FILED: NEW YORK COUNTY CLERK 01/27/2015 05:59 PM
Transcription
FILED: NEW YORK COUNTY CLERK 01/27/2015 05:59 PM
INDEX NO. 653590/2013 FILED: NEW YORK COUNTY CLERK 01/27/2015 05:59 PM NYSCEF DOC. NO. 10 RECEIVED NYSCEF: 01/27/2015 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK NEW YORK UNIVERSITY, Plaintiff, v. PFIZER INC., Defendant. : : : : : : : : : : Index No. 653590/2013 MEMORANDUM IN SUPPORT OF DEFENDANT PFIZER’S MOTION TO DISMISS WHITE & CASE LLP Gregory Little Dimitrios Drivas Christopher Glancy Robert Counihan Jonathan Sorkowitz Eric Majchrzak 1155 Avenue of the Americas New York, New York 10036 Telephone: (212) 819-8200 Facsimile: (212) 354-8113 Attorneys for Defendant Pfizer, Inc. Americas 90385625 v5 Table of Contents Page PRELIMINARY STATEMENT .....................................................................................................1 STATEMENT OF FACTS ..............................................................................................................3 A. B. The NYU/Sugen Agreement ....................................................................................3 1. Royalty Obligation (Section 8) ....................................................................4 2. Sugen Ownership Change (Section 9) .........................................................4 3. Post-Termination Rights ..............................................................................5 The Allegations in the Complaint ............................................................................6 1. The Development of Xalkori® (Crizotinib) .................................................6 2. The EML4-ALK Receptor Target ...............................................................7 3. NYU’s “Research Technology” ...................................................................8 ARGUMENT ...................................................................................................................................8 I. THE COMPLAINT MUST BE DISMISSED BECAUSE XALKORI® IS NOT A “SUGEN PRODUCT” UNDER SECTION 8 OF THE AGREEMENT .........10 II. NYU’s INTERPRETATION OF SECTION 9 IS UNREASONABLE AND MAKES NO COMMERCIAL SENSE ....................................................................12 A. Section 9’s Royalty Obligation is Determined at the Time of a Sugen Ownership Change .....................................................................13 B. NYU’s Interpretation of Section 9 is Commercially Unreasonable ......................17 C. NYU’s Interpretation of Section 9 Leads to Absurd Results .................................19 CONCLUSION ..............................................................................................................................20 Americas 90385625 v5 TABLE OF AUTHORITIES CASES Ashwood Capital Inc. v. OTG Mgmt., Inc., 99 A.D.3d 1, 948 N.Y.S.2d 292 (1st Dep’t 2012) ..................................................................................9, 10, 16 B&R Mgmt. & Leasing Corp. v. Triarc Restaurant Grp., 2 69 A.D.2d 804, 703 N.Y.S.2d 635 (4th Dep’t 2000) ..................................................................10 Bailey v. Fish & Neave, 8 N.Y.3d 523, 837 N.Y.S.2d 600 (2007) ...................................................10 Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 834 N.Y.S.2d 44 (2007) ............................................9, 10 Better Living Now, Inc. v. Image Too, Inc.67 A.D.3d 940, 889 N.Y.S.2d 653 (2d Dep’t 2009) .............................................................................................15 Bijan Designer For Men, Inc. v. Fireman’s Fund Ins. Co., 264 A.D.2d 48, 705 N.Y.S.2d 30 (1st Dep’t 2000) ....................................................................13 Bronxville Knolls, Inc. v. Webster Town Ctr. P’ship, 221 A.D.2d 248, 634 N.Y.S.2d 62 (1st Dep’t 1995) ..................................................................10 Eighth Ave. Coach Corp. v. City of N.Y., 286 N.Y. 84 (1941) .........................................................13 Greenwich Capital Fin. Prods., Inc. v. Negrin, 74 A.D.3d 413, 903 N.Y.S.2d 346 (1st Dep’t 2010) ............................................................................................16 Haines v. City of N.Y., 41 N.Y.2d 769, 396 N.Y.S.2d 155 (1977) ...................................................15 Luitpold Pharms., Inc. v. Ed. Geistlich Sohne A.G. Fur Chemische Industrie, No. 11 Civ. 681(KBF), 2012 WL 1372160 (S.D.N.Y. Apr. 17, 2012) ......................................15 MatlinPatterson ATA Holdings LLC v. Fed. Express Corp., 87 A.D.3d 836, 929 N.Y.S.2d 571 (1st Dep’t 2011) ....................................................................8 Matter of Lipper Holdings, LLC v. Trident Holdings, LLC, 1 A.D.3d 170, 766 N.Y.S.2d 561 (1st Dep’t 2003) ..............................................................10, 17 Matter of Westmoreland Coal Co. v. Entech, Inc., 100 N.Y.2d 352, 763 N.Y.S.2d 525 (2003) ............................................................................................................10 Mitler v. Friedeberg, 32 Misc. 2d 78 (Sup. Ct. N.Y. Cnty. 1961)....................................................15 Morpheus Capital Advisors LLC v. UBS AG, 23 N.Y.3d 528, 992 N.Y.S.2d 178 (2014) ............................................................................................................19 Americas 90385625 v5 Namad v. Salomon Inc., 74 N.Y.2d 751, 545 N.Y.S.2d 79 (1989)...................................................16 Peter F. Gaito Architecture, LLC v. Simone Dev. Corp., 46 A.D.3d 530, 846 N.Y.S.2d 368 (2d Dep’t 2007) ...............................................................................................9 Peter Lampack Agency, Inc. v. Grimes, 93 A.D.3d 430, 939 N.Y.S.2d 409 (1st Dep’t 2012) ....................................................................................................................16, 