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U.S. Supreme Court agrees to resolve a patent licensee’s dilemma
Posted in Litigation

To pay or not to pay– that is the question for patent licensees in the wake of a case recently granted review by the U.S. Supreme Court. In MedImmune, Inc. v. Genentech, Inc., a patent licensee suing to invalidate the patent was kicked out of court. The reason, according to the lower courts, was there was no “actual controversy” as required by the federal Declaratory Judgment Act and Article III of the U.S. Constitution for a federal court to hear the case, given that the licensee had never stopped paying royalties under the license from the patent holder. The high court will decide for patent licensees everywhere whether in order to challenge a patent in federal court, they must stop paying royalties, and as MedImmune put it, “risk crippling infringement judgments, with possible consequences of injunction, treble damages and attorneys’ fees.”

MedImmune makes the drug known as Synagis®, which they claim is “the only drug in the U.S. indicated for prevention of potentially fatal respiratory tract infections caused by respiratory syncytial virus (RSV) in infants.” Synagis® uses technology patented by Genentech, Inc. relating “to the use of cell cultures to manufacture human antibodies.”

MedImmune’s lawsuit claims that Genentech’s patent is invalid because it was issued as the result of an alleged “collusive and fraudulent” settlement of litigation litigation between Genentech and a British company, Celltech R & D,

Ltd., which also claimed in a U.S. patent the same technology as claimed by Genentech’s patent. In their settlement, Genentech and Celltech agreed that the continuation application to Genentech’s patent “was entitled to priority as against Celltech’s patent” and entered into a “cross-license agreement that included a formula for sharing of royalties” from licensees such as MedImmune. The settlement, approved by a U.S. District Court, also resulted in the U.S. Patent and Trademark Office (PTO) approving the continuation of Genentech’s patent to last approximately 12 years longer than

MedImmune’s arguments to invalidate the patent include that “the interference settlement between Genentech and Celltech was collusive and fraudulent” in violation of federal and state antitrust laws and not immune from attack simply because it was approved by a U.S. District Court. In addition, MedImmune argues that the antitrust laws were violated by alleged collusion in Genentech and Celltech’s joint submission “of the settlement agreement to the district court, and again in their joint submission of the court’s judgment order to the Patent and Trademark Office with the request that [Celltech’s] patent be cancelled and [Genentech’s] application be granted.” “MedImmune also argues that an antitrust violation arose in Genentech’s prosecution of [its patent] application after it was returned to ex parte examination” before the patent examiner. Whether MedImmune will ever get a federal court even to hear its challenge of Genentech’s patent should be decided by the Supreme Court’s ruling.

Genentech has argued that MedImmune would not really be left with no remedy were the dismissal of MedImmune’s claims to be upheld. According to Genentech, “[t]here are at least three different ways” by which “the validity of” its patent “may be tested”:

  1. a licensee such as MedImmune may refuse to pay or cease paying royalties and… induce an infringement suit;
  2. anyone who is not licensed and is threatened with suit may challenge the patent under the Declaratory Judgment Act; or
  3. any member of the public, even a patent licensee in good standing, may seek reexamination of a patent by the PTO at any time.

To be sure, these choices are all available, but according to MedImmune, not really viable options for a small company facing the prospect of a potentially fatal infringement action. One may question whether MedImmune’s concerns are overblown, but no one disputes that the Supreme Court’s decision may have a significant impact on negotiation dynamics for patent licensors and licensees everywhere. By this fall, the Supreme Court should hear oral arguments in the case.

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