Medimmune: New Rules for Patent Licenses?

Medimmune's Synagis' drug accounted for 80% of its sales revenue. Genentech claimed that a patent license to Medimmune under Genentech's Cabilly II patent entitled it to royalties on those sales. Medimmune considered the patent invalid, but did not want to repudiate the license and risk an injunction, treble damages, and attorneys' fees and so paid royalties on sales of the SYNAGIS drug 'under protest.' Was there an 'actual controversy' between Medimmune and Genen- tech to provide jurisdictional basis for a declaratory judgment action or the issues of patent infringement and validity? 'No,' held the Federal Circuit, on the basis of
its earlier Gen-Probe decision, because the license protected Medimmune from the reasonable apprehension of a lawsuit. Medimmune, Inc. v. Genentech, Inc., 427 F.3d 958, 964, 965 (Fed. Cir. 2005). The Supreme Court, however, reversed, holding that Medimmune did not have to 'bet the farm' by repudiating the license in order to provide the jurisdictional basis for a federal declaratory judgment action. Medimmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007).

Article III of the Constitution gives federal courts limited jurisdiction allowing them to decide a dispute only if there is a case or controversy. The case or controversy requirement is of particular concern in the case of declaratory judgment actions. To stay within constitutional bounds, federal declaratory judgment actions are limited to cases involving an 'actual controversy.' 28 U.S.C. '2201(a). An actual controversy exists if the dispute is 'definite and concrete, touching the legal relations of the parties having adverse legal interests.' Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 240 (1937). In the context of patent validity challenges, Federal Circuit law required that the declaratory judgment plaintiff establish in addition a 'reasonable apprehension of imminent suit.' Teva Pharma USA, Inc. v. Pfizer, Inc., 395 F.3d 1324, 1333 (Fed. Cir. 2005). Applying this test, the Federal Circuit had found no 'actual controversy' when a licensee in good standing filed for a declaration of non-infringement and invalidity of the licensed patent. The license, the Federal Circuit reasoned, protected the licensee against an infringement claim so it could not reasonably fear a lawsuit. Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376, 1381 (Fed. Cir. 2004).