Source: http://www.techlawjournal.com/alert/2007/01/09.asp
Timestamp: 2019-04-20 14:17:02+00:00

Document:
TLJ Daily E-Mail Alert No. 1,516, January 9, 2007.
January 9, 2007, Alert No. 1,516.
1/9. The Supreme Court issued its opinion [30 pages in PDF] in MedImmune v. Genentech, a case regarding when a patent can be challenged by a licensee in a declaratory judgment action.
Introduction. The Supreme Court held that the Article III case or controversy requirement, and the Declaratory Judgment Act, which is codified at 28 U.S.C. § 2201, do not require a patent licensee to terminate, or be in breach of, its license agreement before it can seek a declaratory judgment that the underlying patent is invalid, unenforceable, or not infringed.
The District Court dismissed the complaint of a licensee for lack of jurisdiction on the grounds that there was no case or controversy. The Court of Appeals affirmed the District Court. The Supreme Court reversed the Court of Appeals.
Under this ruling, a patent licensee who is paying royalties can file declaratory judgment action challenging the validity and/or enforceability of a the patent.
The case does not involve information technology. It involves pharmaceutical patents. However, this ruling will affect licensing and litigation practices, in other sectors, including the tech sector.
This ruling will make it easier for licensees to challenge patents, by eliminating one procedural obstacle, and by reducing the risks associated with such challenges. That is, someone who practices an invention, but does not license it, or fails to pay royalties, is vulnerable to a suit for injunctive relief, and treble damages, while a licensee in good standing is not.
This ruling might lead some patent owners to license at higher royalty rates than they would have absent this ruling. It might also lead some patent owners to license their inventions for lump sum advance payments, rather than periodic royalties.
This ruling may also lead some patent owners to attempt to contract around this ruling. This opinion only addresses the threshold question of jurisdiction. It does not address application of equitable principles to declaratory judgment actions over which the courts have jurisdiction.
Factual Backgound. Genentech is a defendant in the District Court, and respondent in the Supreme Court. It states in its web site that it is a "biotechnology company that discovers, develops, manufactures and commercializes biotherapeutics for significant unmet medical needs". City of Hope, another defendant, states in its web site that it is "biomedical research, treatment and educational institution dedicated to the prevention and cure of cancer and other life-threatening illnesses".
Genentech and City of Hope own U.S. Patent No. 4,816,567 titled "Recombinant immunoglobin preparations", and U.S. Patent No. 6,331,415 titled "Methods of producing immunoglobulins, vectors and transformed host cells for use therein", a continuation of the first patent.
MedImmune is the plaintiff in the District Court, and petitioner in the Supreme Court. It is a licensee of Genentech and City of Hope of these patents. It continues to pay royalties. It is not under threat of suit from Genentech or City of Hope.
Celltech R&D, Ltd., which has since been acquired by UCB, recently settled a long patent interference proceeding with Genetech and City of Hope involving these patents.
MedImmune then determined to challenge the validity and enforceability of the two patents.
The Supreme Court noted that "The factual and legal dimensions of the dispute are well defined and, but for petitioner's continuing to make royalty payments, nothing about the dispute would render it unfit for judicial resolution."
Proceedings Below. MedImmune filed a complaint in U.S. District Court (CDCal) against Genentech, City of Hope, and Celltech seeking a declaratory judgment that the patents are invalid and unenforceable as a result of the settlement of the patent interference. MedImmune also alleged violation of antitrust and unfair competition laws.
The District Court dismissed the complaint on the basis that there is no case or controversy.
The U.S. Court of Appeals (FedCir) issued its opinion [24 pages in PDF] on October 18, 2005, affirming the District Court. Judge Pauline Newman wrote the opinion of the Court of Appeals, in which Judge Haldane Robert Mayer joined.
Judge Raymond Clevenger wrote a partial dissent. He concurred that the complaint must be dismissed for lack of jurisdiction. However, he dissented from the court's refusal to transfer the remainder of the case to the U.S. Court of Appeals (9thCir), pursuant to 28 U.S.C. § 1631, for a determination as to whether the District Court properly granted summary judgment regarding MedImmune's antitrust and unfair competition claims.
Supreme Court Opinion. This was an 8 to 1 case, with Justice Antonin Scalia writing the opinion of the Court. Justice Clarence Thomas wrote a dissenting opinion.
The Court wrote that "Our analysis must begin with the recognition that, where threatened action by government is concerned, we do not require a plaintiff to expose himself to liability before bringing suit to challenge the basis for the threat -- for example, the constitutionality of a law threatened to be enforced. The plaintiff’s own action (or inaction) in failing to violate the law eliminates the imminent threat of prosecution, but nonetheless does not eliminate Article III jurisdiction."
The Court added that while there are fewer Supreme Court cases in "situations in which the plaintiff’s self-avoidance of imminent injury is coerced by threatened enforcement action of a private party rather than the government", the lower courts "have long accepted jurisdiction in such cases".
The Court also rejected Genentech's argument that "the parties in effect settled this dispute when they entered into the 1997 license agreement. When a licensee enters such an agreement, they contend, it essentially purchases an insurance policy, immunizing it from suits for infringement so long as it continues to pay royalties and does not challenge the covered patents." The Court wrote that "Promising 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."
The Court reviewed applicable precedent, and then concluded that in this patent case, the "petitioner was not required, insofar as Article III is concerned, to break or terminate its 1997 license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed."
