Publications > BSKB Case Briefs > Vol. 5, No. 1 (11 January 2007)

BSKB Case Briefs

Editors: Marc S. Weiner, Esq., MaryAnne Armstrong, Ph.D., Esq., and Nicholas P. Godici.

Vol. 5, No. 1 (11 January 2007)

In This Issue:

:: Breach of License Agreement Not Required for Licensee to File Request for Declaratory Judgment

Breach of License Agreement Not Required for Licensee to File Request for Declaratory Judgment

Medimmune, Inc. v. Genentech, Inc. (US Supreme Court 05-608) 

Issue:  Must a licensee to a patent formally breach the license agreement to establish the necessary “case or controversy” required to give standing to file a declaratory judgment claim to decide the patent’s validity, enforceability or scope? 

Answer: No 

Background: In 1997, MedImmune Inc. (“MedImmune”) entered into a patent license agreement with Genentech, Inc. (“Genentech”), which covered an already issued patent and a pending patent application.  Under the agreement, MedImmune agreed to pay royalties on sales of “Licensed Products”.  “Licensed Products” were defined in the license agreement 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 been held invalid by a court or other body of competent jurisdiction from which no appeal has been or may be taken.”

In December 2001, the pending application (the “Cabilly II patent”) issued and Genentech sent MedImmune a letter stating the MedImmune product, Synagis, was covered by the Cabilly II patent and that as such, MedImmune was expected to start paying royalties under the patent.  MedImmune took the position that the Cabilly II patent was invalid and unenforceable, and that the claims of the Cabilly II patent were not infringed by Synagis.  However, instead of refusing to make the royalty payments, MedImmune made the requested royalty payments and at the same time filed a declaratory judgment claim as to the validity and infringement of the Cabilly II patent.

Arguments: Genentech argued that there was no case or controversy under Article III of the US constitution, which is required to give standing to MedImmune to file the declaratory judgment claim.   Genentech argued that, “the parties in effect settled this dispute when they entered into the 1997 license agreement. When a licensee enters such an agreement...it essentially purchases an insurance policy, immunizing it from suits for infringement so long as it continues to pay royalties and does not challenge the covered patents. Permitting it [the licensee] to challenge the validity of the patent without terminating or breaking the agreement alters the deal, allowing the licensee to continue enjoying its immunity while bringing a suit, the elimination of which was part of the patentee’s quid pro quo.”

The District Court had agreed with Genentech, dismissing the case for lack of subject matter jurisdiction. The Federal Circuit affirmed, and MedImmune sought review by the Supreme Court.

Conclusion: The Supreme Court first reviewed the statutory basis for a declaratory judgment action. “The Declaratory Judgment Act provides that, “[i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.”28 U. S. C. §2201(a).”   The Court noted that the requirements for establishing a case or controversy “would have been satisfied if petitioner had taken the final step of refusing to make royalty payments under the 1997 license agreement.”

The Court also noted with regard to MedImmune’s decision to continue making royalty payments, that “As long as those payments are made, there is no risk that respondents will seek to enjoin petitioner’s sales. Petitioner’s own acts, in other words, eliminate the imminent threat of harm.  The question before us is whether this causes the dispute no longer to be a case or controversy within the meaning of Article III.”

In response to Genentech’s arguments, the Court noted that, ‘it is not clear where the prohibition against challenging the validity of the patents is to be found. It can hardly be implied from the mere promise to pay royalties on patents “which have neither expired nor been held invalid by a court or other body of competent jurisdiction from which no appeal has been or may be taken,” Promising to pay royalties on patents that have not been held invalid does not amount to a promise not to seek a holding of their invalidity....Petitioner is not repudiating or impugning the contract while continuing to reap its benefits. Rather, it is asserting that the contract, properly interpreted, does not prevent it from challenging the patents, and does not require the payment of royalties because the patents do not cover its products and are invalid.’

Holding:” We hold that petitioner was not required, insofar as Article III is concerned, to break or terminate its 1997 license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed.” The case was, therefore, remanded to the lower court for review of the substantive issues.

The full text of this opinion is available at

http://www.supremecourtus.gov/opinions/06pdf/05-608.pdf.

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