Court Opinion

ID: 9874943
Source: CourtListenerOpinion
Date Created: 2023-09-26 22:20:24.276424+00
Date Added: 2024-06-11T07:46:54.777035
License: Public Domain

Moskowitz, J.
(dissenting). I disagree with the majority that the disputed language is susceptible of more than one interpretation. Rather, I believe that the language in section 9 is unambiguous, and therefore, that the motion court properly dismissed the complaint because NYU is not entitled to royalty payments on the sale of Xalkori®. Therefore, I respectfully dissent.
*49In 1990, plaintiff New York University (NYU) hired an expert in research relating to tyrosine kinase receptors (TKRs) to serve as chairman of NYU’s Department of Pharmacology.* In the 1990s, the chairman and his team pioneered research into TKRs and made critical discoveries in targeted cancer therapy, which involves making drugs that attach to and inhibit, or target, specific receptors causing cancer, thereby targeting only cancerous cells while leaving healthy cells unaffected. In 1991, while an NYU employee, the chairman co-formed nonparty Sugen, Inc., a drug discovery company located in California, to help with the design of drug compounds.
In August 1991, NYU and Sugen entered into a license agreement in which Sugen agreed to sponsor and fund a multiyear “NYU research project” in the field of certain “receptors,” including tyrosine kinases, believed to be useful in the development of drugs to treat cancer. In return, Sugen received an exclusive worldwide license to use NYU’s “Research Technology” (NYU “patents and NYU Know-How”) for the development, manufacture, use, and sale of drugs that would inhibit any receptor that acts directly or indirectly through tyrosine kinase activity; Sugen agreed to pay NYU certain royalties on sales of those drugs. “NYU Know-How” is defined in the relevant agreement as preexisting inventions and any information and materials discovered, developed, or acquired in the course of the NYU Research Project.
In 1996, in anticipation of Sugen’s acquisition by another company, the parties amended the agreement to extend the NYU research project to September 2001 and to adjust the royalty payments. In earlier versions of the agreement, all of the royalty obligations had been set forth in section 8. In the 1996 agreement, however, NYU’s rights under section 8 were restricted to a specified time frame and the parties added a new section 9, entitled “SUGEN Ownership Change.” Section 9 set forth a completely new royalty-bearing category of Sugen products; the new category was not limited to the time frame specified in section 8.
As relevant here, section 9 stated that if another company acquired Sugen, or if Sugen merged or entered into a joint venture with another company, Sugen was empowered to notify NYU that the other company wanted to determine which targets would be included under the terms of the agreement. NYU and Sugen would then jointly, before the effective date of *50the ownership change, make the determination “based on . . . SUGEN’s lab [note]books and other information available to the parties.” Section 9 of the 1996 agreement then provided that, “[w]ith respect to targets that were adopted by SUGEN into drug discovery prior to the effective date” (that is, “adopted targets”) of the ownership change, Sugen products developed based on those targets were to be subject to the license payments described in section 8. “SUGEN products,” in turn, referred to drugs developed in the research involving TKRs based on adopted targets. According to sections 8 and 9, the Sugen owner would pay the royalty only if the drug’s Investiga-tional New Drug application (IND) was filed with the FDA “within four years from the end of the Research Period” (that is, before September 2005).
By contrast, the “change-of-control” provision of section 9 provided that Sugen products based on receptor targets that were not adopted into drug discovery before the ownership change (that is, “non-adopted targets”) were subject to a different set of royalty payments. Specifically, the royalty payments would be different for non-adopted targets “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” NYU’s Research Technology, and regardless of whether an IND application with respect to the product was filed within four years of the end of the Research Period. A “Patentable Invention” is a claim in an issued, valid, unexpired patent or a claim in a pending patent application.
Sometime in 1996, during the Research Period, Sugen “adopted” the target “c-Met” into drug discovery (that is, began to develop drugs targeting c-Met). The related research led to the creation of a substance called crizotinib, a small molecule inhibitor that was able to inhibit multiple targets, including c-Met.
