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Supreme Court Decision Update - MedImmune, Inc. v. Genentech, Inc.

patents.jpgPatents, patents, patents. Is there anything more exciting than patents?

I say no.

The final of yesterday’s Supreme Court decisions was MedImmune, Inc. v. Genentech, Inc. (PDF of the opinion), which relates to this exciting world of patents. Specifically, it tells us whether a patent licensee can turn around and file a lawsuit challenging the patent’s validity without first terminating or breaching the licensing agreement. See - exciting!

QuizLaw Analysis: In a case such as this, where the licensee was essentially bullied into the license, and signed the license under protest, there is still a controversy between the parties, and that licensee can still sue. The big patent holders of the world worry that this means there will be lawsuits a-plenty attacking their patents. Everybody, on three…”awwwww.” So sad for them. In any event, I suspect this just means we’ll see many future patent licenses including an explicit “I promise not to sue and attack the patent’s validity” provision.

But all this patent talk is meaningless. The real impact of this case is the breakdown of the justices. The majority opinion was written by the Scalia and joined by everyone except…everyone except…Justice Thomas! The Scalia’s lapdog went off on his own. I’m telling you kids, Justice Thomas is all growns up now!

Uhm, so like, we’re going to have to deal with patents here? Yes, but we don’t have to get technical, because the issue isn’t really about what’s in the patent at issue. So it’s not as bad as it could be.

Oh, ok. Well, how bad is it? Not too bad - here’s the skinny. MedImmune and Genentech are both drug companies. MedImmune makes a drug called Synagis, which is used to treat child respiratory diseases. MedImmune entered into a patent license agreement with Genentech in 1997, for both a current patent Genentech held as well as a then-pending patent application. This agreement meant MedImmune would pay Genentech a license fee and, in exchange, could make, use and sell stuff covered by the patents.

In 2001, the pending patent application became a full patent (called the “Cabilly II” patent), and Genentech sent MedImmune a letter saying that it thought Synagis was covered by the Cabilly II patent. MedImmune didn’t think Synagis infringed the patent, and it also thought the patent was invalid and unenforceable. But since the letter sounded like a threat to terminate the license agreement and file a lawsuit, MedImmune began making royalty payments for Synagis (MedImmune was especially worried because if there was a patent infringement lawsuit later, and Genentech won, Genentech could be entitled to treble damages and attorney’s fees because of the letter it just sent MedImmune).

MedImmune then filed a lawsuit against Genentech, seeking declaratory relief. Genentech moved to dismiss the claim, and the District Court granted this motion, relying on a 2004 Federal Circuit case, Gen-Probe Inc. v. Vysis, Inc. In Gen-Probe, the court held that a patent licensees cannot file a lawsuit challenging the patent because there’s no case or controversy under Article III - since there’s a license, the court reasoned, the licensee doesn’t have any real apprehension that he could be sued for infringement.

Wait a minute, what did MedImmune sue for? Ah, good question grasshopper. MedImmune filed a lawsuit seeking declaratory relief. Think of it like an anti-lawsuit. You threaten to sue me for patent infringement. Well I turn around and sue you first, asking the court to declare that I am not infringing your patent. That’s what MedImmune did.

Although, there was a disagreement about the exact nature of MedImmune’s lawsuit, so the Court looked to that first. The issue was whether MedImmune was just claiming patent invalidity or whether there was also a contract claim regarding the license agreement (namely, a claim that MedImmune does not owe Genentech royalties because the patent is invalid and because Synagis doesn’t infringe the Cabilly II patent). Scalia explains that this really doesn’t touch on the subject-matter jurisdiction matter, but it’s good to be clear. Thus, Scalia explains that there are valid contract claims both because MedImmune’s amended complaint said it was challenging the contract and because MedImmune claimed that, despite language in the license to the contrary, it did not have to pay license fees towards an invalid patent.

Ok, whatever. Let’s get to the beef of the broth. Right you are.

