Intellectual Property Law

Happy New Year from the IP Blawg.

The U.S. Supreme Court got 2007 off to a roaring start with its eagerly anticipated decision in the case of MedImmune, Inc. v. Genentech, Inc. In an 8-1 ruling interpreting the ?case or controversy? clause of Article III of the Constitution, the Court held that a patent licensee need not cease paying the royalties called for under the license agreement or otherwise breach or terminate the agreement before filing a declaratory judgment action challenging the validity of the patent.

In 1997, MedImmune licensed from Genentech technology covered by an existing patent and a pending patent application. When the patent application (?Cabilly II?) issued in late 2001, Genentech advised MedImmune that the Cabilly II patent covered MedImmune?s product and demanded that MedImmune pay royalties. MedImmune, fearful of the risk of facing a possible judgment requiring it to pay treble damages and enjoining it from selling the product that accounted for 80% of its revenues, paid the royalties under protest and commenced a declaratory relief action against Genentech. The district court dismissed the complaint on the grounds that no case or controversy existed because a patent licensee in good standing, as MedImmune was, cannot have any ?reasonable apprehension? of being sued for infringement. The Federal Circuit affirmed, but the Supreme Court reversed.

Justice Scalia, writing for the majority, noted that MedImmune would have unquestionably had constitutional standing to bring a declaratory judgment action if it had refused to make royalty payments. He then pointed out that a plaintiff threatened with action by the government does not have to actually expose himself or herself to liability in order to establish a case or controversy. Justice Scalia next discussed a 1943 Supreme Court case, Altvater v. Freeman, which permitted a patent licensee who was paying royalties under protest could sue the licensor for declaratory relief. In concluding that the dismissal of MedImmune?s complaint should be reversed, the majority stated that Article III does not compel a licensee to ?bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights.?

The lone dissenter, Justice Thomas, argued that MedImmune was doing nothing more than seeking ?an advanced ruling[] on matters that would be addressed in a future case or controversy,? which the Court had consistently refused to permit. According to Justice Thomas, patent invalidity is ?an affirmative defense to patent infringement, not a freestanding cause of action? ? and thus not, by itself, eligible for declaratory relief. Justice Thomas also distinguished Altvater, in part on the basis that the patent invalidity counterclaim was brought as an affirmative defense to an existing infringement action.

How will the MedImmune decision change the relationship between patent licensors and licensees? Will the decision lead to more validity suits by licensees? Is that a good thing? Let us know what you think.

Today's Blogger: Bob Sloss