TechLaw: Is MedImmune a Licensing Minefield?

Editor's Note:  José Cortina is a member of the Research Triangle Park law firm of Daniels Daniels & Verdonik, P.A. This is the second of a two-part article.

RESEARCH TRIANGLE PARK, N.C. - In Part I of this Article, published last week, I discussed the recent Supreme Court decision in Medimmune, Inc. v. Genentech, Inc. In this writing I discuss potential effects on licensing strategy, particularly by licensors.

In considering what actions to take involving future license agreements, numerous commentators since the decision in Medimmune v. Genentech have criticized the contract drafters of the license agreement in question, and have argued that there should be a specific provision in license agreements in which the parties agree that in exchange for the grant of the license no lawsuit can be brought challenging the validity of the relevant patent. However, while the Courts of the United States have traditionally favored private agreements between parties as a way of avoiding litigation, such a suggestion seems to fly in the face of the underlying policy reasons behind Lear v. Adkins originally, and now Medimmune v. Genentech, i.e., avoidance of limitations on the ability to challenge a patent’s validity.

Thus, what is the practical effect of Medimmune v. Genentech and what can a licensor do to protect itself in cases where it wishes to license its patents? For one, this writer believes that ultimately Medimmune may have minimal effects because while it allows a licensee to challenge a patent at the same time as it continues paying royalties, it leaves substantial discretion to the District Courts to decide whether to decline or issue the requested declaratory relief. The case basically stands for the proposition that an absolute rule requiring denial of the declaratory relief is contrary to Article III.

Licensing Fees Could Be problem

In considering what to do while the effects of Medimmune shake out, licensors can avoid problems by refusing to enter into agreements requiring running royalties and instead require a lump sum payment based on net present value of a running royalty. This would, however, prevent many small companies from being able to enter into license agreements because of a lack of resources to pay large up-front fees.

Another step licensors can take is to be more circumspect with the parties with which they enter into license agreements, assuring that the relationship is a friendly relationship and not one where the potential licensee appears to be taking a license under duress, disputing validity, and/or infringement of the patent during the negotiations. In conjunction with such action, licensors can also choose to be more aggressive in actively enforcing their patents through litigation. This aggressiveness would not preclude a settlement outside of that litigation, which might include a license agreement, which would later be more difficult to challenge since the matter had already been adjudicated before the Court, and the settlement part of a court order.

A Two-Edged Sword?

While the Generic Pharmaceutical Association applauded the results of the case, this may be a two-edged sword and could result in further restrictions on generic drug manufacturers’ ability to market drugs covered by patents because licenses may become less readily available. Of course, this could also result in a public outcry as sources for particular types of drugs shrink and drug prices increase. This could even force the U.S. Congress, which has already voiced sentiments in favor of allowing prescription drugs to be imported from Canada even though they are covered by U.S. patents, to step into the fray. In such a case, it is conceivable Congress would enact legislation requiring compulsory licensing in the pharmaceutical field, and in exchange for obtaining the license a licensee would waive the right to challenge the patent under which it is licensed.

As one can see, the impact of the decision will turn on how the cases develop at the District Court level since those Courts are no longer bound by the prior rigid rule established by the Court of Appeals for the Federal Circuit. Thus, it may take years to find out the actual impact of the Medimmune v. Genentech decision by the U.S. Supreme Court.

A. José Cortina is a registered patent attorney with the law firm of Daniels, Daniels & Verdonik, P.A. He focuses his practice on the intellectual property needs of small to large technology companies, including providing patent, trademark, copyright, counseling, licensing, conflict resolution and transactional services. He is experienced in a broad range of technologies, including electronics, communications, computer hardware and software, biomedical, materials, and selected chemical and chemical engineering technologies.