18 Pincus v. Wells, 35 A.D.3d 569, 826 N.Y.S.2d 423 (2d Dep’t 2006) ................................................8 Riback v. Margulis, 43 A.D.3d 1023, 842 N.Y.S.2d 54 (2d Dep’t 2007) ..........................................8 Sud v. Sud, 211 A.D.2d 423, 621 N.Y.S.2d 37 (1st Dep’t 1995)........................................................8 Superb Gen. Contracting Co. v. City of N.Y., 39 A.D.3d 204, 833 N.Y.S.2d 64 (1st Dep’t 2007) ........................................................................................16, 19 Tal v. Malekan, 305 A.D.2d 281, 760 N.Y.S.2d 36 (1st Dep’t 2003) ................................................8 Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 775 N.Y.S.2d 765 (2004) ............................................................................................................10 W.W.W. Assoc. v Giancontieri, 77 N.Y.2d 157, 565 N.Y.S.2d 440 (1990)........................................9 Wilson v. Tully, 243 A.D.2d 229, 676 N.Y.S.2d 531 (1st Dep’t 1998) ..............................................8 STATUTES AND RULES 21 C.F.R. Part 312...............................................................................................................................4 C.P.L.R. § 3211(a)(1) .........................................................................................................................9 CPLR § 3211(a)(7) .............................................................................................................................8 MISCELLANEOUS M. Soda et al., Identification of the transforming EML4-ALK fusion gene in non-small-cell lung cancer, 448(7153) Nature 561-66 (2007) .....................................................................................7 Americas 90385625 v5 Pfizer Inc. (“Pfizer”) submits this memorandum of law in support of its motion to dismiss the First Amended Complaint of New York University (“NYU”) (“Complaint” or “Comp.”) pursuant to Rules 3211(a)(1) and 3211(7) of the New York Civil Practice Law and Rules (“CPLR”). A true and correct copy of the Complaint filed January 5, 2015 is attached as Exhibit 1 to the Affirmation of Robert Counihan, dated January 27, 2015 (the “Counihan Aff.”). PRELIMINARY STATEMENT NYU demands royalties from Pfizer for the cancer treatment drug Xalkori® based on the alleged breach of a research agreement entered into by Sugen, Inc. (“Sugen”) and NYU in 1991. That claim is foreclosed by the plain language of the agreement and the allegations in NYU’s own Complaint. As set forth in the Complaint, under the NYU/Sugen research agreement, Sugen agreed to fund NYU’s research into certain receptor targets thought to be useful in the development of drugs to treat cancer. The belief was that drugs could be developed that inhibit the growth of cancer cells by binding to specific receptor targets in those cells. But those targets first needed to be identified. Sugen agreed to fund NYU’s research into finding suitable targets for drug development for a period of ten years, defined as the “Research Period.” During the Research Period, NYU would work to identify possible receptor targets, and Sugen would work to develop drugs that bind to those targets. Under the research agreement, NYU granted Sugen a worldwide exclusive license to the fruits of NYU’s research, i.e., its patents and its confidential know-how. In exchange for that license, Sugen agreed to pay NYU a royalty on any Sugen drug that binds to an identified receptor target and is developed based on NYU’s patents and know-how, provided certain other conditions were met. Pfizer in fact pays NYU considerable royalties for another drug developed by Sugen, Sutent®. Americas 90385625 v5 Sugen’s royalty obligation, however, was not open-ended. The agreement expressly provides that Sugen owes a royalty only for a drug for which an Investigational New Drug application (IND) is filed “within four years from the end of the Research Period.” There is a narrow exception to the four-year IND filing requirement: in the event of a change in Sugen ownership, Sugen would pay a royalty on any drug developed based on a target that Sugen had not adopted into drug discovery prior to the ownership change, without regard to the four-year IND filing requirement, provided that there “exists,” on the date of that ownership change, a patent claim with respect to that unadopted target which was derived from or based on NYU’s patents and know-how. This exception served to protect NYU against an acquirer unfairly benefiting from NYU research technology on a target identified during the Research Period, but not adopted into drug development at Sugen. Sugen was acquired by Pharmacia in 1999, and Pfizer acquired Sugen through its acquisition of Pharmacia in 2003. Xalkori® is the brand name for the drug whose generic name is crizotinib. NYU alleges that crizotinib was developed using NYU know-how as an inhibitor for the receptor target c-Met. NYU also alleges that Sugen adopted c-Met into drug discovery before the expiration of the Research Period in September 2001. Indisputably, the IND for crizotinib, which identifies c-Met as a receptor target, was filed in December 2005, more than four years after the end of the Research Period. By operation of the agreement, therefore, no royalties are due to NYU on crizotinib. Accordingly, NYU is not entitled to any royalties for sales of Xalkori®, the brand name of crizotinib. Faced with these undeniable facts, NYU seeks a royalty by attempting to shoehorn crizotinib into the ownership change exception of the agreement, arguing that while crizotinib was developed based on c-Met, Xalkori® somehow was not. NYU alleges that Xalkori® was Americas 90385625 v5 2 developed based on a separate receptor target, EML4-ALK, but concedes that EML4-ALK was discovered in 2007 – six