MedImmune, Inc. v. Genentech, Inc., et al. (01/09/2007)

Question presented: Does the grant of jurisdiction in Article III of the Constitution for "all Cases...arising under...the Laws of the United States" implemented in the "actual controversy" requirement of the Declaratory Judgment Act, 28 U.S.C. sec. 2201(a) require a patent licensee to refuse to pay royalties and commit material breach of the license agreement before suing to declare the patent invalid, unenforceable or not infringed?

BY ETAN HARMELecH, MEDILL NEWS SERVICE

Before their first birthdays, more than two-thirds of infants born in the U.S. will inevitably suffer from upper respiratory infections or other cold-like symptoms. Almost 125,000 are hospitalized each year because of severe throat infections relating to their illnesses.

In recent years, doctors seeking to lump these health problems together under one label have attributed them to a nasty little disease: respiratory syncytial virus (RSV).

In 1998, MedImmune, Inc., a Maryland-based pharmaceutical company, developed the first and only product successfully used to treat RSV. Marketing the drug under the brand name "Synagis," MedImmune relied upon a sophisticated laboratory technique involving the manipulation of DNA to create the antibodies used to fight the respiratory illness.

According to MedImmune's records, Synagis accounted for approximately 80 percent of the company's revenue in 2005.

The same technology used to create MedImmune's wonder drug was patented by biotech giant Genentech Inc. in 2001 following a protracted struggle in U.S. courts with a British company that claimed the procedure as its own.

After years of legal wrangling and court-appointed mediation, San Francisco-based Genentech finally settled the case in its favor, and became entitled to receive royalty payments from MedImmune and a host of other companies whose licensing agreements with the British company (Celltech) were transferred to Genentech.

Just weeks after Genentech alerted MedImmune in early 2002 that it would have to pay royalties by virtue of the new patent, MedImmune filed suit in the District Court of Central California, claiming patent infringement, antitrust violations and unfair competition by Genentech.

Like MedImmune, Genentech makes approximately pharmaceutical products used to treat a variety of ailments, including one medicine often prescribed to breast cancer patients. That product, like MedImmune's Synagis, was developed via the complex molecular process that prompted the suit.

Since the suit was filed, MedImmune has continued to pay royalties to Genentech and has remained "a licensee in good standing," despite its objection to the patent. MedImmune has done so in order to legally continue production of Synagis, its top-selling product.

MedImmune's status vis-à-vis the royalty payments it continued to make to Genentech was the critical issue in the suit. Patent infringement case law stipulates that a "justiciable controversy" must exist for a patent suit to even be litigated.

As Genentech lawyer Dan Wall was preparing to argue his client's case in March 2004, the Federal Circuit Court in Washington, D.C. issued a ruling in a parallel case involving Gen-Probe, another biomedical company.

The Federal Circuit determined in Gen-Probe, Inc. v. Vysis, Inc. that in order for a patent claim to be valid, one of two potential conflicts must exist: Either the licensee must have stopped paying its royalties, or the licensor must have violated the terms of the agreement. Otherwise, there would be no controversy, and the courts would have no jurisdiction.

After that ruling, Wall moved to dismiss the MedImmune suit, citing the Gen-Probe case as clear precedent. The district court agreed in April 2004, dismissing all three claims.

In reaching its decision based on the reasoning in Gen-Probe, the federal court in California stated that "The Federal Circuit determined that controversies over patent validity would not be recognized while license agreements [continue to] protect the licensee from suit for infringement."

MedImmune disagreed, and appealed to the Federal Circuit Court in the District of Columbia, which has appellate jurisdiction over all patent infringement cases.

MedImmune's attorney Howard Kurzweil noted that when MedImmune initially agreed to pay royalties to Genentech, it did so "under protest," and contended that "the actual terms of the license should not have to be breached" in order to prove the existence of a controversy.

MedImmune argued that it would be impractical for a company whose profits rely heavily on the sale of a certain product to fall out of good standing with its licensor and risk an injunction in order to create the controversy necessary to file a patent suit.

Kurzweil cited the 1969 U.S. Supreme Court decision in Lear Inc. v. Adkins for the proposition that it has the absolute right to challenge a patent.

However, on Oct. 18, 2005, the Federal Circuit panel rejected MedImmune's argument and affirmed the district court's decision on all counts, citing the clear lack of a "justiciable controversy" as precluding MedImmune from prevailing.

Relying on its Gen-Probe opinion that denies declaratory relief to licensees in patent cases in which a "reasonable apprehension of suit" does not exist, Judge Pauline Newman noted that MedImmune had "assiduously avoided" breaching its contract with Genentech.

As to the Lear case, Newman added, "In each of the cited cases, there was an additional factor...meeting the statutory requirements that there must be an actual controversy in order to invoke judicial authority."

Judge Raymond Clevenger III dissented in part with the decision. Although he agreed that MedImmune had no legal basis by which to bring the patent infringement claim, he contended the antitrust and unfair competition parts of the case necessitated that the case be transferred to the 9th Circuit Court of Appeals which would have had jurisdiction of the appeal had there not been a patent claim.

According to Wall, MedImmune has filed other cases alleging similar patent infringement, including a suit against Centocor Inc.

"I guess it's just their way of doing business. I don't like it or agree with it," Wall said.

On Feb. 21, 2006, the U.S. Supreme Court accepted review in the case, and a year later, on Jan. 9, 2007, the Court held 8-1 in favor of MedImmune.

Writing for the Court, Justice Antonin Scalia reasoned that there was a case or controversy sufficient to trigger federal subject matter jurisdiction even though MedImmune didn't refuse to make royalty payments under the license agreement. Scalia noted that where threatened government action is concerned, a party need not expose himself to liability before bringing suit.

Justice Clarence Thomas was the lone dissenter, noting that the Court has consistently held that parties do not have standing to obtain rulings "on matters that remain hypothetical or conjectural."