai is seeking royalties from future sales or damages for the breach. The document further outlines legal standards for motions to strike under Rule 12(f), emphasizing that such motions are generally disfavored unless a defense clearly lacks relevance or would unfairly prejudice the plaintiff. Additionally, it addresses subject matter jurisdiction under Rule 12(b)(1), stating that courts can only adjudicate actual controversies and that the burden of proving jurisdiction lies with the party seeking declaratory relief.

Neurocrine is barred from challenging the validity of certain patents held by Mt. Sinai, as it has already benefited from a licensing agreement with them. Neurocrine's arguments for patent invalidity, citing Myriad Genetics and asserting issues like anticipation and obviousness under 35 U.S.C. 102, 103, and 112, are not addressed on their merits in this motion. The central issue is whether Neurocrine can assert patent invalidity to escape contractual obligations and royalties owed at the time of the suit, a matter of contention between the parties. 

Supreme Court precedent (Lear, Inc. v. Adkins) allows licensees to challenge patent validity even after benefiting from a license, emphasizing the public interest in allowing such challenges. However, the Federal Circuit has created an exception when the licensee is attempting to evade existing contractual obligations. In this case, Mt. Sinai seeks damages for an alleged unlawful sublicense by Neurocrine to AbbVie in 2010, claiming that the appropriate measure of damages is the market value of the lost asset at the time of breach, rather than future lost profits. Neurocrine contends that only past royalties are compensable, but Mt. Sinai argues that its damages are distinct and permissible as they stem from the breach of the licensing agreement.

The Federal Circuit's ruling in Shell Oil establishes that a licensee cannot evade liability for damages due to a breach of a license agreement if the breach occurred before the licensee contested the validity of the patent claims. Neurocrine contends that it should be allowed to assert an invalidity defense to avoid injustice based on the unclean hands doctrine, arguing that Mt. Sinai delayed over five years to file its claim. However, the claim was made within New York's breach of contract statute of limitations. The relevant case law indicates that a party cannot claim an equitable defense based on another's delay if it contributed to that delay, but this does not apply as Mt. Sinai’s claim is for damages from a breach that allegedly happened in 2010, not for delay.

Neurocrine is estopped from asserting patent invalidity to escape its obligations under the License Agreement, leading to the striking of its twelfth and thirteenth affirmative defenses. Mt. Sinai is limited to claiming damages reflective of what it could have reasonably obtained at the time of the 2010 breach, rather than claiming royalties on Elagolix sales.

Neurocrine's Eleventh Affirmative Defense for Non-Infringement is also struck down. This defense was introduced to assert that it would not owe royalties based on Elagolix sales, despite the absence of any infringement claim from Mt. Sinai. Neurocrine’s licensing of Mt. Sinai’s patented technology makes this defense irrelevant, as infringement claims arise only when a party acts without authority under 35 U.S.C. 271(a).

Additionally, Neurocrine's Fourteenth Affirmative Defense for Patent Misuse is dismissed. This defense argues that Mt. Sinai seeks impermissible royalties on Elagolix sales despite lacking ownership of related patents, and that these royalties extend beyond the life of the relevant drug discovery patents. Notably, case law cited, including Kimble v. Marvel and Medtronic, does not support its assertion.

Mt. Sinai's claims center on whether it seeks royalties from future Elagolix sales or damages for Neurocrine's alleged breach of the License Agreement by sublicensing to AbbVie without permission. Mt. Sinai is barred from claiming royalties on future sales. If it proves Neurocrine breached the agreement, it can only seek damages equivalent to the value of the sublicense, not future royalties. Neurocrine contends that Mount Sinai's claims impose undue pressure, effectively coercing them into accepting an unreasonable royalty arrangement.

The court finds that allowing Neurocrine’s affirmative defenses would unduly prejudice Mt. Sinai, as it would complicate the case with irrelevant technical and legal issues, leading to increased costs and delays. Thus, affirmative defenses 11 through 14 are stricken.

Regarding the declaratory judgment counterclaims concerning patent invalidity, non-infringement, and misuse, the court assesses their ripeness. Despite the uncertainty of Elagolix's market availability, the claims are deemed ripe because they present a substantial controversy warranting resolution. However, these claims are dismissed for the same reasons as the affirmative defenses, as they share the same substantive legal issues. Consequently, Mt. Sinai's motions to strike the affirmative defenses and dismiss the counterclaims are granted.