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Supreme Court Ruling Opens Door to Patent Challenges

On January 9, the U.S. Supreme Court issued a ruling that allows biotech firm MedImmune Inc. (Gaithersburg, MD) to pursue a court case challenging a patent agreement with Genentech Inc. (South San Francisco, CA). According to intellectual property experts, the decision could have significant implications for patent licensing deals throughout the life sciences industries and beyond. Depending on the decision's interpretation by lower courts, the ruling could provide companies that have licensed patents with more leeway to challenge the validity of those same patents.

Barquist

"This decision allows companies that have taken out licenses to challenge the validity of a patent while also enjoying the benefits of that very same patent," says Charles Barquist, a patent litigator for Morrison & Foerster LLP (Los Angeles). " MedImmune turns all fundamental assumptions about the stability and finality of a patent license completely on their head. The court has upset the risk-benefit calculation that underlies virtually every patent license."

The MedImmune Inc. v. Genentech Inc. case dates back to 2003, when MedImmune first filed suit against Genentech. In its suit, MedImmune claimed that one of the patents that it licensed from Genentech (called Cabilly II) was invalid. The patent is related to MedImmune's childhood respiratory drug Synagis.

MedImmune continued to pay royalties during the litigation, a fact that Genentech argued was grounds for dismissal. The district court dismissed MedImmune's suit for lack of an actual case or controversy, and the U.S. Court of Appeals for the Federal Circuit affirmed. In an 8-1 decision, t he Supreme Court reversed that decision and sent the case back to the lower courts.

In response to the Supreme Court ruling, MedImmune issued a statement, saying, " By granting MedImmune's appeal, the U.S. Supreme Court has brought further clarity to the patent litigation process--specifically, the use of declaratory judgments by licensees of questionable patents. The court's decision means MedImmune is free to pursue its complaint regarding noninfringement, invalidity, and unenforceability of the Cabilly II patent. We intend to do so vigorously and are confident that our position will prevail."

Following the ruling, Genentech said it remains confident in the validity of its patent .

Barquist says that the Supreme Court decision "upsets the fundamental, real-world assumptions that people make when entering into licensing deals--namely, that the license is something on which they may actually rely."

The Supreme Court's ruling could have a significant chilling effect on several fronts, Barquist says, affecting both licensors and licensees. "Why would a licensor compromise now, perhaps agreeing to a lower royalty percentage that benefits the licensee, if it knows that the licensee can simply turn around and sue to invalidate the underlying patent anyway?" he says.

In the future, Barquist says potential licensees may find the technology they need to be unavailable, or at least more expensive, as patent holders perceive licenses to present greater risks. In light of this, licensing from universities and other research institutions could begin to decline as a result of the MedImmune ruling, Barquist says.

"Such licensing from research institutions is designed to take the important benefits of government-sponsored research and distribute them to us all," he says. "It will be interesting to see how this aspect of licensing is affected as a result of the decision."

Siekman
Siekman: Adjusting licensing strategies.

Going forward, the MedImmune decision may affect how future licenses are drafted as well. Until the implications of the ruling become clear, it may become standard practice to include no-challenge clauses in patent licenses. However, many existing licensing arrangements don't include such protective clauses, potentially opening the door to scores of patent validity challenges similar to that in MedImmune Inc. v. Genentech Inc.

"Licensees should reevaluate the patents they license to see if they should now challenge those patents," says Michael T. Siekman, a shareholder and member of the biotechnology practice group of Wolf, Greenfield & Sacks PC (Boston). "Patent holders should consider adjusting their terms to make such challenges less likely, such as by prohibiting such challenges in the license, by terminating the license upon such a challenge, or by including in the license a monetary penalty to compensate the patent holder for the real and opportunity cost of negotiating the license in the first place. Courts will have to decide whether such terms run afoul of antitrust law."

© 2007 Canon Communications LLC

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