Center for Advanced Study & Research on Intellectual Property

 

CASRIP Newsletter - Autumn/Winter 2007, Volume 14, Issue 1

Article III Controversy May Exist Under the Declaratory Judgment Act for Licensees Not Violating a License Agreement:  MedImmune v. Genentech

By Melissa M. Harwood, Ph.D.

I.          Introduction

On January 9, 2007, the Supreme Court held in MedImmune v. Genentech that licensees are not required to violate the terms of a license agreement before challenging the validity or enforceability of a licensor’s patent.[1]  The principle issue was whether, in the absence of any infringement, MedImmune’s claim presented a case of actual controversy as required by Article III of the U.S. Constitution[2]  and the Declaratory Judgment Act.[3]  The Supreme Court’s ruling in MedImmune is sure to affect future relationships between patent licensors and licensees. 

II.        The License Agreement

Genentech owns U.S. Patent No. 4,816,567 (the “Cabilly I patent”) and its continuation, U.S. Patent No. 6,331,415 (the “Cabilly II patent”).  Both patents involve the manufacture of human antibodies in cell cultures.  Since 1997, MedImmune has licensed the technology of the Cabilly I patent from Genentech, and under the terms of that license agreement, MedImmune was granted a license for the Cabilly II patent as well.  After the Cabilly II patent issued, Genentech advised MedImmune that a MedImmune product, Synagis®, was subject to royalty payments under the Cabilly II license agreement.  MedImmune objected and filed a declaratory judgment action against Genentech. 

III.       Case History

MedImmune alleged in its declaratory judgment action that the Cabilly II patent was invalid because of events arising from a 1990 interference settlement between Genentech and Celltech, the owner of U.S. Patent No. 4,816,397 (the “Boss patent”).[4]    The United States Patent and Trademark Office (“USPTO”) declared an interference between the Cabilly II patent application and the Boss patent, and the Board of Patent Appeals and Interferences granted priority to the Boss patent.[5]  Genentech filed a lawsuit against Celltech, and the two parties later agreed in mediation that the Cabilly II patent application had priority.  The USPTO subsequently issued the Cabilly II patent without cancelling the Boss patent.[6]  MedImmune alleged that priority was not properly decided in those proceedings, and that the actions of Genentech and Celltech constituted antitrust and unfair competition violations.[7]  Genentech contended that MedImmune’s claim did not present a “case of actual controversy” and, thus, that there was no justiciable dispute.[8]  The United States District Court for the Central District of California granted Genentech’s motion to dismiss MedImmune’s claims of patent invalidity, antitrust, and unfair competition.[9]  MedImmune appealed to the Federal Circuit.[10] 

On appeal, MedImmune argued that Lear v. Adkins[11] gives an absolute right to challenge a patent’s validity, even in the absence of breach or infringement.[12]  MedImmune also argued that the Gen-Probe  v. Vysis[13] decision improperly reinstated licensee estoppel.[14]  Under licensee estoppel, when a licensee pays royalties, those actions may be construed as evidence that the licensee considers the licensed patent to be valid.  Instead of asserting licensee estoppel, however, Genentech argued a lack of Article III jurisdiction under the Declaratory Judgment Act.[15] 

Typically, a declaratory judgment action is brought as a defense in patent cases where infringement is alleged, and thus there is a case of actual controversy.  Most federal appeals courts, including the Federal Circuit, have indicated that a controversy over validity, infringement, or enforceability may not exist in the absence of a breach or infringement by the licensee.  The Federal Circuit proposed a two-part test requiring first, “a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement suit” and second, “present activity by the declaratory judgment plaintiff which could constitute infringement.”[16]  However, some circuits, most notably the Second and Seventh Circuits, have required only a “reasonable apprehension of suit” by the declaratory judgment plaintiff.[17]  Those circuits have nonetheless required a primary controversy, even if it is unrelated to patent infringement.  Genentech argued that this position allows licensees to strategically attack the validity of a patent without incurring the risk of an infringement suit or losing the license.[18]  

The Federal Circuit in MedImmune cited a series of cases in which actual infringement was required for a licensee to bring suit against the patentee.[19]  The court also distinguished MedImmune from Lear, because MedImmune was in good standing at the time of suit.[20]  Instead, the court found that MedImmune more closely paralleled Gen-Probe and followed that precedent.[21]  As in Gen-Probe, the court held that a licensee in good standing may not sue to invalidate a licensor’s patent, since there would be no “case of actual controversy.”  In addition, the Federal Circuit saw no impropriety in the interference settlement between Genentech and Celltech.[22]  The Federal Circuit thus upheld the district court’s dismissal of MedImmune’s claims, including those for patent invalidity, antitrust, and unfair competition.[23]  

IV.      The Supreme Court Ruling

The Supreme Court granted certiorari to MedImmune to consider whether a licensee is required to violate a license agreement before seeking a declaratory judgment regarding a licensed patent’s validity.[24]  In Justice Scalia’s majority opinion, the Supreme Court reversed the Federal Circuit’s decision[25] and held that licensees are not required to violate their license agreements to establish a case of actual controversy.  In its decision, the Supreme Court also abrogated Gen-Probe,[26] which held that a breach of the license agreement was required for a case of actual controversy.[27]  The Supreme Court concluded, instead, that an actual controversy may exist in the licensee-licensor agreement when there is an actual threat of a lawsuit, and in particular, when a lawsuit would ensue, should the plaintiff discontinue paying royalties.[28] 

