Platzer v. Sloan-Kettering Institute

• Citation: 787 F. Supp. 360
• Decision Date: 04 March 1992
• Docket Number: No. 91 Civ. 6578 (JSM).,91 Civ. 6578 (JSM).
• Parties: Dr. Erich PLATZER, Dr. Karl Welte and Dr. Roland Mertelsmann, Plaintiffs, v. SLOAN-KETTERING INSTITUTE FOR CANCER RESEARCH, Defendant.
• Court: U.S. District Court — Southern District of New York

787 F. Supp. 360

Dr. Erich PLATZER, Dr. Karl Welte and Dr. Roland Mertelsmann, Plaintiffs, v. SLOAN-KETTERING INSTITUTE FOR CANCER RESEARCH, Defendant.

No. 91 Civ. 6578 (JSM).

United States District Court, S.D. New York.

March 4, 1992.

Martin R. Gold, Gold, Farrell & Marks, New York City, for plaintiffs.

Steven B. Rosenfeld, Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for defendant.

MEMORANDUM OPINION AND ORDER

MARTIN, District Judge:

Doctors Erich Platzer, Karl Welte and Roland Mertelsmann commenced this action to recover a share of the royalties stemming from a discovery they made while in the employment of Sloan-Kettering Institute for Cancer Research ("Sloan-Kettering). Sloan-Kettering now moves to dismiss the complaint pursuant to Fed. R.Civ.P. 12(b)(1) and 12(b)(6). For the reasons contained herein, the motion to dismiss is granted in its entirety.

FACTUAL BACKGROUND

Sloan-Kettering is a not-for-profit corporation engaged in scientific research largely funded by the federal government.

The three plaintiffs are former employees of Sloan Kettering. While employed by Sloan Kettering, the plaintiffs were part of a team of five research physicians responsible for conducting research in the area of colony stimulating factors. This research resulted in a discovery: the purification of granulocyte colony stimulating factor ("G-CSF"), a natural substance which stimulates the production of white blood cells. White blood cells are vital to the body's immune system, and are often destroyed during the course of chemotherapy, resulting in life-threatening infections. By bolstering the body's production of white blood cells, G-CSF enables cancer patients to tolerate higher dosages of chemotherapeutic drugs. It may also play a role in the treatment of AIDS.

It is not disputed that Sloan-Kettering owns the rights to all discoveries and inventions made by Sloan-Kettering employees. This assignment of rights to Sloan-Kettering is both required under federal law and under Sloan-Kettering's own "Policy on Inventions, Patents, and Technology Transfer" (the "Patent Policy").

What is disputed is whether and to what extent Sloan-Kettering is required to share royalties with the Plaintiffs.

Two agreements are relevant here. Under Sloan-Kettering's Patent Policy, Sloan-Kettering is obligated to share royalties with inventors of patented discoveries on a sliding scale basis.¹ The Patent Policy expressly disclaims any obligation to share royalties with employees where the Patent office has denied a patent application.² However, the Patent Policy does allow for discretionary awards to inventors of unpatented inventions.

The second relevant agreement is the funding agreement entered into between Sloan-Kettering and the federal government. This Institutional Patent Agreement Governing Grants and Awards between Sloan-Kettering and the Department of Health, Education, and Welfare (the "IPA") applies to inventions arising out of government-funded research which are or may be patentable. The IPA as originally drafted allowed for the sharing of royalties with inventors up to a maximum of 15% of gross royalties. However, the terms of the IPA were modified by the 1980 Bayh-Dole Act. (Act of Dec. 12, 1980, Pub.L. 96-517, § 6(a), 94 Stat. 3019, codified at 35 U.S.C. § 200 et seq.). The Bayh-Dole Act grants non-profit organizations exclusive title to inventions developed through federal funding, and allows them to freely license such inventions for profit so long as such profit is used to fund additional scientific research. The statute at issue provides in relevant part:

Each funding agreement with a ... non-profit organization shall contain appropriate provisions to effectuate the following:

(b) a requirement that the contractor share royalties with the inventor.

35 U.S.C. § 202(c)(7)(B).

Even though its patent application for G-CSF was denied, Sloan-Kettering exercised its discretion to share the royalties from the discovery with the team of researchers responsible for the discovery. In accordance with the sliding scale of payments called for under the Patent Policy, Sloan-Kettering distributed a 5% share of the gross royalties³ to the five scientists on the granucolyte team. Accordingly, each plaintiff received $505,490. Sloan-Kettering also notified the researchers that they would receive additional payments, based on the same formula, from any future royalties from domestic and foreign sales.