years after the Research Period ended – by a separate group of researchers in Japan who were the first to identify EML4-ALK and its connection to non-small cell lung cancer. Spurred by the publication of that independent discovery, Pfizer determined, completely independent of NYU, that crizotinib could inhibit EML4-ALK, in addition to c-Met, and thus be useful in treating patients with non-small cell lung cancer who test positive for the EML4-ALK receptor. NYU does not allege – nor could it – that its technology was used to identify EML4-ALK. For all of these reasons, as set forth further below, under the plain language of the research agreement and the allegations in the Complaint, NYU’s claim for royalties is precluded. Because the claim is precluded, the Complaint fails to state a cause of action upon which relief can be granted. It should be dismissed with prejudice. STATEMENT OF FACTS A. The NYU/Sugen Agreement On August 16, 1991, Sugen and NYU signed the “NYU/Sugen Research and License Agreement,” which was amended on November 30, 1993 and again in about 1996 (the “Agreement”). Compl. ¶ 20; Counihan Aff. Ex. 2. Under the Agreement, Sugen agreed to fund an “NYU Research Project” in the field of certain “Receptors,” including tyrosine kinases, believed to be useful in the development of drugs to treat cancer. Compl. ¶ 14; Agmt. §§ 1(m), 4. NYU granted Sugen an exclusive worldwide license to its “Research Technology.” Agmt. § 7. In exchange for that license, Sugen agreed to pay NYU a royalty on drugs that Sugen developed based on NYU Research Technology that target identified receptors. Agmt. § 8. Relevant provisions of the Agreement are summarized below. Americas 90385625 v5 3 1. Royalty Obligation (Section 8) Section 8 of the Agreement, entitled “Payments for License,” sets forth Sugen’s royalty obligation. Pursuant to Section 8, Sugen agreed to pay NYU a 1% royalty “with respect to each SUGEN Product.” Agmt. § 8(b). The Agreement defines a “SUGEN Product” as: any product for the diagnosis, treatment or prevention of human disease which comprises [Receptors or related substances], provided that an Investigational New Drug (IND)1 application is filed for such SUGEN Product within 4 years from the end of the Research Period. . . . Agmt. § 1(q) (emphasis in original). Section 1(n) defines the Research Period as the “ten year period” commencing on September 1, 1991. Id. at § 1(n). The Complaint alleges that the Research Period ended on September 1, 2001. Compl. ¶¶ 17, 21. Thus, a product is a “SUGEN Product” subject to royalties under Section 8 if – and only if – an IND was filed for that product prior to September 1, 2005. 2. Sugen Ownership Change (Section 9) Section 9 of the Agreement, entitled “SUGEN Ownership Change,” defines the parties’ rights and obligations in the event of an acquisition, merger or joint venture involving Sugen. Agmt. § 9. Section 9 states that if Sugen is acquired by or merged with another company, or if Sugen acquires or enters into a joint venture with another company, Sugen may, at its option, notify NYU that “such other company wishes to make a determination as to which targets shall be included under the terms of the Agreement.” Id. That determination is to be made jointly by NYU and Sugen, in good faith, and “prior to the effective date of [the ownership change] or as soon as possible thereafter.” Id. Section 9 then distinguishes between two types of receptor targets that exist prior to the date of the Sugen ownership change: “targets that were adopted into drug discovery” by Sugen, 1 An IND Application is a request for authorization from the Food and Drug Administration (FDA) to administer an investigational drug to humans. 21 C.F.R. Part 312. Americas 90385625 v5 4 and “targets which were not adopted into drug discovery” by Sugen. Id. SUGEN Products based on receptor targets that Sugen had adopted into drug discovery prior to the ownership change are subject to the royalty provisions of Section 8: With respect to targets that were adopted by SUGEN into drug discovery prior to the effective date of the acquisition, merger, or joint venture, SUGEN Products developed based on such targets shall be subject to the license payments described in Section 8 hereto. Id. SUGEN Products based on receptor targets that Sugen had not adopted into drug discovery prior to the ownership change are subject to a 2.5% royalty. Id. This royalty obligation contains an important proviso: with respect to such “not adopted” targets, there must exist, at the time of the ownership change, a “Patentable Invention with respect to such target and/or its utility which is derived from or based on” NYU’s Research Technology: SUGEN Products that are developed based on Receptor targets which were not adopted into drug discovery at the time of the effective date of such acquisition, merger, or joint venture shall be subject to a) a royalty of 2.5% on Net Sales of SUGEN and b) 10% of License Revenues, provided that with respect to such SUGEN Product there exists a Patentable Invention with respect to such target and/or its utility which is derived from or based on the Research Technology, and provided further that such SUGEN Product shall include a product irrespective of whether an IND application is filed with respect thereto within 4 years from the end of the Research Period, or not. Id. (emphasis added). A “Patentable Invention” is a claim in an issued, valid and unexpired patent or a claim in a pending patent application. Id. at 1(l). “Research Technology” is defined as “all NYU Patents and NYU Know-How.” Id. at § 1(o). “NYU Know-How” must be discovered, developed or acquired by NYU “during the term and in the course of the [Research Period].” Id. at § 1(i). 