January 10, 2007

The U.S. Supreme Court issued its decision on MedImmune v. Genentech yesterday, reversing the Federal Circuit’s decision affirming the dismissal of the original action for lack of subject matter jurisdiction. This dispute surrounds a patent license agreement originally executed in 1997, with MedImmune licensing chimeric antibody technology (patented) and technology regarding “the coexpression of immunoglobulin chains in recombinant host cells” (then patent-pending) from Genetech for a fee. The license agreement defined “Licensed Products” as including products that “if not licensed under th[e] Agreement, [would] infringe one or more claims of either or both of [the covered patents,] which have neither expired nor been held invalid by a court or other body of competent jurisdiction from which no appeal has been or may be taken.” Later in 2001 the immunoglobulin patent application issued, and Genentech contacted MedImmune expressing a belief that a current MedImmune product, Synagis, was covered by this newly issued patent, and as such, MedImmune would need to pay royalties to Genentech starting in 2002. Synagis was a significant revenue source for MedImmune, accounting for more than 80% of MedImmune’s sales in 1999, and in order to avoid the risk of treble damages, attorney’s fees, and an injunction against further sales of Synagis, MedImmune decided to pay the royalties and did so “under protest and with reservation of all of [its] rights.”

Soon thereafter, MedImmune sought declaratory judgment from the United States District Court for the Central District of California as MedImmune felt that no royalties were owed because the second patent was invalid, unenforceable, and that its Synagis product did not infringe any claims of that patent. However, the District Court denied MedImmune’s petition, instead granting Genentech’s motion to dismiss the declaratory judgment claims for lack of subject matter jurisdiction. Specifically, Genentech contended that there was no Article III case or controversy because the license agreement “obliterate[s] any reasonable apprehension” that MedImmune would be sued for infringement of the patent. The Federal Circuit affirmed the District Court in October of 2005 (opinion link below).

The U.S. Supreme Court discussed two main issues in its opinion, those being whether or not a contract claim was properly raised and preserved, and whether or not the lower courts erred in dismissing (and affirming) the action for lack of subject matter jurisdiction. The first issue was addressed within four pages of the opinion, noting that the contract claims were indeed preserved by MedImmune. The Court pointed to MedImmune’s original amended complaint, containing in its first count a request for “DECLARATORY JUDGMENT ON CONTRACTUAL RIGHTS AND OBLIGATIONS,” noting further that during the appeal MedImmune also raised the contractual point before the Federal Circuit. Accordingly, the Court determined “that petitioner has raised and preserved a contract claim” and moved on to decide the jurisdictional issue.

The jurisdictional issue comprises the majority of the opinion of the Court. After an introduction of 28 U.S.C. § 2201(a), the court discussed a number of precedent opinions discussing the “case of actual controversy” aspect of that section, noting that all decisions by the Court have required that the dispute be “definite and concrete, touching the legal relations of parties having adverse legal interests,” that it be “real and substantial” and “admi[t] of specific relief through a decree of conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” The main arguments focused on the fact that MedImmune continued to make royalty payments under protest instead of deciding not to make the royalty payments, and according to the Court, “[t]he rule that a plaintiff must destroy a large building, bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights finds no support in Article III.” (emphasis added)

The Court then discusses each of the respondent’s arguments in turn, noting that “[p]romising to pay royalties on patents that have not been held invalid does not amount to a promise not to seek a holding of their invalidity,” and that the common-law rule that a party to a contract cannot simultaneously challenge the validity of the contract and reap benefits from the contract does not apply as the petitioner “is asserting that the contract, properly interpreted, does not prevent it from challenging the patents, and does not require the payment of royalties because the patents do not cover its products and are invalid.” Furthermore, the Court notes that although 28 U.S.C. § 2201(a) says that a court “may declare the rights and other legal relations of any interested party,” the District Court “gave no consideration to discretionary dismissal,” and that “[d]iscretionary dismissal was irrelevant to the Federal Circuit for the same reason.”

Justice Thomas was the lone dissenter in this 8-1 decision, noting in his dissent that “[t]he facts before us present no case or controversy under Article III” because “MedImmune was a licensee in good standing that had made all royalty payments” and “by voluntarily entering into and abiding by a license agreement with Genentech, MedImmune removed any threat of suit.”

U.S. Supreme Court Decision: LINK
Federal Circuit Opinion: LINK
MedImmune’s Press Release: LINK


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