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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.