Supreme Court Holds That Patent Licensee in Good Standing Can Rely on Threat of Litigation for Article III Case or Controversy Standing

Case: MedImmune, Inc. v. Genentech, Inc., (U.S. Supreme Court, Case No. 05-608 1/9/07)

The One Sentence Summary: The Supreme Court (with only Justice Thomas dissenting) held that subject matter jurisdiction under the Declaratory Judgment Act exists even though the petitioner-licensee, MedImmune, continued performance under its license with Genentech.

What They Were Fighting About: After its patent issued, Genentech sought royalty payments per an existing license with MedImmune. MedImmune filed for declaratory relief that the patent was invalid and unenforceable, and that its drug did not infringe Genentech's patent. The district court dismissed the declaratory judgment action, finding no subject matter jurisdiction because MedImmune had made royalty payments (albeit under protest) and so there was no actual case or controversy, and the Federal Circuit affirmed. The Supreme Court reviewed to determine whether a patent licensee in good standing can establish an Article III case or controversy in a private action.

Supreme Court Holdings:

• The Court (with Justice Scalia delivering the opinion) first resolved Genentech's claim that MedImmune was not claiming noninfringement, and that it did not seek interpretation of the contract (or had waived its contract claim), discounting both arguments based on the language in the operative complaint and in the briefs. With regard to the waiver argument, the Court observed that MedImmune's decision to devote only a few pages of its brief to the contract claim did not suggest waiver, but rather recognition that the argument would likely be futile.
  
• Reviewing the history of the Declaratory Judgment Act, the Court noted that initial doubts about its compatibility with Article III case or controversy requirements were resolved in Aetna Life Ins. Co. v. Haworth, 300 U.S. 227 (1937), where the Court held that "case or actual controversy" refers to the type of "Cases" or "Controversies" justiciable under Article III. It further noted that later cases had not clearly distinguished which declaratory judgment actions satisfied Article III and which did not. Thus, while this controversy would clearly be justiciable had MedImmune stopped making royalty payments, its continued adherence to the contract (rather than risk an injunction, treble damages and attorney fees) left the issue unclear because there was no threat of imminent harm.
  
• Looking to declaratory actions against the government, the Court recognized that courts did not require plaintiffs to risk liability in order to bring a legal challenge, such as to the constitutionality of a law. For example, in Steffel v. Thompson, 415 U.S. 452, 480 (1974), then-Justice Rehnquist had written in his concurrence, "the declaratory judgment procedure is an alternative to pursuit of the arguably illegal activity."
  
• Cases applying the Declaratory Judgment Act where the plaintiff brought an action to avoid threatened enforcement by a private party are much more rare. However, lower federal courts and state courts interpreting state declaratory judgment acts requiring an actual case or controversy had long accepted jurisdiction in such cases.
  
• In a prior decision with similar facts, Altvater v. Freeman, 319 U.S. 359 (1943), the Court held that the licensees continued payment of royalties did not make the dispute hypothetical, because the royalties were paid under protest, and under compulsion of an injunction decree obtained in an earlier case. The only alternative would have been to defy the injunction and risk treble damages. Thus, where payments made are involuntary or the exaction is coercive, a case or controversy exists that creates a right to challenge the legality of the claim. However, the Federal Circuit had distinguished Altvater in Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed. Cir. 2004), on the ground that it involved the compulsion of an injunction.
  
• The Supreme Court did not find this distinction compelling. In Altvater, as here, the parties risked actual and treble damages, and that decision relied on that fact as a basis for finding an actual case or controversy. In fact, the Altvater decision did not even mention government sanctions, such as contempt (it had also relied on treatise language recognizing that threatened injury to business could be as coercive as other forms of coercion supporting common law actions).
  
• The Court further rejected Genentech's argument that the parties effectively settled their dispute by MedImmune entering into the license agreement (which Genentech argued was akin to insurance, such that immunity from suit was part of the license bargain). First, it found this argument irrelevant to the issue of infringement. Moreover, it refused to equate MedImmune's promise to pay royalties on patents that have not been found invalid with a promise not to seek a holding of invalidity.
  
• It also rejected the argument that one cannot both continue accepting the benefits of a contract while challenging its validity inapplicable, because MedImmune was not repudiating the contract, but rather asserting that, properly interpreted, the contract allowed it to challenge the patents, and did not require payment of royalties because the patents at issue did not cover its products and were invalid.
  
• Finally, the Court refused to affirm the dismissal on discretionary grounds, because the District Court's and Federal Circuit's dismissals were not discretionary, but based on Federal Circuit precedent.
  
• Justice Thomas, in dissent, characterized MedImmune's claim as "seeking an advisory opinion about an affirmative defense it might use in some future litigation," and concluded that based on his reading of precedent, there was no actual case or controversy. He further argued that "coercion" could not be based on voluntarily accepted contractual obligations.