The Second and Third Causes of Action
The Plaintiff's second and third claims are brought under third-party beneficiary and breach of contract theories. Both claims require interpretation of § 202(c)(7)(B). As with the first cause of action, Sloan-Kettering argues that dismissal is warranted because the Court lacks subject matter jurisdiction and because the cause of action fails to state a claim for which relief may be granted. These arguments will be considered in turn.
Sloan-Kettering cites Merrell Dow to support its position that the Court lacks subject matter jurisdiction for state-law claims alleging federal violations where no private right of action exists for the underlying federal statute. Specifically, Sloan-Kettering asserts that the second and third claims clearly fall under the category of cases considered in Merrell Dow. "[While] the vast majority of cases brought under the general federal-question jurisdiction of the federal courts are those in which federal law creates the cause of action . . . [we have] also noted that a case may arise under federal law 'where the vindication of a right under state law necessarily turns on some construction of federal law.'" Merrell Dow, 478 U.S. at 808, 106 S. Ct. at 3232 (quoting Franchise Tax Board, 463 U.S. at 9, 103 S. Ct. at 2846).
As the Defendant reads Merrell Dow, the absence of a private right of action for an underlying federal statute where a state-law claim is asserted is dispositive. Sloan-Kettering argues that once the court has concluded that no private cause of action exists for the underlying federal violation, the court may not hear the claim unless independent jurisdictional grounds exist.
Once again, Sloan-Kettering reads Merrell Dow too broadly. Specifically, Sloan-Kettering attempts to extend the holding of Merrell Dow, which involved a state law claim in which the alleged federal violation was peripheral,
to cases where the alleged violation is essential to the existence of the state-law claim.
That Merrell Dow's reach should not be so extended is suggested in the language of the opinion itself. The Court left undisturbed the holding of Franchise Tax Board, that federal question jurisdiction is "appropriate when 'it appears that some substantial, disputed question of federal law is a necessary element of the well-pleaded state claims.'" Merrell Dow, 478 U.S. at 813, 106 S. Ct. at 3234 (quoting Franchise Tax Board, 463 U.S. at 13, 103 S. Ct. at 2848). Leaving intact "arising under" jurisdiction to determine substantial questions of federal law, the Court held that the "mere presence of a federal issue in a state cause of action does not automatically confer federal question jurisdiction." Merrell Dow, 478 U.S. at 813, 106 S. Ct. at 3234 (emphasis added). As such, the Court emphasized the need to evaluate "the nature of the federal issue, Merrell Dow, 478 U.S. at 814 n.12, 106 S. Ct. at 3235, 92 L. Ed. 2d 650 n.12, and the "need for careful judgments about the exercise of federal judicial power in . . . areas of uncertain jurisdiction." Merrell Dow, 478 U.S. at 814, 106 S. Ct. at 3235.
Thus, even where no private right of action exists for the underlying federal issue, if the nature of the federal issue is sufficiently substantial, subject matter jurisdiction may still exist. West 14th Street Commercial Corp. v. 5 West 14th Owners Corp., 815 F.2d 188 (2d Cir.), cert. denied, 484 U.S. 850, 108 S. Ct. 151, 98 L. Ed. 2d 107 (1987).
See also Milan Express Co. v. Western Surety, 886 F.2d 783 (6th Cir. 1989) (distinguishing Merrell Dow and holding that the lack of a private right of action did not preclude a finding that subject matter jurisdiction existed); Smith v. Industrial Valley Title Insurance Co., 1990 U.S. Dist. LEXIS 10213 (E.D. Pa. 1990) (LEXIS, Genfed library, Dist file) (interpreting the "delphic" Merrell Dow opinion as being limited to cases where the federal element is "merely present" rather than substantial); New York v. Rapgal Assocs., 703 F. Supp. 284 (S.D.N.Y. 1989) (finding that the existence of a private right was immaterial where claims were derived from federal law and resolution of the dispute turned on construction of federal law).
Here, the federal issues in the Plaintiffs' second and third claims are sufficiently substantial to confer "arising under" jurisdiction.
Indeed, the federal issue is essential to Plaintiffs' breach of contract and third-party beneficiary claims. As such, a substantial federal issue exists and subject matter jurisdiction is proper.
Sloan-Kettering next argues that dismissal of the second and third causes of action is warranted on the ground that these causes of action fail to state a claim for which relief can be granted.
In determining whether Plaintiffs' have stated a claim upon which relief may be granted, the Court must first turn to the language of the statute. The language of § 202(c)(7)(B) is clear:
Each funding agreement with a . . . non-profit organization shall contain appropriate provisions to effectuate the following . . . (7)(B) a requirement that the contractor share royalties with the inventor.
35 U.S.C. § 202(c)(7)(B).
The Plaintiffs' second and third claims are premised on the argument that § 202(c)(7)(B) contains an implicit requirement that institutions share a specific percentage of their royalties with inventors and scientists. However, nothing in the language suggests that the share should be a specified ratio. Nor does the definition of "share" suggest that a particular ratio was intended. In common usage, the unmodified verb "share" simply means "to have a share; take part." New Webster's Dictionary of the English Language 2087 (3rd ed. 1981). Black's Law Dictionary (5th ed. 1979) specifically contrasts the unmodified word "share," which it defines as "to partake; enjoy with others have a portion of," with the term "share and share alike," which is defined as referring to "equal shares or proportions." In short, the plain language of the statute does not yield the interpretation that the Plaintiff's ask us to make, that a particular ratio of sharing was intended.
Nor does the legislative history suggest a ratio for sharing. Congress enacted the Bayh-Dole Act "to promote the utilization and commercialization of inventions made with government support." 35 U.S.C. § 200 ("Policy and Objective" of Bayh-Dole Act). To further this aim, the Bayh-Dole Act provides that non-profit institutions receiving government funding must reinvest royalties from research into additional research. 35 U.S.C. § 202(c)(7)(C). Clearly Congress' concern was with the reinvesting of funds to further research, not with furthering the private interests of individual inventors. The provision that non-profit institutions share royalties was included merely to ensure that inventors were provided with an adequate incentive to engage in scientific research. Furthermore, that any sharing ratio should be left to the supply and demand of the market is suggested by Congress' refusal to determine a particular share: "It is not intended that Federal agencies establish sharing ratios." S. Rep. No. 480, 96th Cong., 1st Sess. at 33 (1979).
The regulations established by the executive agency charged with administering § 202 support the conclusion that no particular share or minimum share was intended by Congress. Specifically, the agency has expressly declined to establish any "minimum sharing formula" on the ground that to do so would be "inconsistent with the legislative intent as manifest on p. 33 of the Senate Report 96-480." 47 Fed. Ref. 7556 at 9, Feb. 19, 1982. The agency has noted that "the intent is that non-profit organizations share . . . in accordance with their usual policies."
In sum, a review of the language of the statute, its legislative history, and subsequent agency regulations fails to suggest that Congress intended that institutions follow a federally imposed sharing ratio or minimum share. As plaintiff's second and third claims are premised on such a minimum share, the Court must conclude that these actions fail to state a claim for which relief can be granted. Accordingly, the second and third claims are dismissed.
The State-Law Claims
With the federal claims dismissed, the only remaining claims are state law claims under contract and unjust enrichment theories. In accordance with 28 U.S.C. § 1367(c)(3), the Court declines to exercise its supplemental jurisdiction over plaintiff's remaining claims.
Accordingly, the complaint is dismissed in its entirety.
Dated: March 2, 1992
JOHN S. MARTIN, JR., U.S.D.J.