3. Post-Termination Rights Section 17 sets forth the parties’ rights and obligations upon termination. Section 17(d) reads, in relevant part: Americas 90385625 v5 5 [I]f either party terminates this Agreement for any reason permitted hereunder, all rights in and to the Research Technology shall revert to NYU, and . . . SUGEN or any Sublicensee thereof shall not be entitled to make any further use of such rights (except to the extent that a third party is free to use them without a license from NYU), provided, that SUGEN shall retain all of its right, title and interest in, to and under any other technology developed by or on behalf of SUGEN (and not developed by NYU). Id. at § 17(d) (emphasis in original). Thus, upon termination, Sugen is free to use NYU’s Research Technology to the extent such information is freely available to third parties. B. The Allegations in the Complaint For purposes of this motion, the allegations in the Complaint are accepted as true. 1. The Development of Xalkori® (Crizotinib) Crizotinib is the active ingredient in Xalkori®. Compl. ¶ 38. Crizotinib was developed by Sugen as an inhibitor of the receptor target c-Met. Id. at ¶¶ 4, 37, 39 (the Complaint refers to c-Met as “MET”). The Complaint alleges that Sugen’s c-Met research began in 1996, during the Research Period, which ended in 2001. Id. at ¶¶ 17, 21, 37. c-Met is a tyrosine kinase receptor and thus a “Receptor” under the Agreement. Id. ¶ 4; Agmt. § 1(m). Thus, c-Met was a Receptor “target[] that [was] adopted by SUGEN into drug discovery” in 1996. Agmt. § 9. The Complaint alleges that Sugen’s work with c-Met led to the creation of the small-molecule inhibitor crizotinib, and that Pfizer markets crizotinib under the trade name Xalkori®. Compl. ¶¶ 4, 38-39. Crizotinib is a c-Met inhibitor. Id. at ¶¶ 5, 39. Sugen was acquired by Pharmacia in 1999. Id. at ¶¶ 16, 45. Thus, c-Met was a Receptor “target[] that [was] adopted by SUGEN into drug discovery prior to the effective date of the acquisition” by Pharmacia. Id. ¶ 37; Agmt § 9. Pfizer acquired Sugen through its acquisition of Pharmacia in 2003, two years after the Research Period ended. Compl. ¶ 18. On December 12, Americas 90385625 v5 6 2005, Pfizer filed an IND for crizotinib, naming c-Met as a target. Id. at ¶ 43; Counihan Aff. Ex. 3, at 4. Since 2006, Pfizer has been paying NYU royalties on the sale of Sutent®, another cancer treatment drug and a SUGEN Product under the Agreement. Compl. ¶¶ 26, 52, 55. NYU considers Sutent® a success story. Id. at ¶¶ 52, 53. 2. The EML4-ALK Receptor Target EML4-ALK is a receptor target that was not known prior to 1999, when Sugen was acquired by Pharmacia, and was not known prior to Pfizer’s acquisition of Pharmacia in 2003. Compl. ¶ 45. As alleged in the Complaint, EML4-ALK was first identified in 2007, six years after the Research Period ended, by researchers at a Japanese university, unaffiliated with NYU. In July 2007, the Japanese researchers published a scientific report that identified as a new receptor target, EML4-ALK (a mutated form of the anaplastic lymphoma kinase (“ALK”) receptor), and described its association with non-small cell lung cancer. Compl. ¶¶ 5, 41 (citing M. Soda et al., Identification of the transforming EML4-ALK fusion gene in non-small-cell lung cancer, 448(7153) Nature 561-66 (2007). The Complaint alleges that, based on that information, “Pfizer began to investigate the specific targeting of the EML4-ALK receptor to treat” non-small cell lung cancer. Id. at ¶ 41. The Complaint alleges that “[t]he target receptor EML4-ALK was only first adopted into drug discovery by Pfizer in about 2007, after” the Japanese publication of EML4-ALK. Id. at ¶ 42. Pfizer scientists, without using any NYU Research Technology, subsequently determined that crizotinib inhibited the EML4-ALK receptor in addition to the c-Met receptor. Id. at ¶ 43. Pfizer then selected EML4-ALK, in addition to c-Met, as a possible target, and amended its IND for crizotinib to include clinical studies of lung cancer patients who test positive for the EML4ALK receptor. Id. Americas 90385625 v5 7 In paragraph 44, the Complaint alleges the following: A passage in the section from the FDA Drug Approval Package for XALKORI entitled, “Clinical Pharmacology and Biopharmaceutics Review(s)” states: “Although initially developed against c-MET, Crizotinib showed pre-clinical and clinical activity against ALK. Due to ALK emergence as a potentially relevant oncogenic target at the time, Crizotinib development was shifted to target ALK+NSCLC.” It is thus clear that in 2007 the newly recognized EML4-ALK receptor became a new target Receptor and crizotinib became the subject of a new drug discovery program targeting the EML4-ALK receptor for treating [nonsmall cell lung cancer]. Compl. ¶ 44. 3. NYU’s “Research Technology” The Complaint alleges that crizotinib was derived from or based on NYU’s “Research Technology,” i.e., NYU Patents or NYU Know-How. Compl. ¶ 61. It also alleges that NYU’s Research Technology under the Agreement “is illustrated . . . in paragraphs 27-37” of the Complaint. Id. at ¶ 46. Not surprisingly, these paragraphs contain no reference to the EML4ALK receptor. The Complaint does not allege that the discovery of EML4-ALK was “derived from or based on” any NYU Research Technology. Agmt. § 9. Nor does it allege that there was any patent claim “with respect to” EML4-ALK that was “derived from or based on” any NYU patent or confidential know-how prior to Pharmacia’s acquisition of Sugen. ARGUMENT Under CPLR 3211(a)(7), a complaint “must contain allegations concerning each of the material elements necessary to sustain recovery under a viable legal theory,” or it must be dismissed. MatlinPatterson ATA Holdings LLC v. Fed. Express Corp., 87 A.D.3d 836, 839, 929 N.Y.S.2d 571, 575 (1st Dep’t 2011) (internal quotation marks omitted). Only well-pled factual allegations are treated as true for purposes of a motion to dismiss. Wilson v. Tully, 243 A.D.2d 