The plaintiffs allege that Sloan-Kettering's obligation to share royalties with inventors is non-discretionary by virtue of 35 U.S.C. § 202(c)(7)(B). Furthermore, they argue that even though § 202(c)(7)(B) does not designate any particular percentage or royalties which an institution is required to pay to inventors, the legislative history makes it clear that Congress intended the share to be reasonable and greater than 15%.

The Complaint sets forth five causes of action, the first three of which are based on the statute.

(i) Plaintiffs assert an implied private right of action under the Statute, alleging that Sloan-Kettering has breached its statutorily imposed obligation to share royalties equally or equitably with inventors.

(ii) Plaintiffs claim that they are entitled to a larger share on the ground that they are third-party beneficiaries of the IPA which, by operation of law, contains the mandated clause to share royalties with inventors.

(iii) Plaintiffs claim that they are entitled to a larger share on the ground that the Statute created an implicit term of their employment agreement.

(iv) and (v) Plaintiffs assert two state law claims, one under a contract theory and the other under an unjust enrichment theory.

Sloan-Kettering moves to dismiss the first three claims on the ground that the Court lacks subject matter jurisdiction over the claims in that they do not "arise under" the laws of the United States as required by 28 U.S.C. §§ 1331 and 1338(a). Additionally, Sloan-Kettering seeks dismissal of these claims on the ground that they do not state a cause of action in that no private right of action exists under 35 U.S.C. § 202(c)(7)(B). Once these claims are dismissed, Sloan-Kettering argues that the Court should decline to exercise its supplemental jurisdiction over the state law claims, or in the alternative should dismiss these claims for also failing to state a claim for which relief can be granted.

DISCUSSION

The First Cause of Action

For their first cause of action, Plaintiffs assert an implied private right of action under § 202(c)(7)(B), alleging that Sloan-Kettering breached its obligation to share royalties equitably with the inventors.

Sloan-Kettering seeks a dismissal of the first cause of action on the ground that this Court lacks subject matter jurisdiction and, in the alternative, on the ground that the first cause of action fails to state a claim for which relief may be granted.

Sloan-Kettering first argues that no private cause of action exists under § 202(c)(7)(B) and therefore the Court lacks subject matter jurisdiction and may not entertain the suit. This argument is clearly without merit. It is well settled that where a claim asserts an implied right of action under a statute, federal courts have the requisite federal jurisdiction to determine whether such a federal remedy exists. Cherokee Express, Inc. v. Cherokee Express, 924 F.2d 603 (6th Cir.1991); Arroyo-Torres v. Ponce Federal Bank, 918 F.2d 276 (1st Cir.1990); Till v. Unifirst Federal Sav. & Loan Ass'n, 653 F.2d 152, 155 n. 2 (5th Cir.1981). See also Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946).⁴

Sloan-Kettering cites Merrell Dow Pharmaceuticals, Inc. v. Thompson, 478 U.S. 804, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986) for the proposition that where Congress has determined that there should be no private right of action for the violation of a federal statute, a claim based on that statute does not state a claim "arising under the Constitution, laws, or treaties of the United States" within the meaning of 28 U.S.C. § 1331. Sloan-Kettering reads this case too broadly. Specifically, Sloan-Kettering fails to take into consideration that Merrell Dow did not involve a direct implied right of action, but rather involved a state law action which required interpretation of a federal statute. The importance in this distinction can not be overemphasized. The Supreme Court stated, "This case does not pose a direct federal question ... respondents do not allege that federal law creates any of the causes of action that they have asserted." Merrell Dow, 478 U.S. at 809, 106 S.Ct. at 3233. As such, its holding was limited to state law claims alleging violations of federal statutes: "A complaint alleging a violation of a federal statute as an element of a state cause of action, when Congress has determined that there should be no private, federal cause of action for the violation, does not state a claim `arising under the Constitution, laws, or treaties of the United States.'" Merrell Dow, 478 U.S. at 817, 106 S.Ct. at 3237 (emphasis added).⁵

Because the first claim is premised on the assertion that an implied private right of action exists under § 202(c)(7)(B), this claim arises under the laws of the United States and subject matter jurisdiction exists.

This conclusion, however, does not dispose of the issue. Rather, the private cause of action claim should nevertheless be dismissed pursuant to F.R.C.P. 12(b)(6) if the Court determines that the claim does not state a cause of action for which relief may be granted. Thus, if Congress did not intend for a private cause of action to exist under the statute, the claim will be dismissed.⁶

In ascertaining whether a private cause of action exists under a federal statute, courts are to consider four factors: (1) whether plaintiff is part of the class for whose especial benefit the statute was passed; (2) whether the legislative history indicates a Congressional intent to confer...