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The Supreme Court heard arguments this month in a case that could have profound business implications for patent holders and those who pay them for licenses to use those patents. MedImmune v. Genentech has “a lot to do with how patent licenses are negotiated on the ground,” says John Thomas of Georgetown University Law Center. The case challenges a rule of the U.S. Court of Appeals for the Federal Circuit that a licensee cannot bring a declaratory judgment action questioning the patent’s validity as long as it has not breached the license agreement. MedImmune could “open up a whole new class of cases to scrutiny by the courts,” says Jay Dratler Jr. of the University of Akron School of Law, who has filed an amicus brief supporting MedImmune. “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 &#$151; to challenge it.” The Bush administration, generic-drug makers, and environmental groups that believe the decision could have an impact beyond the patent field are among the amici backing MedImmune. Supporters of Genentech include pharmaceutical and biotechnology companies, universities, and the American Intellectual Property Law Association. Thomas can’t say which way the justices will go. “But if the Supreme Court reverses, believe me, we’ll see an increase in patent litigation filings.” In 1997, MedImmune, a biotech company whose main product is the drug Synagis, entered into a license agreement with Genentech, also a biotech company. The agreement covered, among other things, a pending patent application, which eventually matured into the patent called Cabilly II. After the patent issued, Genentech sought royalties from MedImmune because, it said, Synagis was covered under Cabilly II. MedImmune denied that Synagis infringed the patent but began paying royalties “under protest and with reservation of all of our rights.” In 2003, MedImmune filed an action for a declaratory judgment that Cabilly II is invalid. At the heart of MedImmune’s high court challenge is the Federal Circuit’s interpretation of the Declaratory Judgment Act provision requiring a “case of actual controversy” for jurisdiction. In Gen-Probe v. Vysis (2004), the Federal Circuit held that a licensee must breach its licensing agreement to create a “case of actual controversy” over validity. 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 D.C.’s Williams & Connolly, argues that the circuit rule is contrary to the central purpose of the Declaratory Judgment Act — namely, to permit judicial resolution of contract disputes. The company also contends the circuit rule is at odds with “centuries” of Supreme Court decisions. It cites Lear v. Adkins (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,” says Dratler. Lear, he adds, stands for the proposition that contracts and state law doctrines won’t stop 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 the D.C. office 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. David Hricik of Mercer University’s Walter F. George School of Law, who filed an amicus brief supporting Genentech, says 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.”
Marcia Coyle is a D.C.-based staff reporter for the National Law Journal , an ALM publication where this article first ran in.

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