Opinion issued on Jan. 9, 2007
Key Holding: Patent licensee need not breach its license agreement
in order to file a declaratory judgment action regarding noninfringement, invalidity or unenforceability.
MedImmune overturned a rule established by the Federal Circuit
decision in Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed. Cir.
2004), that the existence of a license agreement categorically
eliminated any apprehension of suit by the licensee – thus
precluding the possibility of a case or controversy sufficient to
satisfy the requirements of Article III or the Declaratory Judgment
MedImmune had licensed certain intellectual property rights from
Genentech, but sued Genentech for a declaration that one of the
licensed patents was not infringed by MedImmune's activities and/or
MedImmune continued to pay royalties during the litigation. The
district court (C.D. Cal. ) eventually dismissed MedImmune's suit for
lack of an actual case or controversy.
The Federal Circuit affirmed, rejecting MedImmune's argument that
it met the requirements of the Declaratory Judgment Act because if
it stopped paying the royalties, it could be sued. MedImmune, Inc. v.
Genentech, Inc., 427 F.3d 958 (Fed. Cir. 2005).
MedImmune appealed to the Supreme Court.
“W]here threatened action by government is concerned, we do not require a
plaintiff to expose himself to liability before bringing suit to challenge the
basis for the threat -- for example, the constitutionality of a law threatened
to be enforced.
The Court reasoned that “plaintiff's own action (or inaction) in failing to
violate the law eliminates the imminent threat of prosecution, but
nonetheless does not eliminate Article III jurisdiction."
The Court noted that "[t]he only Supreme Court decision is, fortuitously,
close on its facts to the case." Altvater v. Freeman, 319 U.S. 359 (1943),
"held that a licensee's failure to cease its payment of royalties did not
render nonjusticiable a dispute over the validity of the patent." This was so
because "[t]he royalties 'were being paid under protest and under the
compulsion of an injunction decree,' and '[u]nless the injunction decree were
modified, the only other course [of action] was to defy it, and to risk not only
actual but treble damages in infringement suits.'
The Court was not persuaded by the fact that MedImmune's obligation to
pay was a product of its voluntary decision to sign a license with
The Court rejected Genentech's argument that the parties had effectively
settled the dispute by entering into the license agreement, and that
MedImmune should not be able to unravel the settlement unilaterally by
The Court also held that Genentech could not rely upon "the common-law
rule that a party to a contract cannot at one and the same time challenge its
validity and continue to reap its benefits."
Genentech also urged the Court to affirm dismissal on discretionary or
prudential grounds, such as what it characterized as MedImmune's
"duplicitous 'license and then sue' strategy.” The Court declined to reach
beyond the threshold issue of jurisdiction."
As a result of MedImmune, patent licensees should be more willing
to enter into licenses, since this leaves them free to challenge the
licensed patents while still enjoying the benefits of the licenses —
which effectively would serve as “insurance policies” to insulate the
licensees from suit.
Licensors, on the other hand, must recognize that, in light of
MedImmune and its progeny, licensees may be more motivated to
seek orders declaring licensed patents invalid, particularly if the
patents are of questionable validity or substantial royalties remain to
be paid. Licensors will therefore want to adopt strategies and tactics
that minimize such negative consequences.
Include prohibitions against contesting the licensed patents? Such
provisions are likely unenforceable, and may violate antitrust laws.
Instead, consider including a right to terminate or reduce scope of the
license if the licensee contests the validity of the licensed patents. Include a
right to reduce the scope of the license if the licensee challenges the validity
of the licensed patent.
Consider requiring prospective licensees to conduct pre-licensing due
diligence and recite in the agreement the conclusion that the patent is valid
and the licensee found no basis to invalidate.
Require pre-suit notification, with a description of all evidence of
infringement or unenforceability known to the licensee.
Select a forum of the licensor’s choice.
Generally resist any of the above licensor strategic
moves, so the license agreement provides insurance
against an infringement suit.
Expressly retain the right to contest the licensed
patent(s), at least if new evidence of invalidity and/or
Require licensor to inform licensee of any basis to
invalidate licensed patents disclosed to the licensor
during any third party challenge to the patents.
Increase in the number of declaratory judgment actions
challenging the validity of patents?
Broad consequences for the Federal Circuit's case law
regarding declaratory judgment jurisdiction outside the
licensing context. …
MedImmune effectively undermined the Federal Circuit's
"reasonable apprehension of suit" test for declaratory
judgment jurisdiction by stating that it conflicts (or is in
tension) with four Supreme Court decisions.
The MedImmune decision called into doubt the Federal Circuit's existing law
regarding declaratory judgment actions, potentially lowering the hurdle for
showing a case or controversy sufficient to meet the Declaratory Judgment
A number of other holdings were also called into question.
For example, before, “offer of a patent license [did] not create an actual
controversy ... . When there are proposed or ongoing license negotiations, a
litigation controversy normally does not arise until the negotiations have
broken down." Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kaisha, 57
F.3d 1051, 1053 (Fed. Cir. 1995).
Additionally, before, it was possible for patentees to provide actual notice
under 35 U.S.C. § 287(a) but not trigger a controversy sufficient to create
declaratory judgment jurisdiction. See SRI Int'l, Inc. v. Advanced Tech.
Labs., Inc., 127 F.3d 1462 (Fed. Cir. 1997).