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WASHINGTON � The U.S. Supreme Court opens its new term this week with a challenge that could have profound business implications for patent holders and those who pay them for licenses to use the patents in developing their own products. The justices this term continue their heightened interest in the development of patent law by agreeing thus far to decide two patent challenges: MedImmune v. Genentech, 05-608, and KSR International v. Teleflex, 04-1350. KSR challenges the standard used by the Federal Circuit U.S. Court of Appeals in determining when an invention is obvious, and thus unpatentable � an issue affecting every patent issued and every challenge to the validity of a patent. MedImmune is “a little more technical but has a lot to do with how patent licenses are negotiated on the ground,” said patent scholar John Thomas of Georgetown University Law Center. MedImmune challenges the Federal Circuit’s rule that a patent licensee cannot bring a declaratory judgment action questioning the validity of the licensed patent as long as the licensee has not breached the license agreement. “I actually think in the economic scheme of things, this case is more important than KSR,” said patent scholar Jay Dratler Jr. of the University of Akron School of Law, who has filed an amicus brief supporting MedImmune Inc. A decision in KSR, he said, will not do much to solve a major problem in patent law today � too many bad patents. “ MedImmune, a procedural case, has an opportunity to open up a whole new class of cases to scrutiny by the courts,” said Dratler. “Those are cases where a company thinks a patent is bad or may be bad, but the company can’t take the economic risk � the possibility of treble damages � to challenge it.” The high stakes are reflected by the amicus parties in the case. The Bush administration, generic drug makers and environmental groups who believe the decision could have impact beyond the patent field, are among those supporting MedImmune. Supporters of Genentech include leading pharmaceutical and biotechnology companies, colleges and universities, and the American Intellectual Property Law Association. “It’s hard to say which way the court will go,” said Georgetown’s Thomas. “But if the Supreme Court reverses [the Federal Circuit], believe me, we’ll see an increase in patent litigation filings.” ONE-WAY DEAL? In 1997, MedImmune, a biotechnology company whose main product is Synagis, a drug used to prevent respiratory tract disease in infants, entered into a patent license agreement with Genentech Inc., also a biotech company, and City of Hope, a nonprofit health care provider. The license agreement covered, among other things, a pending patent application, that eventually matured into a patent.
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After the patent, called Cabilly II, issued, Genentech sought royalties from MedImmune because, it said, Synagis was covered under that patent as well. MedImmune denied that Synagis infringed the Cabilly II patent, but began paying the royalties “under protest and with reservation of all of our rights.” MedImmune argues that it has continued to pay royalties only to avoid the risk of an infringement suit by Genentech to enjoin sales of Synagis. In 2003, MedImmune filed an action for a declaratory judgment that the Cabilly II patent is invalid and not infringed by Synagis. At the heart of MedImmune’s high court challenge is the Federal Circuit’s interpretation of Declaratory Judgment Act’s requirement that there must be a “case of actual controversy” for jurisdiction. The requirement stems from Article III of the Constitution, which says there must be an actual problem before the courts can issue a declaratory judgment. In 2004, the Federal Circuit held in Gen-Probe Inc. v. Vysis, 359 F.3d 1376, that a licensee must breach its licensing agreement to create a “case of actual controversy” over the validity of a patent. If not, the court said, the patent holder, having contracted away its right to sue for infringement, would find itself “in continuing risk of attack on the patent whenever the licensee chooses.” MedImmune, represented by John Kester of Washington’s Williams & Connolly, argues that the Federal Circuit rule is contrary to the central purpose of the Declaratory Judgment Act: “to permit judicial resolution of contract disputes, ‘before or after breach.’” The company also contends that the circuit rule is at odds with “centuries” of Supreme Court decisions. It cites Lear v. Adkins, 395 U.S. 653 (1969), arguing that a licensee often will be the most effective challenger to an invalid patent. The Federal Circuit rule “essentially gives a prospective licensee an economic choice: Stay out of the field even though the patent’s validity is uncertain or take a license and never challenge it,” said Akron’s Dratler. Lear, he added, stands for the proposition that contracts and state law doctrines won’t stand in the way of a challenge to a bad patent because of the strong public interest in getting such patents off the books. Genentech, represented by Maureen Mahoney of Latham & Watkins, counters that common law and the Supreme Court have long held that a licensee cannot challenge a patent while retaining the license benefits. “MedImmune is exactly like a party that settles a looming tort suit in exchange for a payment due in six months, and then comes to court for a declaration about the merits of that suit to decide whether to abandon its settlement.” David Hricik of Mercer University Walter F. George School of Law, who filed an amicus brief supporting Genentech, said that MedImmune wants a rule allowing the licensee but not the patent holder to buy peace, which is unwise. “You end up with fewer licenses and more challenges to patents where the patent owner has his hands tied behind his back.” Marcia Coyle is a reporter with The National Law Journal, a Recorder affiliate based in New York City.

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