229, 234, 676 N.Y.S.2d 531, 535 (1st Dep’t 1998). Conclusory allegations, legal conclusions Americas 90385625 v5 8 and factual claims contradicted by the record are disregarded. See Riback v. Margulis, 43 A.D.3d 1023, 1023, 842 N.Y.S.2d 54, 54 (2d Dep’t 2007); Pincus v. Wells, 35 A.D.3d 569, 570, 826 N.Y.S.2d 423, 425 (2d Dep’t 2006); Tal v. Malekan, 305 A.D.2d 281, 281, 760 N.Y.S.2d 36, 37 (1st Dep’t 2003); Wilson, 243 A.D.2d at 234, 676 N.Y.S.2d at 535-56; Sud v. Sud, 211 A.D.2d 423, 424, 621 N.Y.S.2d 37, 38 (1st Dep’t 1995). Dismissal is also appropriate where “a defense is founded upon documentary evidence.” C.P.L.R. § 3211(a)(1); see also Beal Sav. Bank v. Sommer, 8 N.Y.3d 318, 324, 834 N.Y.S.2d 44, 47 (2007) (“On a motion to dismiss pursuant to CPLR 3211, the court may grant dismissal when ‘documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law.’” (citations omitted)); Peter F. Gaito Architecture, LLC v. Simone Dev. Corp., 46 A.D.3d 530, 530, 846 N.Y.S.2d 368, 369 (2d Dep’t 2007) (“If the documentary proof disproves an essential allegation of the complaint, dismissal . . . is warranted even if the allegations, standing alone, could withstand a motion to dismiss for failure to state a cause of action.”). Here, the Complaint must be dismissed because, under the clear and unambiguous terms of the Agreement and the facts alleged in the Complaint, NYU is not entitled to a royalty on crizotinib. Faced with the operation of the clear terms of the Agreement, NYU relies on a strained and absurd interpretation of the last sentence of Section 9, alleging that a third party’s discovery of a new target in 2007, six years after the Research Period ended, entitles NYU to a royalty on crizotinib. In light of the Agreement, however, these allegations fail to support a claim for breach. Americas 90385625 v5 9 I. THE COMPLAINT MUST BE DISMISSED BECAUSE XALKORI® IS NOT A “SUGEN PRODUCT” UNDER SECTION 8 OF THE AGREEMENT “[W]hen parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms.” W.W.W. Assoc. v Giancontieri, 77 N.Y.2d 157, 162, 565 N.Y.S.2d 440, 443 (1990). This rule is applied “with even greater force in commercial contracts negotiated at arm’s length by sophisticated, counseled businesspeople.” Ashwood Capital Inc. v. OTG Mgmt., Inc., 99 A.D.3d 1, 7, 948 N.Y.S.2d 292, 297 (1st Dep’t 2012) (citing cases); see also Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470, 475, 775 N.Y.S.2d 765, 767 (2004). In such cases, “courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include.” Ashwood Capital, 99 A.D.3d at 7, 948 N.Y.S.2d at 297 (quoting Vermont Teddy Bear, 1 N.Y.3d at 475, 775 N.Y.S.2d at 768). Further, a contract should be “read as a whole, and every part will be interpreted with reference to the whole; and if possible it will be so interpreted as to give effect to its general purpose.” Beal Sav. Bank, 8 N.Y.3d at 324-325, 834 N.Y.S.2d at 48 (quoting Matter of Westmoreland Coal Co. v. Entech, Inc., 100 N.Y.2d 352, 358, 763 N.Y.S.2d 525, 528 (2003)). “A contract should not be interpreted to produce a result that is absurd, commercially unreasonable, or contrary to the reasonable expectations of the parties.” Matter of Lipper Holdings, LLC v. Trident Holdings, LLC, 1 A.D.3d 170, 171, 766 N.Y.S.2d 561, 562 (1st Dep’t 2003) (internal citations omitted). New York courts routinely dismiss breach of contract claims where the contract does not support a viable claim of breach. See, e.g., Bailey v. Fish & Neave, 8 N.Y.3d 523, 529, 837 N.Y.S.2d 600, 604 (2007) (affirming dismissal where “the Agreement, read as a whole” was Americas 90385625 v5 10 “clear”); Beal Sav. Bank, 8 N.Y.3d at 332, 834 N.Y.S.2d at 53 (affirming dismissal “based on the explicit language of the agreements and the provisions read as a whole”); Ashwood Capital, 99 A.D.3d at 4, 948 N.Y.S.2d at 295 (1st Dep’t 2012) (affirming dismissal where contract term “unambiguously limited the scope of the contract”); B&R Mgmt. & Leasing Corp. v. Triarc Restaurant Grp., 269 A.D.2d 804, 805-06, 703 N.Y.S.2d 635, 636 (4th Dep’t 2000) (reversing and ordering dismissal where breach of contract allegations were refuted by the language of the agreements); Bronxville Knolls, Inc. v. Webster Town Ctr. P’ship, 221 A.D.2d 248, 248, 634 N.Y.S.2d 62, 63 (1st Dep’t 1995) (affirming dismissal where an “explicit and unambiguous” contract provision precluded the underlying action). Here, NYU’s claim for royalties on crizotinib, branded as Xalkori®, is precluded by the plain and unambiguous language of the Agreement and the allegations in its own Complaint. The Agreement entitles NYU to royalties only for a “SUGEN Product.” Agmt. § 8. The Agreement defines “SUGEN Product” as a product for which an IND is filed “within 4 years from the end of the Research Period.” Agmt. § 1(q). As NYU concedes, the Research Period ended on September 1, 2001. See Compl. ¶¶ 17, 21. The IND for crizotinib was filed in December 2005, more than four years after the Research Period ended. NYU does not – and cannot – plead that an IND was filed for crizotinib within four years from the Research Period’s end, as required by the Agreement. Thus, the Complaint does not establish that crizotinib is a “SUGEN Product” subject to royalties under Section 8. Seeking to avoid the unambiguous definition of “SUGEN Product” and the clear application of Section 8, NYU alleges that crizotinib is a SUGEN Product under Section 9 of the Agreement. Compl. ¶ 60. Section 9 is unavailing. Section 9 provides that, on the date of a Sugen ownership change, identified receptor targets will be divided into two buckets: those that Americas 90385625 v5 11 were adopted into drug discovery prior to the ownership change, and those that were not. As to the first bucket, any SUGEN Product that is developed based on such target is indisputably subject to the royalty provisions of Section 