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Judge Sweet Holds Invalidity and Non-Infringement Defenses Cannot Shield a Licensee's Breach of a Patent License

On March 17, 2017, District Judge Robert Sweet (S.D.N.Y.) granted plaintiff Icahn School of Medicine at Mount Sinai's ("Mt. Sinai") motion to strike defendant Neurocrine Biosciences  ("Neurocrine") affirmative defenses of patent invalidity, non-infringement, and patent misuse, and to dismiss Neurocrine's parallel declaratory judgment counterclaims.

In August 1999, Mt. Sinai licensed two patents that relate to drug discovery tools to Neurocrine. Using the patented tools, Neurocrine identified a promising drug, Elagolix, for treating endocrine disorders. In June 2010, Neurocrine gave AbbVie a sublicense to develop Elagolix without obtaining the required consent from Mt. Sinai. Mt. Sinai sued for breach. In its Answer, Neurocrine asserted—for the first time—that the patents were invalid and not infringed. Mt. Sinai moved to strike these and other affirmative defenses, arguing that Neurocrine is estopped from asserting patent invalidity as a defense to contractual obligations already owed at the time of the suit, and that non-infringement is simply not a defense to a claim for breach of a patent license agreement. The court agreed.

The Supreme Court held in Lear, Inc. v. Adkins, 395 U.S. 653, 670 (1969) that a licensee cannot be estopped from challenging the validity of a patent merely because it benefitted from the license agreement. But, the Federal Circuit recognized in Studiengesellschaft Kohle, M.B.H. v. Shell Oil Co., 112 F.3d 1561, 1568 (Fed. Cir. 1997) that Lear does not apply where a licensee seeks to avoid contractual obligations already owed at the time of the suit. In Studiengesellschaft , the Federal Circuit stated that it "must prevent the injustice of allowing [a licensee] to exploit the protection of the contract and patent rights and then later to abandon conveniently its obligations under those same rights."

In applying the holding of Studiengesellschaft, the court held that Neurocrine is estopped from asserting a patent invalidity defense. The court also quickly disposed of Neurocrine's non-infringement defense, holding that the "use [of] non-infringement as a method to challenge [a] breach of contract action, [] is not permissible."

Case: Icahn Sch. of Med. at Mount Sinai v. Neurocrine Biosciences, Inc., No. 15 Civ. 9414, 2017 U.S. Dist. LEXIS 39763 (S.D.N.Y. Mar. 17, 2017).