Judges: [Justice Scalia delivered the opinion of the Court. Justice Thomas filed a dissenting opinion.]

In MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (U.S. Jan. 9, 2007), the Supreme Court held that the “actual controversy” requirement of the Declaratory Judgment Act, 28 U.S.C. § 2201(a), does not require a patent licensee to terminate or breach its license agreement before seeking a DJ that the underlying patent is invalid, unenforceable, or not infringed. The Supreme Court reversed the Federal Circuit and remanded to address the requested declaratory relief.

Petitioner MedImmune, Inc. (“MedImmune”) manufactures Synagis, a respiratory drug for young children, which has accounted for more than 80 percent of its revenue from sales since 1999. In 1997, MedImmune entered into a patent license agreement with respondent Genentech, Inc. (“Genentech”). The license covered an existing patent and a then-pending application on “the coexpression of immunoglobulin chains in recombinant host cells.” MedImmune agreed to pay royalties on “Licensed Products,” defined as a specified antibody, “the manufacture, use or sale of which . . . would, if not licensed under th[e] Agreement, infringe one or more claims of either or both of [the covered patents,] which have neither expired nor been held invalid by a court or other body of competent jurisdiction from which no appeal has been or may be taken.” Id. at 768.

In December 2001, Genentech’s “coexpression” application matured into the “Cabilly II” patent. Genentech then sent a letter to MedImmune stating that the Cabilly II patent covered Synagis and that Genentech expected royalty payments.

MedImmune determined no royalties were owed, believing that the Cabilly II patent was invalid, unenforceable, and not infringed. Despite those beliefs, MedImmune considered the letter a threat to terminate the 1997 license agreement and sue for patent infringement absent royalty payments.

Unwilling to risk treble damages and an injunction, MedImmune paid the demanded royalties “under protest and with reservation of all of [its] rights,” and filed a DJ action in the United States District Court for the Central District of California. The district court, however, dismissed the action for lack of subject matter jurisdiction, relying on Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed. Cir. 2004), which held that a patent licensee in good standing cannot establish an Article III case or controversy regarding validity, enforceability, or scope of a patent. On appeal, the Federal Circuit affirmed the dismissal. The Supreme Court granted certiorari. At the outset, the Supreme Court made it clear that the nature of the dispute involves a claim that MedImmune does not owe royalties because of patent invalidity and noninfringement, and not a freestanding claim of patent invalidity. The Court found that MedImmune alleged a contractual dispute as to the royalty obligations under the 1997 license agreement and that MedImmune properly preserved the contractual dispute, albeit in a few pages of the appellate brief.

The Court noted that the 1997 license agreement required MedImmune to pay royalties until a patent claim has been held invalid and that the Cabilly II patent had not been held invalid. Distinguishing Lear, Inc. v. Adkins, 395 U.S. 653 (1969), the Court noted that the licensee in Lear repudiated the license agreement, even though the royalties had to be paid until the patent was held invalid. In Lear, the Court relieved the repudiating licensee of its contract obligations while contesting the patent’s validity. Focusing on the repudiation of the license in Lear, the Court stated that it “express[es] no opinion on whether a nonrepudiating licensee is similarly relieved of its contract obligation during a successful challenge to a patent’s validity . . . .” 127 S. Ct. at 769-70 (emphasis in original).

The Court then addressed the jurisdictional issue, first noting that an appropriate action for declaratory relief can meet the case or controversy requirement under Article III. In Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270 (1941), the Court summarized the law regarding fulfillment of the case or controversy requirement by an action for declaratory relief when it wrote that the question “is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” 127 S. Ct. at 771.

If MedImmune had refused to pay the royalties on the 1997 license agreement, the case or controversy requirement would no doubt have been met. Therefore, the Court framed the issue as whether a licensee’s own acts to eliminate the imminent threat of harm can cause a dispute to no longer be a case or controversy under Article III.

Many Supreme Court cases have held that if the threatened action against the licensee is an action by the government, a licensee’s actions or inaction in failing to violate the law does not eliminate Article III jurisdiction. The only Supreme Court case dealing with a DJ after threatened action by a private citizen, Altvater v. Freeman, 319 U.S. 359 (1943), held that a licensee’s failure to cease royalty payments did not render nonjusticiable a dispute over the validity of the patent.

The Court also addressed Genentech’s argument that permitting a licensee to challenge the validity of a patent without terminating the license agreement alters the deal and allows the licensee to enjoy immunity from suit while suing the licensor. Finding no basis for the prohibition against challenging the validity of a patent while licensing that same patent, the Court stated, “[p]romising 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.” 127 S. Ct. at 776 (emphasis in original).

Finally, the Court noted that the discretionary aspect of the Declaratory Judgment Act, providing that a court “may declare the rights and other legal relations of any interested party,” id. at 770 (emphasis added), rather than that it must do so, is best left to the district courts. On remand, the lower courts are left to address any arguments regarding the appropriateness of a discretionary dismissal as well as all issues surrounding the merits of the DJ of invalidity and unenforceability.

In a dissenting opinion, Justice Thomas disagreed that this case involves a contractual dispute and noted that MedImmune has not pursued a contract claim at any level, including the question on certiorari. By entering into and complying with the 1997 license agreement, MedImmune deprived Genentech of any cause of action against MedImmune.

In Justice Thomas’s view, the DJ here is simply a request by MedImmune to give an advisory opinion as to whether the Cabilly II patent would be declared invalid if MedImmune breached the 1997 license agreement and Genentech sued for infringement. He stated that parties do not have standing to obtain rulings on matters that are hypothetical or conjectural and that the DJ procedure cannot be used to obtain advance rulings on matters that would be addressed in a future case of actual controversy.

According to Justice Thomas, the Court’s holding also improperly extended Steffel v. Thompson, 415 U.S. 452 (1974), to all private contractual obligations when Steffel dealt solely with threatened action by the government. Indeed, “[b]y holding that [voluntary] contractual obligations are sufficiently coercive to allow a party to bring a declaratory judgment action, the majority has given every patent licensee a cause of action and a free pass around Article III’s requirements for challenging the validity of licensed patents.” 127 S. Ct. at 782.