8. Agmt. § 9. Accepting the allegations in the Complaint as true, crizotinib was developed based on cMet. Compl. ¶¶ 4, 37, 39. Sugen began research into c-Met in 1996, and thus had adopted cMet into drug discovery prior to its acquisition by Pharmacia in 1999. Id. at ¶ 37. Thus, according to the allegations in the Complaint and the clear and unambiguous language of the Agreement, crizotinib falls squarely within the first bucket of Section 9: a product developed based on a “target[] that [was] adopted by SUGEN into drug discovery prior to the effective date of the acquisition, merger, or joint venture.” Agmt. § 9. As such, under the express terms of Section 9, crizotinib is subject to the royalty provisions of Section 8. But because crizotinib is indisputably not a “SUGEN Product” under Section 8 – because the IND for crizotinib was not filed within four years of the Research Period’s end – no royalties are due. As a result, NYU’s claim for royalties is precluded, and the Complaint must be dismissed. II. NYU’s INTERPRETATION OF SECTION 9 IS UNREASONABLE AND MAKES NO COMMERCIAL SENSE Even if NYU’s pleadings regarding c-Met did not doom its claim – and it does – the Complaint still should be dismissed because NYU is not entitled to royalties under Section 9 based on the discovery of a new receptor target, EML4-ALK, six years after the Research Period ended. In support of its claim, NYU relies on an absurd interpretation of the last sentence of Section 9 that is unmoored from any temporal or party limitation. NYU apparently interprets the Americas 90385625 v5 12 last sentence of Section 9 as creating a perpetual royalty obligation that can be triggered by any receptor target that was not adopted into drug discovery prior to a Sugen ownership change, even if that receptor target is discovered by a third party and that discovery is made years after the ownership change occurred and the Research Period ended. Moreover, according to NYU, a “Patentable Invention” could be found in a patent application owned by anyone – not just Sugen or NYU – and filed years after the ownership change occurred and the Research Period ended. In addition, that patent claim – which need not be found in a valid, issued patent – can be based on any NYU information relating to receptor targets generally, even if that information is all in the public domain and does not specifically relate to the newly-discovered target. Thus, under NYU’s interpretation, Pfizer owes a 2.5% royalty on any drug that targets any receptor that is discovered at any time, by anyone, provided there exists, at any time, a patent claim in a pending application (owned by anyone) that somehow relates to that target and is based on any NYU know-how. This interpretation is contrary to the plain language of Section 9, commercially unreasonable, defies common sense, and leads to absurd results. A. Section 9’s Royalty Obligation is Determined at the Time of a Sugen Ownership Change The last sentence of Section 9 must be read in the context of the paragraph in which it appears and the Agreement as a whole. See Bijan Designer For Men, Inc. v. Fireman’s Fund Ins. Co., 264 A.D.2d 48, 52, 705 N.Y.S.2d 30, 33 (1st Dep’t 2000) (“In a written document the word obtains its meaning from the sentence, the sentence from the paragraph, and the latter from the whole document.” (quoting Eighth Ave. Coach Corp. v. City of N.Y., 286 N.Y. 84, 89 (1941)). Read in context, the last sentence of Section 9 must be construed to cover only targets that were identified prior to a Sugen ownership change. Americas 90385625 v5 13 The entire focus of Section 9 is on a single event that occurs at a single point in time: a Sugen ownership change. Indeed, Section 9 begins with the phrase “In the event that SUGEN is acquired or merged with another company . . .,” and uses the phrase “the effective date of such acquisition, merger or joint venture” three times to demarcate the parties’ rights and obligations. Agmt. § 9 (emphasis added). That Section 9 applies only to targets that were identified as of the ownership change is confirmed by the entirety of section. Section 9 is entitled “SUGEN Ownership Change.” It addresses the parties’ rights and obligations upon the occurrence of a specific event, an acquisition, merger or joint venture involving Sugen. The purpose of this provision is clear: it allows a potential acquirer or merger partner to perform its due diligence by assessing its potential obligations to NYU under the Agreement before it consummates the deal. This allows both contracting parties to more accurately price the transaction, and it allows an acquiring company to assess its potential exposure. Section 9 grants Sugen the right, at its option, to initiate a negotiation with NYU to determine, in good faith, which targets are covered by the Agreement and which targets are not. That negotiation must take place “prior to [the ownership change] or as soon as possible thereafter.” Agmt. § 9 (emphasis added). This right to negotiate allows Sugen’s potential acquirer to get an even clearer picture of what it is buying when it acquires Sugen. Such a determination could only have been made if the receptor targets were known as of the date of a Sugen ownership change. If a target was unknown, neither Sugen nor its acquirer could determine whether it was under the Agreement. Indeed, this provision expressly contemplates that there will be receptor targets that are not “under the terms of the Agreement” because they are not tied to NYU’s research; otherwise, there would be nothing to negotiate. Americas 90385625 v5 14 Section 9 also divides receptor targets that were identified “prior to” the ownership change into two buckets: “targets that were adopted” and “targets which were not adopted” by Sugen into drug discovery. Agmt. § 9 (emphasis added). That the target must be known to