Medimmune, Inc. v. Genentech, Inc.


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Medimmune, Inc. v. Genentech, Inc.

  1. 1.    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 Act.
  2. 2.  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 was invalid.  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.
  3. 3.  “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.'
  4. 4.  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 Genentech.  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 filing suit.  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."
  5. 5.   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.
  6. 6.   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.
  7. 7.  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 unenforceability appears.  Require licensor to inform licensee of any basis to invalidate licensed patents disclosed to the licensor during any third party challenge to the patents.
  8. 8.  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.
  9. 9.  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 Act.  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).