Thursday, January 11, 2007

Supreme Court Reverses MedImmune Decision on Non-Antitrust Grounds

In a case originally involving antitrust claims, the U.S. Supreme Court reversed the dismissal of a patent licensee’s declaratory action challenging the validity of a biotech patent. The high court remanded the action, which was dismissed on the ground that the licensee had to terminate or breach its license agreement before it could challenge the patent in a declaratory judgment action. MedImmune, Inc. v. Genentech, Inc., No. 05-608, January 9, 2007.

The patent licensee had brought a declaratory judgment action against the patent owner, claiming patent invalidity, breach of contract, and violation of the Sherman Act. The U.S. District Court for the Central District of California dismissed the claim for lack of jurisdiction on the ground that a patent licensee in good standing cannot bring a declaratory judgment action to challenge a patent it has licensed. The court also dismissed the licensee’s antitrust and unfair competition claims.

The district court refused to transfer the antitrust portion of the appeal to the Ninth Circuit. The Federal Circuit had to take jurisdiction of the appeal of all issues when the complaint included any issue exclusively assigned to the Federal Circuit, in the court's view. Dividing the appeal between two circuits would be contrary to the careful balance and efficient design for the Federal Circuit.

On October 18, 2005, the U.S. Court of Appeals for the Federal Circuit affirmed the district court judgment in all respects (2005 TRADE CASES ¶74,972). In addition to upholding the decision on the jurisdictional issue, the Federal Circuit ruled that an interference settlement between the patent owner and another biotechnology company was not per se illegal under the Sherman Act. The appeals court determined that application of a per se illegality standard would discourage—if not prevent—settlements, placing unnecessary burdens on the courts and the Patent and Trademark Office (PTO). Moreover, the court held that the per se illegality urged by the licensee for interference settlements was contrary to both precedent and policy, as recorded in the Department of Justice/FTC’s Antitrust Guidelines for the Licensing of Intellectual Property .

The licensee’s petition for review by the Supreme Court questioned whether a patent licensee is required to refuse to pay royalties and materially breach a license agreement before bringing suit to declare the patent invalid, unenforceable, or not infringed. The Supreme Court granted review of the decision on February 21. Oral arguments were held on October 4.

In an opinion by Justice Scalia, the Supreme Court held that the standards for determining whether a declaratory judgment action satisfies the "case-or-controversy requirement" were satisfied in this case, even though the licensee did not refuse to make royalty payments. Where a plaintiff's self-avoidance of imminent injury is coerced by the threatened enforcement action of a private party, lower courts have long accepted jurisdiction, according to the Court.

A dissenting opinion by Justice Thomas maintained that the Court has "consistently held that parties do not have standing to obtain rulings on matters that remain hypothetical or conjectural. We have also held that the declaratory judgment procedure cannot be used to obtain advanced rulings or matters that would be addressed in a future case or controversy."

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