In 1999, Pharmacia acquired Sugen, and in 2003, Pfizer acquired Pharmacia. On December 12, 2005, more than four years after the Research Period ended, Pfizer filed an IND application for crizotinib; the application listed c-Met among the target receptors for this compound.
In 2007, Japanese scientists discovered a new target— EML4-ALK, a mutated form of the so-called “ALK” TKR receptor — and found that it causes non-small cell lung cancer (NSCLC) in a subset of patients. Pfizer then amended its IND application relating to crizotinib to include studies of lung can*51cer patients who tested positive for the newly recognized EML4-ALK receptor, and this receptor became a new target receptor, with crizotinib the subject of a new drug discovery program for treating NSCLC. After Pfizer studies determined that crizotinib would inhibit the EML4-ALK receptor, Pfizer began to develop crizotinib into what would ultimately become Xalkori®, a drug later approved by the FDA for use with patients having metastatic NSCLC and who are tested as being “anaplastic lymphoma kinase (ALK) positive.”
In January 2015, NYU sued Pfizer, alleging that it had failed to comply with section 9 of the 1996 Agreement, which, according to NYU, required Pfizer to pay NYU a royalty on Pfizer’s sales of Xalkori®. Specifically, NYU alleged it was entitled to royalties on sales of Xalkori® because Xalkori® was a Sugen product whose active ingredient was crizotinib, a patentable invention “with respect to” the “non-adopted” receptor target EML4-ALK, based on NYU Know-How.
Pfizer moved to dismiss for failure to state a claim under the 1996 Agreement. On the motion, Pfizer argued that, based on the plain meaning of the 1996 Agreement, crizotinib was developed based on the “adopted target” c-Met, with the result that a product based on that patentable invention, including Xalkori®, was a product subject only to the royalty provisions of section 8. However, Pfizer noted, the section 8 royalty provisions were not applicable here because no IND was filed within four years of the Research Period. Pfizer further asserted that no royalties were due for Xalkori® under section 9, because even though EML4-ALK was a “non-adopted target,” crizotinib was based on the “adopted target” c-Met. Likewise, Pfizer argued that the use of crizotinib in Xalkori® with respect to EML4-ALK was not derived from or based on NYU Research Technology, as Pfizer had learned, independent of NYU, that crizotinib could inhibit EML4-ALK and developed Xalkori® for that purpose without use of further NYU Know-How.
The motion court granted the motion to dismiss the complaint, finding that it failed to plead a “Patentable Invention with respect to [EML4-ALK] and/or its utility which is derived from or based on the Research Technology,” as section 9 required. On the contrary, the court found, ‘Xalkori® was not ‘derived from or based on the Research Technology’ because NYU had nothing to do with Xalkori®’s target, EML4-ALK” (2015 NY Slip Op 32702[U], *13 [2015]). Further, the court noted, under the plain language of the agreement, NYU was *52not entitled to royalties for Xalkori® under section 9 because Xalkori® treated EML4-ALK, which Japanese scientists had discovered without the benefit of NYU Know-How.
The court further concluded that section 9 was not ambiguous and that Pfizer’s interpretation of the provision was correct. Indeed, the court noted, had the parties intended the agreement to carry NYU’s interpretation, they would not have included the phrase “with respect to such target and/or its utility.” Here, because the only “Patentable Invention [s]” pleaded in the complaint were Pfizer patents related to crizotinib, and not to the EML4-ALK target or its utility, the complaint failed to allege a “Patentable Invention with respect to such target and/or its utility.”
Finally, the motion court concluded that the context of section 9’s drafting supported Pfizer’s interpretation. Specifically, the court found that the parties added section 9 in contemplation of Sugen’s acquisition, to expand the circumstances in which NYU was entitled to a royalty even for products submitted for FDA approval more than four years after the end of the Research Period, but only where the medication targeted a receptor identified as a result of NYU’s contributions. The court thus concluded that the only commercially reasonable interpretation of section 9 was that NYU must have contributed to the discovery of Xalkori®’s target.
