Medimmune Gets Its Day In Court And Alters Perceptions Of License Agreement Drafting

A recent U.S. Supreme Court decision may prompt licensees to now challenge patents they are licensing. In MedImmune v. Genentech, the Court held that a licensee is not required to breach or terminate a license agreement as a prerequisite for filing an action to challenge the validity, enforceability or non-infringement of a licensed patent. In short, a patent licensee may maintain the benefit of the license while at the same time challenging the patents covered in the license.

The MedImmune decision, U.S. Supreme Court No. 05-608, will have an impact not only on the law regarding declaratory judgment actions by licensees, but also, on the Federal Circuit's declaratory judgment jurisprudence in general. The Supreme Court's 8-1 decision, delivered by Justice Scalia, states that a plaintiff is not required to expose itself to liability in order to bring a lawsuit challenging the validity, enforceability or non-infringement of the licensed patent. In the Court's opinion, the failure to violate a law does not eliminate the licensee's right to sue under Article III where the threat-eliminating behavior is essentially coerced. The dilemma posed by that coercion - making the challenger choose between abandoning its license rights or risk being sued - is a "dilemma that it was the very purpose of the Declaratory Judgment Act to ameliorate."

Background Facts

In 1997, Genentech entered into a patent license with MedImmune. The license covered Genentech's then-pending patent application, which later became a patent, for the production of chimeric antibodies. MedImmune agreed to pay royalties on sales of "Licensed Products." The agreement defined "Licensed Products" as a specified antibody, "the manufacture, use or sale of which would, if not licensed under th[e] Agreement, infringe one or more claims of either or both of [the covered patents,] which have neither expired nor have been held invalid by a court or other body of competent jurisdiction from which no appeal has been or may be taken."

In 2001, Genentech informed MedImmune that one of MedImmune's products, Synagis (a drug used to prevent respiratory tract disease in infants and young children), was covered by the patent, and requested that MedImmune pay royalties in accordance with the license. MedImmune stated that no royalties were due because the patent was invalid and unenforceable, and that its product was not infringing. However, MedImmune eventually agreed to pay royalties (under protest and with reservation of all of [its] rights), and later filed a declaratory judgment for invalidity, unenforceability or non-infringement in federal court.

Genentech argued that because MedImmune had entered into a patent license agreement and could not be sued for patent infringement of the licensed patent, MedImmune could not file a declaratory judgment action without first stopping its royalty payments. In other words, MedImmune would have to breach the license agreement. MedImmune argued that it did not want terminate the license because of the risk that it might be found liable for treble damages and attorney fees. Basically, Genentech's legal argument was that the suit did not involve a "case or controversy" (required by the Constitution and the Declaratory Judgment Act) because there was no real legal dispute between the parties as long as there was a...