On January 9, 2007, the Supreme Court issued its decision in MedImmune, Inc. v. Genentech, Inc., holding that a patent licensee (MedImmune in this case) can challenge the validity, enforceability or noninfringement of a licensor’s (in this case Genentech) patent in a declaratory judgment action even if the licensee is still paying royalties (although under protest) and otherwise complying with the license agreement. The Supreme Court’s decision overrules the Federal Circuit’s (the appellate court which decides all patent disputes) previous holding in Gen-Probe Inc. v. Vysis, Inc., under similar facts, that a licensee complying with all of the terms of its license agreement has no standing to sue for a declaratory judgment of patent invalidity, unenforceability or noninfringement. The Supreme Court’s MedImmune decision will obviously have a significant impact on patent licensor/licensee relationships, on parties negotiating patent licensing agreements, and on the litigation of patent disputes.

The MedImmune decision leaves open many issues regarding patent licensing negotiations and enforcement. The Federal Circuit has held that the Supreme Court’s Lear v. Atkins decision repudiating the doctrine of licensee estoppel could only be taken advantage of where the licensee repudiates the license, stops paying royalties and opens itself to the risks of an infringement suit with the potential of injunction and treble damages. See Studiengesellschaft Kohle, m.b.H. v. Shell Oil Co., 112 F.3d 1561, 1568 (Fed. Cir. 1997). In the MedImmune decision, however, Justice Scalia, writing for an 8-1 majority, indicated in two separate places that the Court was not expressing any opinion as to whether a nonrepudiating licensee is entitled to take advantage of the Lear doctrine permitting an attack on patent invalidity or noninfringement. 

The MedImmune decision also rejects Genentech’s “insurance policy” and “quid pro quo” arguments finding nothing in the license agreement itself “where the prohibition against challenging the validity of the patents is to be found.” Slip Opinion, p. 16. The Court holds that the language promising 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.”

What is not clear from the decision is what patent licensors can do to avoid the consequences of the MedImmune decision. Can the licensor require that the licensee not challenge the validity of the patents unless he repudiates the license and take his risks in court? Will such a clause survive a Lear challenge in light of the issue left open by the MedImmune majority? Is it the result of MedImmune that patent owners must obtain a Consent Judgment to insure licensees do not challenge the validity of a patent after taking a license?

Another question raised by the MedImmune decision is its effect on the law of jurisdiction of a Declaratory Judgment action. The Federal Circuit has steadfastly denied jurisdiction based on the normal interchange of license negotiations absent a specific threat of an infringement suit. See EMC Corp. v. Norand Corp., 89 F.3d 807, 814-15 (Fed. Cir. 1996), cert. denied, 519 U.S. 1101 (1997). In MedImmune, Genentech made no such specific threat. Rather, it merely alleged that the patent covered MedImmune’s product and royalties were due. Such allegations have not been enough for the Federal Circuit to confer Declaratory Judgment jurisdiction. See Metabolite Labs. v. Laboratory Corp. of America Holdings, 370 F.3d 1354, 1369 (Fed. Cir. 2004), cert. dismissed, 126 S. Ct.2921 (2006). Yet, in MedImmune no threat of suit was made although it was clearly implied. Mere charges of coverage of the patent over the licensee’s product was enough in this licensor-licensee scenario. Whether similar such charges, in light of MedImmune, will be enough in the negotiating stage is another unknown issue.

Finally, what did the majority mean in also focusing the remanded action on the discretionary aspects of the Declaratory Judgment Act? Clearly, MedImmune’s business was almost entirely (80%) tied to the allegedly infringing product and the risks posed by a repudiation of the license were huge. Left open by this focus are what facts a District Court should consider in exercising its discretionary authority. Many questions remain unanswered by the MedImmune decision. What is clear is that the license agreements in existence today are subject to challenge in manners never contemplated at the time of negotiation. Obviously, specific clauses need to be reviewed to determine which agreements might be vulnerable and what steps need to be taken to protect the income stream of such agreements. Moreover, new approaches need to be reviewed before undertaking a letter writing campaign to potential licensees and entering into license negotiations.