With this language, the U.S. Supreme Court concluded its 8-1 landmark decision in MedImmune, Inc. v. Genentech, Inc. reversing the holding of the U.S. Court of Appeals for the Federal Circuit ("Federal Circuit"). This decision has potentially wide-ranging ramifications for patent licensing.
The dispute that served as the genesis for this opinion began shortly after the December 18, 2001 issuance of U.S. Patent No. 6,331,415 ("the ’415 patent"), which concluded more than 13 years of prosecution before the United States Patent and Trademark Office ("USPTO"). The application that resulted in the ’415 patent was a continuation of an application that resulted in U.S. Patent No. 4,816,567, which Genentech had licensed to MedImmune – along with the application that resulted in the ’415 patent – in 1995.
In June of 1998, the FDA approved Synagis®, a MedImmune drug designed to treat respiratory syncytial virus, the most common cause of lower respiratory infections in children. When the ’415 patent issued, Genentech informed MedImmune of its belief that Synagis® – which was then responsible for about 80% of MedImmune’s revenue – fell within the scope of claims of the ’415 patent. Genentech informed MedImmune that it expected royalties pursuant to the license agreement. MedImmune complied, but did so "under protest and with reservation of all of [its] rights."
MedImmune filed a declaratory judgment complaint seeking declarations of its contractual rights and obligations under the license and declarations of invalidity, unenforceability and non-infringement of the ’415 patent. The district court found that opinion of the Federal Circuit panel in Gen-Probe, Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed.Cir.2004), mandated dismissal because there was no breach of the license and, without a breach, there was no possibility of an infringement suit and therefore no case or controversy.
On appeal to the Federal Circuit, MedImmune argued that Gen-Probe resurrected the doctrine of licensee estoppel that was abolished by the U.S. Supreme Court’s opinion in Lear, Inc. v. Adkins, 395 U.S. 693 (1969), and that the Federal Circuit should overturn the Gen-Probe decision. The Federal Circuit affirmed the district court’s dismissal for lack of standing, noting that it was bound by the opinions of prior panels that had not been overruled en banc.
The Supreme Court accepted certiorari to determine:
Justice Scalia, in writing for the majority, analogized the threat of an injunction and treble damages to the threat of forfeiture of property (a farm) by government action in Terrace v. Thompson, 263 U.S. 197 (1923). The Court in that case held that an actual case or controversy did not require a putative declaratory plaintiff to "bet the farm" by taking violative action. The Court also found its prior decision in Altvater v. Freeman, 319 U.S. 359 (1943) to be on point. In Altvater, patent royalties "were being paid under protest and under the compulsion of an injunction decree . . . ." The Court quoted from its Altvater opinion, stating that "the requirements of [a] case or controversy are met where payment of a claim is demanded as of right and where payment is made, but where the involuntary or coercive nature of the exaction preserves the right to recover the sums paid or to challenge the legality of the claim."
The Court did not find persuasive respondent Genentech’s arguments that reversing the Federal Circuit would be tantamount to "allowing the licensee to … enjoy[] its immunity [from suit] while bringing a suit" which would "eliminate … [the] quid pro quo" of the license agreement. The majority also dismissed Justice Thomas’ lone dissent that the Court’s decision in effect allows for "advisory opinions" and decisions of "hypothetical case[s]." In summary, the Court reaffirmed the standard for declaratory judgment that it articulated in Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270 (1941): "the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." In doing so, it repudiated the Federal Circuit’s "reasonable apprehension of [imminent] suit" test, and changed the legal landscape in which patent holders and alleged infringers interact.
The Court did not address whether a licensor would have standing to bring an action seeking a declaration of infringement, validity and/or enforceability if its licensee started to make its payments "under protest and with reservation of all rights." The Court also did not address whether the right to challenge the patent by the licensee could be contracted away.
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