The Supreme Court heard oral arguments in a case asking whether companies can sue to invalidate another’s patent even when they don’t face an infringement suit, a case that may affect thousands of drug and biotechnology inventions. The case, MedImmune, Inc. v. Genentech, Inc. et al. (No. 05-608), looks at whether a company must stop paying royalties on a patent license to challenge the validity of the patent. MedImmune is paying licensing fees to Genentech for an antibody technology used in MedImmune’s pediatric respiratory drug Synagis, while at the same time challenging Genentech’s patent in court.

The patents at issue, U.S. Pat. Nos. 4,816,567 and 6,331,415, relate to antibodies and to non-specific immunoglobulins formed by recombinant techniques using host cell cultures. The antibodies can be manipulated at the genomic level to produce chimeras of variants, which draw their homology from species, which differ from each other. They can also be manipulated at the protein level, since all four chains do not need to be produced by the same cell.

Genentech argued that the federal courts do not have jurisdiction over the case without a breach of contract or other actual dispute between the two parties. By paying royalties, MedImmune has acknowledged the validity of the patent, Genentech said in court briefs, and as a result there is no actual dispute in the case. Instead, the company argues that MedImmune is essentially seeking an advisory opinion about how it would fare legally if it broke the contract, which the court cannot provide. Under the Constitution, the federal courts do not have jurisdiction to rule on hypothetical questions.

The Court is reviewing the Federal Circuit decision that a licensee may not use a declaratory judgment action to challenge the validity of the licensed patent where the licensee is paying royalties and observing the terms of the patent license agreement. The Federal Circuit ruling rejected the view that licensee rights established under Lear v. Atkins, 395 U.S. 653 (1969), permit the validity challenge, stating that this case is governed not by the bar against licensee estoppel, but by the Constitution’s requirement of a case or controversy.

MedImmune, a licensee of a patent owned by Genentech, sought a declaratory action to challenge the validity and enforceability of the licensed patent on various grounds flowing from the settlement of a patent interference between Genentech and Celltech R&D, Ltd. The U.S. District Court held that because MedImmune continues to comply fully with the license terms, leaving no possibility of infringement suit or license cancellation by Genentech, there is no “case of actual controversy” as required by the Declaratory Judgment Act, 28 U.S.C. §2201. The district court also dismissed MedImmune’s antitrust and unfair competition counts claiming that Genentech illegally obtained a patent on an antibody synthesis technology used in the production of Synagis, a MedImmune drug that prevents certain respiratory infections in babies. The U.S. Court of Appeals for the Federal Circuit affirmed (See MedImmune Inc. v. Genentech, 04-1300, -1384).

MedImmune, meanwhile, argues that to breach its contract with Genentech would expose it to potentially significant damages for patent infringement and could also result in an injunction halting sales of Synagis, which brought in over $1 billion in revenue in 2005. MedImmune says that it is paying the royalties only under protest and that federal law and previous court cases allow it to challenge the patent without suffering the negative consequences of halting royalty payments.

While some argue that allowing a company to challenge a patent while continuing to pay licensing fees reduces the risks to companies like MedImmune and could encourage more disputes and could destabilize thousands of existing patent settlements and license agreements, Justice Anthony Kennedy expressed a concern that this could “flood the courts” with lawsuits. On the other hand, others believe that allowing companies to continue to pay royalties while disputing patents could bring more challenges of bad patents. Chief Justice John G. Roberts Jr. asked, if firms could always sue over patents they had agreed to respect, then “How do you ever end these things?

The case has lined up a good number of supporters on both sides. MedImmune is supported by the Generic Pharmaceutical Association and by the current administration while Genentech is backed by the Pharmaceutical Research and Manufacturers of America, Qualcomm Inc., 3M Co., General Electric Co., Procter & Gamble Co. and DuPont Co. A decision is expected by July. With concerns raised on the merits of both sides, the case is too close to call.

In the meantime, the U.S. Patent and Trademark Office is reviewing Genentech’s Cabilly patent under concurrent proceedings for an Inter Partes Reexamination (RE Appl. No. 90/007,542) and an Ex Parte Reexamination (RE Appl. No. 90/007,859). In an earlier ruling, the U.S. Patent and Trademark Office (USPTO) issued an obviousness-type double-patenting rejection and a “Schneller-type” double patenting rejection on the Genentech patent indicating that the patent, awarded in 2001, covered basically the same invention as an earlier Genentech patent that was set to expire next March.

MedImmune is now claiming that Genentech and Celltech conspired improperly to secure for themselves, through 2018, a dominant and exclusive position in the recombinant antibody field. As we’ve said before, it’s too early to try to predict the outcome so it is not clear yet if companies developing recombinant antibody-based products will become free and clear of the Boss and Cabilly patents anytime soon.

See more at: Patently-O and SCOTUS Blog.

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