Families Atrophy v. Nationwide Children's Hosp. & the Research Inst. At Nationwide Children's Hosp.

FAMILIES OF SPINAL MUSCULAR ATROPHY, Plaintiff, v. NATIONWIDE CHILDREN'S HOSPITAL and THE RESEARCHINSTITUTE AT NATIONWIDE CHILDREN'S HOSPITAL, Defendants.

No. 16-cv-4262

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

September 19, 2016

Hon. Amy J. St. Eve

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Court Judge:

Defendants Nationwide Children's Hospital and The Research Institute at Nationwide Children's Hospital (collectively, "Defendants") have moved to dismiss Plaintiff Families of Spinal Muscular Atrophy's complaint under Federal Rule of Civil Procedure 12(b)(6). [24] For the following reasons, the Court grants Defendants' motion without prejudice.

BACKGROUND¹

Plaintiff is a nonprofit corporation that funds research related to Spinal Muscular Atrophy ("SMA"), a genetic disease, and Defendants conduct research on topics including SMAtreatments. (Compl. at 2-3, Exs. A-B.)² This case concerns whether two separate research-funding agreements between the parties entitle Plaintiff to proceeds from a licensing agreement between Defendants and a third party.

In September 2009, Defendants applied for a grant for a project entitled "Optimizing Titer and Window of Opportunity for targeting Motor Neurons via an AAV9 vector in Newborn Non-human primates."³ (Id., Ex. A at 6.) Plaintiff agreed to fund the project, and, in April 2010, the parties entered into a Grant Agreement (the "GA"). (Id. at ¶¶ 12-17, Ex. A at 1.) The GA gave Defendants a $100,000 budget, and Defendants agreed to pay Plaintiff "five percent (5%) of all royalty or other cash income received by the [Defendants] from licenses or sublicenses to all of the Inventions developed from activities under this Agreement." (Id. at ¶ 15, Ex. A at 1, 3.) The GA defines the term "Inventions" as "any invention (or other intellectual property), whether patentable or unpatentable conceived or first actually reduced to practice as part of the activities under this Agreement." (Id. at ¶ 14, Ex. A at 2.)

Later, in May 2012, the parties entered into a second agreement, the Research Collaboration Agreement (the "RCA"), to "conduct a . . . research project entitled 'IND Enabling Studies for a CNS Delivered Gene Therapy for Spinal Muscular Atrophy.'" (Id. at ¶¶ 18-23, Ex. B at 1.) Under the RCA, Defendants had a maximum budget of $300,000, (id., Ex. B at 1,10), and Defendants agreed to "pay [Plaintiff] five percent (5%) of all royalty[ and] other consideration up to a cap of $300,000, received by the [Defendants] from licenses or sublicenses to any of the Inventions solely or jointly owned by [Defendants]," (id. at ¶ 21, Ex. B at 3). The RCA defines the term "Inventions" as "any potentially patentable invention conceived in the performance of the Research Project." (Id. at ¶ 20, Ex. B at 3.) The RCA further provides that "the existing inventions and technologies of [Defendants] . . . are their separate property and are not affected by this Agreement, and [Plaintiff] shall not have any claims to or rights in such existing inventions and technologies." (Id., Ex. B at 3.) In March 2015, the parties amended the RCA, raising both the maximum budget of the project as well as the cap on "royalty and other consideration" payments Defendants would make to Plaintiff if Defendants licensed any "Inventions." (Id. at ¶ 23, Ex. B-1 at 1.)

In September 2013, Defendants entered into a license agreement with BioLife Cell Bank, Inc., which is now known as AveXis, Inc. (Id. at ¶¶ 24-25, Ex. C.; R. 27, Defs.' Mem. Supp. Mot. Dismiss, at 2; R. 34, Pl.'s Resp., at 1 & n.1.) The agreement gives AveXis an exclusive license to SMN AAV9 delivery technology as represented by various patent applications and associated "Technical Information," which includes "research and development information, unpatented inventions, and know-how pertaining to the Licensed Patents." (Compl. at ¶¶ 3-4, 28-29, Ex. C at 1-3, 21, 22.) In exchange, the agreement provides that Defendants would receive over 200,000 shares of AveXis stock. (Id. at ¶ 33, Ex. C at 8.) Additionally, the license agreement provides that Defendants will receive payments, subject to certain conditions, at regulatory milestones—specifically, $75,000 for "Approval by the FDA of a Biologics License Application for the scAA V9-SMN gene therapy product for spinal muscular atrophy type 1 for vascular delivery" and $50,000 for "Approval by the FDA of a Biologics License Application forthe scAA v9-SMN gene therapy product for intrathecal delivery." (Id. at ¶ 32, Ex. C at 8.) Finally, the license agreement entitles Defendants, under certain circumstances, to royalty payments based on "Net Sales of Licensed Products" and sublicenses granted by AveXis. (Id., Ex. C at 8-9.)