both parties prior to the date of the ownership change – so it can be assigned a bucket – is the only reasonable interpretation of Section 9. Sugen could not have made a decision to adopt or not adopt a target into drug discovery unless the target was already identified. NYU’s interpretation defeats the entire purpose of Section 9. If the targets referenced in Section 9 include targets that were not identified on the date of ownership change (and not even discovered using any NYU Know-How), then (i) Sugen could not make a determination to adopt them into drug discovery, (ii) Sugen could not exercise its right, expressly provided in Section 9, to negotiate with NYU to determine whether the targets are covered by the Agreement, (iii) the acquiring company could not determine which targets fall under the Agreement prior to the acquisition, (iv) the acquiring company would have no idea what royalty obligations might spring forth in the future if it consummates the acquisition, and (v) NYU would get an undeserved windfall. This eviscerates the rights granted to Sugen under Section 9. It also goes without saying that there cannot “exist[],” on the date of acquisition, a “Patentable Invention with respect to such target which is derived from or based on Research Technology” if that target was only discovered years later. Section 9 cannot reasonably be interpreted as NYU proposes – that a target and a related Patentable Invention can arise at any time, even decades after the ownership change and the Research Period’s end. Such an interpretation creates a perpetually springing royalty obligation. It is well established that, unless a contract expressly provides for perpetual performance, the law will not imply it. See Better Living Now, Inc. v. Image Too, Inc., 67 A.D.3d 940, 941, 889 Americas 90385625 v5 15 N.Y.S.2d 653, 655 (2d Dep’t 2009) (“Unless a contract expressly provides for perpetual performance, the ‘law will not imply that a contract calling for continuing performance is perpetual in duration.’” (quoting Haines v. City of N.Y., 41 N.Y.2d 769, 772, 396 N.Y.S.2d 155, 157 (1977)); see also Luitpold Pharms., Inc. v. Ed. Geistlich Sohne A.G. Fur Chemische Industrie, No. 11 Civ. 681(KBF), 2012 WL 1372160, at *6 (S.D.N.Y. Apr. 17, 2012). “Construction conferring a right in perpetuity will be avoided unless compelled by the unequivocal language of the contract.” Mitler v. Friedeberg, 32 Misc. 2d 78, 85 (Sup. Ct. N.Y. Cnty. 1961). NYU cannot point to any “unequivocal language” in the Agreement evidencing the parties’ mutual intent that Sugen would be perpetually liable to NYU for royalties on any drug (a) that targets any receptor, without regard to NYU’s contribution to the discovery of that receptor, and (b) as to which there is a Patentable Invention that was based on NYU’s publicly available information. To the contrary, the fact that the determination under Section 9 occurs prior to the acquisition is evidence that the parties intended that the target’s existence is fixed in time. Simply, had the parties intended that any target identified by anyone after the date of a Sugen ownership change would trigger a 2.5% royalty, even if the target is identified by a third party years after the Research Period ended, they would have said so in clear and unequivocal language, which they did not. See Namad v. Salomon Inc., 74 N.Y.2d 751, 753, 545 N.Y.S.2d 79, 80 (1989) (“[P]laintiff’s argument that the bonus clause entitles him to payments approximately equal to his previous annual salary of $170,000 is unpersuasive as the parties would be expected to make reference to such a large sum of money in the agreement with particularity.”); Ashwood Capital, 99 A.D.3d at 8, 948 N.Y.S.2d at 298 (“If these commercially sophisticated and counseled parties had intended their agreement to apply to any JetBlue Americas 90385625 v5 16 terminal at JFK, they could easily have expressed this intent in the language of the agreement.”); Peter Lampack Agency, Inc. v. Grimes, 93 A.D.3d 430, 430-31, 939 N.Y.S.2d 409, 409-10 (1st Dep’t 2012) (“If [defendants] had meant to give plaintiff commissions on such extensions and future agreement, they would have said so . . . .”). B. NYU’s Interpretation of Section 9 is Commercially Unreasonable Contracts must be construed to provide “a fair and commercially reasonable meaning” rather than a meaning that “depends on ‘formalistic literalism,’ ignores common sense, and could lead to absurd results.” Greenwich Capital Fin. Prods., Inc. v. Negrin, 74 A.D.3d 413, 415, 903 N.Y.S.2d 346, 348 (1st Dep’t 2010); see also Superb Gen. Contracting Co. v. City of N.Y., 39 A.D.3d 204, 205-06, 833 N.Y.S.2d 64, 66-67 (1st Dep’t 2007) (finding that a construction of a clause that would place the date of payment “within the unilateral control of one party” was “unreasonable” and would give that party “an extraordinary advantage”); Matter of Lipper Holdings, LLC, 1 A.D.3d at 171, 766 N.Y.S.2d at 562 (“A contract should not be interpreted to produce a result that is absurd, commercially unreasonable, or contrary to the reasonable expectations of the parties.” (internal citations omitted)). NYU’s claim for royalties is not plausible, taking the facts alleged in the Complaint as true. The claim is based on happenstance and a tortured and unreasonable interpretation of the Agreement. NYU admits in the Complaint that crizotinib was developed as a c-Met inhibitor. See, e.g., Compl. ¶¶ 4, 39. Thus, if the Japanese researchers had never discovered and published on the EML4-ALK receptor and Pfizer marketed crizotinib as a c-Met inhibitor (which it is), it is indisputably clear that NYU would not be entitled to any royalties. Crizotinib is still a c-Met inhibitor, even though it was later discovered to also inhibit EML4-ALK. This later discovery, made years after the end of the Research Period, was