It’s now accepted that many declaratory judgment lawsuits meet the case-or-controversy requirement of Article III. As the Court said in a 1941 opinion, the heart of the matter is “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality” such that the Court should grant the parties some relief. And that, according to Scalia, is what we’ve got here. If MedImmune had stopped making royalty payments, Scalia says this wouldn’t even be a question. It’s only a pickle because MedImmune didn’t stop making payments, and by continuing to make payments it has ensured that Genentech won’t file a lawsuit to enjoin the sale of Synagis.

But Scalia says it just doesn’t matter. First, he says, look at government prosecution of a crime. When the government threatens to prosecute someone for breaking a law, the courts don’t require that person to actually violate the law, and thus expose themselves to liability, before seeking relief. They can take steps to comport with the law while still challenging the threat of prosecution (even though that threat isn’t imminent because they’ve taken steps to comply with the law). In other words, when there’s a “genuine threat of enforcement,” the Court doesn’t require “that the plaintiff bet the farm, so to speak, by taking the violative action.”

While there’s less Supreme Court precedent on this matter with regard to private parties, Scalia says the lower courts have accepted jurisdiction when it’s a private party, instead of the government, threatening some action to enforce their rights, even when the other party takes steps to avoid liability. There is one Supreme Court case which is quite close to this issue, though, and it fully supports this conclusion because it allowed a party to seek a declaratory judgment while paying royalties “under protest.” The Supremes allowed the declaratory judgment action there because the royalties where essentially coerced, on threat of legal action. And that, says Scalia, is just what we’ve got here.

Now Genentech tried to argue that any dispute was effectively settled when the parties entered into the 1997 license agreement, but Scalia’s not biting. First, the license agreement doesn’t include a provision saying or implying that MedImmune wouldn’t challenge the patents’ validity. Instead, MedImmune simply promised to pay royalties on all patents which weren’t held invalid, but this “does not amount to a promise not to seek a holding of their invalidity” (emphasis is all Scalia’s).

Similarly, there’s no meat behind Genentech’s attempt to rely on the common-law rule that when a party enters a contract it can’t challenge the contract’s validity and continue to get the contract’s benefits. That’s because MedImmune isn’t really challenging the contract’s validity - it’s just challenging the underlying patent and arguing that when you read the contract properly, they don’t think they own royalties on the Cabilly II patent.

Finally, there was another issue which Scalia ignores because it wasn’t raised in the lower courts. Genentech requested that the Supremes affirm the District Court’s decision to dismiss MedImmune’s claims because the courts are allowed to dismiss on discretionary grounds. But the District Court didn’t actually claim to be dismissing on discretionary grounds, so this isn’t something which the Supremes should get into. This matter, and anything related to the substance of the claims, goes back down to the lower courts. So sayeth the Scalia, so it be.

Well, if “so sayeth the Scalia,” how come it’s not also “so sayeth Justice Thomas?” While Thomas usually follows Scalia, he went off on his own here, filing a nice little ten page dissent. The gist of his argument is that if someone in MedImmune wants to challenge a patent which is part of a license agreement they should be required to first breach that agreement (by stopping royalty payments). Until they do so, any prosecution is “hypothetical or conjectural” and that’s not a viable Article III case-or-controversy:

I’m a big boy now, Scalia, and I’m making up my own mind. Rebellion! In fact, next I’m getting a mohawk and going punk, just to piss you off. I’m a new man!

That quote may or may not have actually been in the dissenting opinion. But you never know.

| Comments (1)


I would have had difficulty focusing on the precise issues for this case, were I a judge. I am a molecular biologist and would have been blinded by the fact that the "Cabilly" patent is laughable. Shame on the US patent office. Perhaps I can patent all chemistry that uses ether as a solvent? Apparently they would give it to me........

Genentech has enough legitimate business. It does not need to embrass itself and its scientists by scrounging around for an extra 100 million by making a mockery of scientific method.