United States: Will The European Court Of Justice Conclude That Antitrust Law Prohibits Royalties For Invalid Patents?

The European Court of Justice recently announced that it will issue a decision in Genentech Inc. v. Hoechst GmbH, in response to a request from the Paris Court of Appeals for clarification on whether European antitrust law precludes payment of royalties on a patent licensing agreement after the invalidation of the patent. This case could have important implications for European antitrust law, particularly if the ECJ determines that the EU's antitrust laws must be interpreted as curbing enforcement of private licensing agreements.

The ECJ's announcement in Genentech is the latest development in the extended litigation between Genentech Inc. and Hoechst AG, a company affiliated with Sanofi-Aventis Deutschland GmbH, arising out of a 1992 licensing agreement between Genentech and Hoechst. The licensing agreement concerns Genentech's use of certain DNA sequences, known as "enhancers," which enable cells to produce drugs at a faster rate. The agreement specified that Genentech would pay a royalty on the sale of commercially marketable goods incorporating the licensed products, in addition to fixed annual payments.

Genentech subsequently developed several successful cancer drugs, but did not identify these drugs as incorporating the licensed products and did not pay royalties to Hoechst. In 1999, the European version of the patent at issue in the case was revoked.

In 2008 Sanofi demanded payment from Genentech for royalties under the licensing agreement. Sanofi's demand triggered a flurry of litigation in Europe and the United States. First, Sanofi commenced arbitration proceedings in Paris before the International Court of Arbitration of the International Chamber of Commerce.

Shortly thereafter, Genentech filed a complaint for a declaratory judgment of invalidity and non-infringement in the U.S. District Court for the Northern District of California, and Sanofi commenced suit alleging infringement in the U.S. District Court for the Eastern District of Texas. The federal suits were consolidated before the Northern District of California, which ruled that Genentech had not infringed the patents. That decision was affirmed by the U.S. Court of Appeals for the Federal Circuit in 2012.

During the same period, however, the ICC arbitrator issued several decisions in favor of Sanofi. The arbitrator concluded that the licensing agreement, which was governed by German law, required Genentech to pay royalties even if the patent was found invalid in the country where Genentech manufactured the drugs.

Genentech appealed the arbitrator's decision to the Paris Court of Appeals, arguing that European law precluded enforcement of royalties where use of the invention does not constitute patent infringement. The Paris Court of Appeals took the unusual step of requiring clarification from the ECJ on the relationship between the EU's anticompetition laws and patent law. Specifically, the Paris Court of Appeals requested that the Court of Justice decide whether Article 101 of the Treaty on the Functioning of the European Union, which broadly prohibits anticompetitive agreements, bars enforcement of a license agreement where the patents at issue have been revoked.

The ECJ has not yet issued a decision, but the case will be eagerly watched by antitrust and patent law practitioners. A ruling that the licensing agreement cannot be enforced on the basis of the public policy rationales contained in Article 101 could become a landmark on the boundary between proprietary rights and the competition laws—at least in Europe.

A case involving a similar question is currently pending before the United States Supreme Court. In Kimble v. Marvel Enterprises, the Supreme Court is considering whether to overturn Brulotte v. Thys Co., a 50-year-old precedent holding that "a patentee's use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se." The Supreme Court granted certiorari in Kimble in December, and oral argument has been set for March 31. Depending on the outcome of the Supreme Court and ECJ's rulings in the pending cases, we may see a coincidence—or divergence—of European and American law on this issue.

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