Between January 2014 and October 2015, AveXis and Defendants amended the license agreement four times. (Id. at ¶ 34, Ex. C-1.) The January 2014 amendment obligates AveXis make additional payments to Defendants at certain dates and milestones, totaling $50,000. (Id. at ¶ 35, Ex. C-1 at 9.)

To date, Plaintiff alleges that Defendants have received a total of $243,163 in cash payments from AveXis. (Id. at ¶ 38.) Plaintiff also alleges that, due to license-agreement terms concerning the nondilution of stock, Defendants "currently ha[ve] title to 442,410 shares in AveXis." (Id. at ¶ 44.)

Based on these facts, Plaintiff asserts that Defendants breached the GA and the RCA by failing to make payments to Plaintiff after licensing "Inventions" to AveXis. (Id. at 1-2, 8-9.) Plaintiff therefore requests the following relief: judgments that Defendants breached the GA and RCA, "an order that an accounting be held of all cash and consideration received to date by [Defendants] under the [GA and RCA]," and "damages sustained as a result of [Defendants'] breach." (Id. at 9). Specifically, Plaintiff seeks "monetary damages of 5% of all cash received by [Defendants] per the [GA and RCA]," "an order that [Defendants] transfer to [Plaintiff] title in 5% of the 442,410[ A]veXis shares (22,121 shares) issued to [Defendants]," and "an order that [Defendants] transfer to [Plaintiff] 5% of the proceeds of any sales of shares by [Defendants] per the [GA], and any of those shares transferred to other parties." (Id. at 9-10.)

On July 15, 2016, Defendants filed the current motion, (R. 24), which the Court grantswithout prejudice.

LEGAL STANDARD

"A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted." Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). Under Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). A plaintiff's "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id. Put differently, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). In determining the sufficiency of a complaint under the plausibility standard, courts must "accept all well-pleaded facts as true and draw reasonable inferences in [a plaintiff's] favor." Roberts v. City of Chicago, 817 F.3d 561, 564 (7th Cir. 2016).

ANALYSIS

The parties appear to agree that Ohio law governs the GA and RCA. (R. 27 at 14 & n.14; R. 34 at 12.) To establish breach of contract under Ohio law, a plaintiff must prove (1) the existence of a contract; (2) the plaintiff performed its contractual obligations; (3) the defendant's breach; and (4) resulting damages. See V & M Star Steel v. Centimark Corp., 678 F.3d 459, 465 (6th Cir. 2012); Kline v. Mortg. Elec. Sec. Sys., 154 F. Supp. 3d 567, 603 (S.D. Ohio 2015);Villasenor v. Am. Signature, Inc., No. 06 C 5493, 2007 WL 2025739, at *7 (N.D. Ill. July 9, 2007) (citing Ohio law).

Defendants argue that Plaintiff fails to adequately plead the element of breach for two reasons. First, Defendants contend that Plaintiff fails to sufficiently allege "(1) what Invention(s) were 'conceived or first actually reduced to practice' in the GA Project or 'conceived in the performance' of the RCA Project, and (2) how such Invention(s) were subsequently licensed by [Defendants] to AveXis." (R. 27 at 15.) Consequently, Defendants maintain, Plaintiff has failed to plead Defendants' obligation under the GA or RCA to compensate Plaintiff based on proceeds from the license agreement between AveXis and Defendants. (Id.) Second, Defendants argue that (1) "Plaintiff's claims fail for the additional and independent reason that Plaintiff could never plead its way around the undisputed evidence[⁴] establishing that the technology licensed by [Defendants] to AveXis was conceived and first reduced to practice long before the GA or RCA were even executed," and (2) because this evidence conclusively bars Plaintiff's claims, the Court should dismiss the case with prejudice. (Id. at 18-25.) As detailed below, the Court agrees with Defendants' first argument and does not reach their remaining contentions at this time.

As previously described, the GA gives Plaintiff the right to compensation based on Defendants' licensing of "Inventions" developed during research conducted under the agreement. (Compl. at ¶ 15, Ex. A at 3.) The GA defines the term "Inventions" as "any invention (or other intellectual property), whether patentable or unpatentable conceived or first actually reduced to practice as part of the activities under this Agreement." (Id. at ¶ 14, Ex. A at 2.) Similarly, the RCA gives the Plaintiff the right...