MedImmune v. Genentech, et. al.
MedImmune and Genentech entered into a license agreement in 1997 covering existing patents and follow-on patent applications, including the then-pending Cabilly II application, purportedly covering MedImmune’s lead product, Synagis® for respiratory syncytial virus (RSV). After the Cabilly II patent issued in December, 2001, Genentech sent MedImmune a letter saying that it believed Synagis was covered by Cabilly II and that royalties would be due beginning March, 2002, under the 1997 license agreement.
Although MedImmune felt that the Cabilly II patent was invalid, unenforceable, and in any event not infringed by Synagis, they paid Genentech royalties under protest and reserved their right to challenge the patent. MedImmune viewed the letter from Genentech as a clear threat to terminate the 1997 license agreement for breach and sue for patent infringement if it did not pay the royalty. However, MedImmune was never at actual risk of losing the license or being sued for infringement because they continued to pay royalties, albeit under protest.
To settle the dispute, MedImmune brought a declaratory judgment action against Genentech in the Central District of California, asking the court to declare the Cabilly II patent invalid, unenforceable, and not infringed by Synagis. MedImmune also sought a declaration of contractual rights and obligations under the 1997 license agreement.
The district court dismissed the suit as nonjusticible under the Declaratory Judgment Act, following the Federal Circuit’s decision in Gen-Probe, Inc. v. Vysis, Inc. that required a licensee be in material breach of a license before bringing a declaratory judgment action. On appeal, a panel of the Federal Circuit upheld the district court’s dismissal, affirming that MedImmune was a licensee in good standing under no threat or apprehension of suit.
MedImmune appealed the Federal Circuit holding to the U.S. Supreme Court. The Supreme Court refused to apply the Federal Circuit test, drawing instead on their long-standing precedent that looks to the totality of the circumstances to see whether there is a substantial controversy between parties having adverse legal interests and whether the controversy is sufficiently immediate and real to warrant the issuance of a declaratory judgment.
The Court was first satisfied that the requirements for a declaratory judgment action would have easily been met if MedImmune had refused to pay royalties to Genentech. The resulting dispute would be clear.
As to the actual set of circumstances, the Court considered the basis of the dispute. Genentech claimed a right to royalties, and MedImmune claimed that no royalties were due because the Cabilly II patent is invalid, unenforceable, and not infringed. The Court also considered an alleged threat by Genentech to sue for patent infringement and enjoin MedImmune’s sales if royalties were not paid. The Court was satisfied that the factual and legal dimensions of the dispute were well-defined by the license agreement and the relationship of the parties.
Although the Court recognized that MedImmune’s own act of continuing to pay royalties effectively eliminated the threat of being sued for infringement, they nonetheless decided that MedImmune need not put itself in harms way to challenge the validity or enforceability of the underlying licensed patent where the resulting dispute is otherwise well-defined. This holding comports well with the purpose of the Declaratory Judgment Act—i.e., one need not risk losing the farm to seek relief.
The Cabilly II patent challenge now goes back to the district court for resolution.