The Supreme Court cited Altvater v. Freeman,[29] wherein the licensor obtained an injunction against the licensee, compelling the licensee to pay royalties.  The licensee filed a counterclaim against the licensor for patent invalidity, but continued to pay the royalties required by the injunction.  The Court found that there was a sufficient controversy because the injunction was involuntary and coercive.[30]  The Court applied this reasoning to MedImmune, and concluded that “[a] licensee who pays royalties under compulsion of an injunction has no more apprehension of imminent harm than a licensee who pays royalties for fear of treble damages and an injunction fatal to his business.”[31]  The Court indicated, however, that a “definite and concrete” controversy must exist to satisfy the requirements of Article III and the Declaratory Judgment Act.[32]  The majority thus concluded that a case of actual controversy could exist in the absence of a licensing agreement violation. 

In his dissent, Justice Thomas considered the impact of MedImmune on future cases, and concluded that the majority’s decision will enable licensees to bring hypothetical or conjectural lawsuits against licensors.[33]  Justice Thomas suggested that the majority misapplied certain cases, including Steffel v. Thompson,[34] and thus reached an erroneous result.  The Court in Steffel held that declaratory relief may be available when the plaintiff demonstrates a genuine threat of enforcement.[35]  Because Steffel addressed government coercion only, Thomas argued that the majority’s application of Steffel to a private enforcement action such as MedImmune was improper.[36]

V.        Conclusion

The principle issue in MedImmune was whether the constitutional requirements under the Declaratory Judgment Act are met when a licensee in good standing brings a declaratory judgment action to invalidate a licensor’s patent.  The Supreme Court’s ruling for MedImmune appears to expand the rights of licensees, and may enable them to challenge patents they are licensing with significantly less risk.  This decision will most likely complicate license agreements and undoubtedly will increase licensing costs.



Melissa M. Harwood, Ph.D earned her Ph.D. in Chemistry from the University of Washington and is currently enrolled in the University of Washington School of Law’s JD program.

[1] MedImmune, Inc. v. Genentech, Inc., 2007 WL 43797 (U.S. Jan. 9, 2007).

[2] U.S. Const. art. III, § 2.

[3] 28 U.S.C. § 2201(a).

[4] MedImmune, Inc. v. Genentech, Inc., 427 F. 3d 958, 961 (Fed. Cir. 2005).

[5] Cabilly v. Boss, 55 U.S.P.Q.2d 1238 (Bd. Pat.App. & Int. 1988).

[6] Genentech, Inc. v. Celltech R & D, Ltd., No. 3:98cv03929 (N.D. Cal. Mar. 16, 2001).

[7] MedImmune, 427 F. 3d at 965.

[8] Id. at 961.

[9] MedImmune, Inc. v. Genentech, Inc., CV 03-2567 (C.D. Cal. Jan. 14, 2004; Feb. 18, 2004; Mar. 15, 2005; Apr. 29, 2004).

[10] See generally, MedImmune, 427 F. 3d 958.

[11] Lear, Inc. v. Adkins, 395 U.S. 653 (1969).

[12] MedImmune, 427 F. 3d 958 at 963.

[13] Gen-Probe, Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed. Cir. 2004).

[14] MedImmune, 427 F. 3d 958 at 963.

[15] Id. at 961 (citing U.S. Const. art. III, § 2 and 28 U.S.C. § 2201(a)).

[16] Id. at 964 (citing MedImmune, Inc. v. Centocor, Inc., 409 F.3d 1376 (Fed. Cir. 2005)).

[17] Warner-Jenkinson Co. v. Allied Chem. Corp., 567 F.2d 184, 187 (2d Cir. 1977); Precision Shooting Equip. Co. v. Allen, 646 F.2d 313 (7th Cir.), cert. denied, 454 U.S. 964 (1981).

[18] MedImmune, 427 F. 3d at 963.

[19] Intermedics Infusaid, Inc. v. Regents of Univ. of Minn., 804 F.2d 129, 131 (Fed. Cir. 1986); Cordis v. Medtronic, 780 F.2d 991, 995 (Fed. Cir. 1985); C.R. Bard, Inc. v. Schwartz, 716 F.2d 874, 875-76 (Fed. Cir. 1983).

[20] MedImmune, 427 F. 3d at 963.

[21] Id. at 963.

[22] Id. at 967.

[23] Id. at 961.

[24] MedImmune, Inc. v. Genentech, Inc., 2007 WL 43797 (U.S. Jan. 9, 2007).

[25] MedImmune, 427 F. 3d at 965.

[26] Id.

[27] See generally, Gen-Probe, 359 F.3d 1376.

[28] MedImmune, 2007 WL 43797 at *5.

[29] Altvater v. Freeman, 319 U.S. 359 (1943).

[30] Id.

[31] MedImmune, 2007 WL 43797 at *6.

[32] Id. at *4.

[33] Id. at *13.

[34] Steffel v. Thompson, 415 U.S. 452 (1974).

[35] Id. at 475.

[36] MedImmune, 2007 WL 43797 at *13.

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