MedImmune, Inc. v. Genentech, Inc.

A Licensee’s Failure to Cease Royalty Payments Does Not Render Nonjusticiable a Dispute Over A Patent’s Validity. 

 (Supreme Court 2007, 05-608)

The issue, as articulated by Justice Scalia in the majority (8-1) opinion, was as follows: 

[W]hether Article III’s limitation of federal courts’ jurisdiction to “Cases” and “Controversies,” reflected in the “actual controversy” requirement of the Declaratory Judgment Act, 28 U. S. C. §2201(a), requires a patent licensee to terminate or be in breach of its license agreement before it can seek a declaratory judgment that the underlying patent is invalid, unenforceable, or not infringed?

The technology of the case relates to Synagis, a drug manufactured by MedImmune and used to prevent respiratory tract disease in infants and young children. In 1997, Medimmune had entered into a patent license agreement with Genentech.  The license covered an existing patent relating to the production of “chimeric antibodies” and a then-pending patent application relating to “the coexpression of immunoglobulin chains in recombinant host cells.” 

In December 2001, the “coexpression” application covered by the 1997 license agreement matured into the “Cabilly II” patent. Soon thereafter, Genentech delivered MedImmune a letter expressing its belief that Synagis was covered by the Cabilly II patent and that Genentech expected MedImmune would pay royalties beginning March 1, 2002.  MedImmune did not think royalties were owing, believing that the Cabilly II patent was invalid and unenforceable, and that its claims were in any event not infringed by Synagis.

MedImmune considered the letter to be a clear threat to enforce the Cabilly II patent, terminate the 1997 license agreement, and sue for patent infringement if MedImmune did not make royalty payments as demanded.  Accordingly, MedImmune sought a declaratory judgment, which Genentech sought to dismiss.  However, MedImmune continued to pay the demanded royalties “under protest and with reservation of all it’s rights” in an attempt to avoid damages and an injunction if Genentech were to prevail in a suit.

The Federal Circuit affirmed a district court’s decision to dismiss the declaratory judgment claims, holding that a patent licensee in good standing cannot establish an Article III case or controversy with regard to validity, enforceability, or scope of the patent because the license agreement “obliterate[s] any reasonable apprehension” that the licensee will be sued for infringement.”  The Supreme Court reversed and remanded

There is no dispute that jurisdiction standards would have been satisfied if MedImmune had taken the final step of refusing to make royalty payments under the 1997 license agreement.  The court recognized, however, that where threatened with action by the government, the courts do not require a plaintiff to expose himself to liability before bringing suit to challenge the basis for the threat.  Similarly, courts have accepted jurisdiction in situations where the plaintiff’s self-avoidance of imminent injury is coerced by threatened enforcement action of a private party.  That the plaintiff continues to pay royalties under the threat of action is of no consequence to the jurisdiction decision.  The court has held:

[T]he 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.

Thus, the Supreme Court held that MedImmune was not required to break or terminate its 1997 license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed.

In the lone dissenting opinion, Justice Thomas would hold that MedImmune’s case relates to matter that are merely hypothetical or conjectural, and thus nonjusticiable.   The court has held that the declaratory judgment procedure cannot be used to obtain advanced rulings on matters that would be addressed in a future case of actual controversy, and Justice Thomas believed that MedImmune sought a declaratory judgment for precisely such a purpose.