not based on NYU Research Technology at all. Americas 90385625 v5 17 NYU’s interpretation of Section 9 makes no sense. NYU alleges that a drug developed based on a target not adopted into drug discovery prior to the ownership change – but which is otherwise exempt from a royalty because the IND was not timely filed – can be clawed back at any time, even decades after the Research Period ended, and made subject to a higher 2.5% percent royalty. As NYU would have it, the higher royalty rate would apply even if that target was discovered by someone else decades after the Research Period without any contribution from NYU. Moreover, the 2.5% rate would apply even if the product was developed based on NYU’s publicly-available information about the receptor, and not based on NYU patents or confidential know-how. It would be commercially unreasonable for Sugen to agree that the world is free to discover new receptor targets and develop new drugs based on those targets using, in part, published NYU information, but Sugen is not. NYU’s interpretation would put Sugen (and any party acceding to the agreement) at a severe competitive disadvantage. Sugen’s (and now Pfizer’s) competitors would be free to use NYU’s publicly-available information without owing any royalty to NYU whatsoever, while Sugen (and now Pfizer) would be saddled with a 2.5% royalty, even if the target is discovered by someone else (and a patent application is filed) ten, twenty or thirty years after Sugen and NYU went their separate ways. Indeed, such an interpretation conflicts with Section 17(d), which provides that after termination Sugen may use NYU information that is freely available to third parties. Agmt. § 17(d). Indeed, according to NYU’s theory, a “Patentable Invention” – which includes a claim in a pending application – need not be owned by NYU, or even Sugen. Compl. ¶ 58. Thus, under NYU’s interpretation of Section 9, Pfizer would owe NYU royalties on any Pfizer drug that targets a receptor so long as someone files a patent application, even if it is filed by one of Americas 90385625 v5 18 Pfizer’s competitors. Such an interpretation results in a contract with a total absence of consideration flowing to Sugen. C. NYU’s Interpretation of Section 9 Leads to Absurd Results It is absurd that such an onerous and lasting obligation would arise only in the event of a Sugen ownership change. In other words, all other things being equal, had Sugen not been acquired by Pharmacia in 1999, Section 9 would be inapplicable, and, indisputably, NYU would have no claim for royalties under Section 8 (for the reasons discussed above). But, according to NYU, Section 9 is triggered if there is an ownership change and, years later, someone with no relation to NYU or its technology identifies a new receptor target. NYU’s contorted interpretation would give it an undeserved windfall arising solely from happenstance, and not from NYU’s contributions. See Peter Lampack Agency, 93 A.D.3d at 430-31, 939 N.Y.S.2d at 409-410 (affirming dismissal where plaintiff’s “absurd” interpretation of agreement would entitle plaintiff to commissions on projects it had no role in negotiating); see also Morpheus Capital Advisors LLC v. UBS AG, 23 N.Y.3d 528, 536, 992 N.Y.S.2d 178, 184 (2014) (reversing and ordering dismissal where, “from a practical standpoint, a duty to wait would have been an absurd contractual term given the rapidly evolving landscape of the business world during the difficult economic time when the parties entered into the agreement”). Under NYU’s interpretation, NYU could trigger Section 9 unilaterally at any time and claim a 2.5% royalty on a product by alleging – as speculatively as they do here – that there is a patent claim with respect to a receptor target (discovered by anyone) that is “based on or derived from” NYU’s Research Technology, even if that information was published for the world to use. Indeed, the patent claim need not be issued or valid; a pending claim would suffice. Thus, NYU would merely need to file a patent application with a claim related to a new target to satisfy that element of the Section 9 exception, even if that claim had no basis. See Superb Gen. Americas 90385625 v5 19 Contracting, 39 A.D.3d at 205-06, 833 N.Y.S.2d at 66-67 (construction of a clause that would place the date of payment “within the unilateral control of one party” was “unreasonable” and would give that party “an extraordinary advantage”). Moreover, under NYU’s construction, had Pfizer filed its IND for crizotinib within the four-year window required to qualify as a SUGEN Product, crizotinib would be subject to a royalty under both Section 8 and Section 9. As the Complaint alleges, crizotinib was developed based on the c-Met receptor. By operation of Section 9, therefore, crizotinib would be subject to the 1% royalty of Section 8, assuming the IND was timely filed. But according to NYU, because crizotinib was later found to be an effective inhibitor of EML4-ALK, crizotinib would also be subject to the 2.5% royalty of Section 9. In other words, crizotinib is in both buckets of Section 9. Such a construction is contrary to the plain language of Section 9, which contemplates that a Sugen product is either one or the other, but not both. A construction of Section 9 that limits its application to the date of ownership change avoids this absurd result. CONCLUSION For all the foregoing reasons, the Complaint should be dismissed with prejudice. Americas 90385625 v5 20 Dated: January 27, 2015 New York, New York Respectfully submitted, WHITE & CASE LLP By /s/ Christopher Glancy Gregory Little Dimitrios Drivas Christopher Glancy Robert Counihan Jonathan Sorkowitz Eric Majchrzak 1155 Avenue of the Americas New York, New York 10036-2787 Telephone: (212) 819-8200 Facsimile: (212) 354-8113 Attorneys for Defendant Pfizer, Inc. Americas 90385625 v5 21