Supreme Court: MedImmune v. Genentech

The CAFC has held on a number of occasions that a current licensee has no standing to sue for declaratory judgment because there is no immediate threat of being sued for patent infringement.  However, this conclusion pushes against the Supreme Court’s 1969 decision in Lear v. Adkins which held that a public policy interest in invalidating bad patents was strong enough to warrant a limitations on a licensee’s ability to give up its right to challenge a patent’s validity.  After MedImmune, a licensee, is appealing the dismissal of its DJ action and has presented the following question to the Supreme Court for review:

Does Article III’s grant of jurisdiction of "all Cases . . . arising under . . . the Laws of the United States," implemented in the "actual controversy" requirement of the Declaratory Judgment Act, 28 U.S.C. § 2201(a), require a patent licensee to refuse to pay royalties and commit material breach of the license agreement before suing to declare the patent invalid, unenforceable or not infringed?

Briefs are all in and oral arguments are scheduled for October 4, 2006.

The potential impact of this case should not be underestimated. A license agreement is generally thought of as a settlement of a dispute.  If MedImmune is right, however, an ongoing license agreement could actually be a litigation ticket.

DDC's Two comments:

  • Although I didn't file a brief, I agree with much of the analysis of the two law professor briefs in support of the Respondent (Hricik & Cotter).  In general, however, what's wrong with Professor Epstein's free-market approach -- allowing validity challenges be a negotiated contract term.  Although the public has a strong interest in mooting invalid patents, it is rare a licensed patent has only one potential licensee and we now have a number of public interest organizations that are becoming experts of challenging bad patents through reexamination and litigation.
  • Post Lear decisions are a mess. Hopefully the Court will at least use this case as a vehicle for clarifying the law.

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3 thoughts on “Supreme Court: MedImmune v. Genentech”

  1. 3

    Professor Hricik…

    You are, of course, most certainly not “insane” One thing I have had beaten into my head by businessmen is that every risk has a price that sophisticated businessmen can calculate almost down to the penny. The risk that a licensee may be able to escape the obligation to pay royalties inevitably leads to a patentee/licensor factoring that risk into the “price” of the license,i.e., the price goes up to cover the downside if the risk comes to fruition. The same can likewise be said for a licensee. The risk of possible overpayment inevitably leads to seeking a lower “price” to minimize this risk.

    I have found over my many years of preparing licenses that the persons best suited to allocating risk and its associated costs are the licensor and the licensee. Shift risk to the licensor and the price goes up. Shift risk to the licensee and the price goes down.

    These are general observations, but they have proven to be almost immutable rules in the business world. Thus, in my opinion the articulation of a rule shifting risk away from a licensee to a licensor does not bode well if the ultimate goal is to present the “invention” to consumers at affordable prices.

    This is a situation where I stand back from all the legal rhetoric and rely on the economic common sense practiced by those businessmen having a financial stake. I believe others considering this matter would be wise to do likewise.

  2. 2

    My own view, as expressed in the brief, is that the Court ought not reach the question since the plain meaning of the statutes doesn’t grant jurisdiction. We’ll see, but I’ll wager a nickel that 5 votes, minimum, go that way.

    Call me insane.

    David

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