I agree with the motion court’s interpretation of the agreement’s language. As is well established in New York law, 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 v Sommer, 8 NY3d 318, 324-325 [2007], quoting Matter of Westmoreland Coal Co. v Entech, Inc., 100 NY2d 352, 358 [2003]). As is also well established, “[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 v Trident Holdings, 1 AD3d 170, 171 [1st Dept 2003] [citations omitted]).
Here, I would find that NYU is not entitled to royalties under the plain meaning of the agreement. Xalkori® is not subject to royalties under section 8 of the agreement because Pfizer filed the IND for crizotinib more than four years after the Research Period ended. Furthermore, because crizotinib was developed based on c-Met, a target “adopted by SUGEN into drug discovery prior to the SUGEN ownership change,” section 9 *53requires that Pfizer’s royalty obligation is subject to section 8, which, as just noted, does not apply.
I also believe that we should reject NYU’s argument that the last clause of section 9, read alone, allows NYU to receive a royalty on sales of Xalkori®. To begin, as the motion court found, the target must have been identified as part of the NYU Research Project. EML4-ALK was not so identified. EML4-ALK and its utility (that is, its association with NSCLC) were discovered by Japanese researchers without the benefit of any NYU Research Technology. Moreover, Pfizer did not rely on any NYU confidential information to discover that crizotinib was an effective EML4-ALK inhibitor. Therefore, NYU cannot plead a “Patentable Invention with respect to [EML4-ALK] and/or its utility which is derived from or based on [NYU’s] Research Technology,” as section 9 requires.
In addition, as the IAS court found, the “Patentable Invention” must be related to the target or its utility, not to the drug found to inhibit the target. Pfizer’s patents, however, relate to the drug crizotinib and not the target EML4-ALK or its utility. Indeed, under its plain meaning, the phrase “Patentable Invention with respect to such target and/or its utility,” means that the Patentable Invention concerns the target, not solely the medication that affects the target. Had the parties wished to include drugs and their utilities in the phrase, they surely could have added language that would have done so. Likewise, NYU’s interpretation obviates the phrase “with respect to such target and/or its utility,” thus rendering that phrase meaningless. Of course, courts will avoid reading a contract so that any part is rendered meaningless (see Two Guys from Harrison-N.Y. v S.F.R. Realty Assoc., 63 NY2d 396, 403 [1984]; GEM Holdco, LLC v Changing World Tech., L.P., 127 AD3d 598, 598 [1st Dept 2015]).
Furthermore, for NYU to receive royalties under section 9, the target must have been identified before the Sugen ownership change. No party disputes that the target EML4-ALK was identified in 2007, eight years after Pharmacia acquired Su-gen. Sugen could not have adopted or declined to adopt the target EML4-ALK before Pharmacia acquired it, as Sugen could not have acted on targets that were not even discovered in 1999.
What is more, according to the language of section 9, the “Patentable Invention” must have existed at the time of the Sugen ownership change. As with the identification of the *54target before the Sugen ownership change, discussed immediately above, no party disputes that Pfizer filed its patents years after Pharmacia acquired Sugen.
Finally, NYU’s interpretation of section 9 would lead to a commercially unreasonable result. Reading the section the way NYU interprets it, Pfizer would owe a royalty on any drug that targets any receptor that is discovered at any time by anyone. This could not be the result that the parties intended.
Mazzarelli, J.P., and Gische, J., concur with Andrias, J.; Moskowitz and Gesmer, JJ., dissent in an opinion by Moskowitz, J.
Judgment, Supreme Court, New York County, entered February 8, 2016, and bringing up for review an order, same court and Justice, entered December 21, 2015, reversed, on the law, without costs, the judgment vacated, the motion denied, and the complaint reinstated.

 TKRs are enzymes in human cells; mutations or defects in TKRs can lead to cancer and other diseases.