The Court also wrote that "it would be imprudent for us to decide whether the District Court should, or must, decline to issue the requested declaratory relief. We leave the equitable, prudential, and policy arguments in favor of such a discretionary dismissal for the lower courts’ consideration on remand. Similarly available for consideration on remand are any merits-based arguments for denial of declaratory relief."
Justice Thomas wrote in dissent that "We have consistently held that parties do not have standing to obtain rulings on matters that remain hypothetical or conjectural. We have also held that the declaratory judgment procedure cannot be used to obtain advanced rulings on matters that would be addressed in a future case of actual controversy. MedImmune has sought a declaratory judgment for precisely that purpose, and I would therefore affirm the Court of Appeals’ holding that there is no Article III jurisdiction over MedImmune's claim."
Comments. Ed Black, head of the Computer and Communications Industry Association (CCIA), praised the Supreme Court's opinion in a release. He wrote that "Yet again, the Supreme Court has thrown out a ruling that perpetuates dysfunctions in the patent system. ... This marks yet another occasion where the Court has clamped down on the Federal Circuit's wayward jurisprudence."
The CCIA release adds that this "ruling clears the way for timely challenges to junk patents that impede innovation".
The American Intellectual Property Law Association (AIPLA) submitted an amicus brief [20 pages in PDF] urging affirmance of the Court of Appeals. It wrote that "Allowing patent licensees to bring risk-free challenges to patent validity would increase litigation, encourage questionable licensing tactics, and disrupt the settled expectations of patent licensors."
It also wrote that if MedImmune prevails, as it did, then "licensors may attempt to rebalance their negotiating power by including the questionable licensing terms", and that "A new period of uncertainty in which the enforceability of these different terms is tested would be costly. Moreover, these terms are designed to discourage the very validity challenges that the Court is being asked to endorse. The uncertainty and brinksmanship in licensing practice that would accompany petitioner’s rule are undesirable and should be avoided."
Joshua Rosenkranz of the New York office of the law firm of Heller Ehrman submitted an amicus brief on behalf of Qualcomm and Interdigital Communications Corporation, in support of the respondents (Genentech).
He wrote in his brief that "a licensee who sues, but retains the protection of the license, escapes all the burdens and hard choices. Such a licensee enjoys a fixed royalty and immunity from injunctive relief, while still pursuing its challenge to the very premise of the license -- that the licensor has a valid patent."
He argued that "That is not fair, especially to licensors who negotiated licenses in the past based upon the premise -- which has been clear law in the Federal Circuit for some time -- that the licensee cannot retain the benefits of a license and sue at the same time."
He also argued that to allow suits such as MedImmune's would be against the public interest. He wrote that "If patent owners cannot be assured of patent peace when licensing their inventions, they will be less inclined to license, and at a minimum will insist on higher royalty rates. Moreover, allowing suits of this sort to proceed will only encourage more litigation, for licensees will have every incentive to sue, on any patent theory, so long as the expected benefits exceed the cost of litigation."
TLJ spoke with Rosenkranz after the ruling. He said that while this case arose in the pharmaceutical sector, this opinion "transcends industries", and answers a "crucial question to any one who licenses inventions ... without regard to the particular nature of the invention".
He added the this opinion "will have an enormous effect on licensing behavior".
He also stated that this opinion answers one question -- whether the courts have jurisdiction to hear the declaratory judgment action by the licensee. But, it does not address a second question -- how the courts should apply principles of equity in these actions.
For example, if patent holder were to contract around this ruling in the license agreement, would the licensee be able to maintain an action for a declaratory judgment of invalidity?
Case Information. This case is MedImmune, Inc. v. Genentech, Inc., et al., Sup. Ct. No. 05-608, a petition for writ of certiorari to the U.S. Court of Appeals for the Federal Circuit, App. Ct. Nos. 04-1300 and 04-1384. The Court of Appeals heard an appeal from the U.S. District Court for the Central District of California, Judge Mariana Pfaelzer presiding.
MedImmune is represented by John Kester of the Washington DC office of the law firm of Williams & Connolly and by Harvey Kurzweil of the New York City office of the law firm of Dewey Ballantine. Genentech is represented by Maureen Mahoney and Daniel Wall of the law firm of Latham & Watkins.
1/8. The Supreme Court denied certiorari in Echostar v. Fox, a case regarding the compulsory statutory license for satellite carriers to broadcast secondary transmissions of certain network programming to unserved households. See, Order List [35 pages in PDF] at page 4.
This case involves the statutory license that was enacted in the Satellite Home Viewer Act of 1988, which is Public Law No. 106-113, and is now codified in 17 U.S.C. § 119.
This license allows "satellite carriers", such as Echostar, to transmit copyrighted distant network programing to "unserved households", but not to served households.
Section 119 provides, in part, that "unserved household" means, "with respect to a particular television network, means a household that -- (A) cannot receive, through the use of a conventional, stationary, outdoor rooftop receiving antenna, an over-the-air signal of a primary network station affiliated with that network of Grade B intensity as defined by the Federal Communications Commission under section 73.683(a) of title 47 of the Code of Federal Regulations, as in effect on January 1, 1999; ..."
Fox Broadcasting, and other broadcasters, long ago sued Echostar alleging that it provided service, under this statutory license, to served households. The broadcasters have prevailed. The present denial of certiorari lets stand the May 23, 2006, opinion [44 pages in PDF] of the U.S. Court of Appeals (11thCir), which affirmed in part the judgment of the District Court, and remanded for entry of a nationwide injunction against Echostar.
Fox is represented by Catherine Stetson of the Washington DC office of the law firm of Hogan & Hartson. Echostar is represented by Thomas Goldstein of the Washington DC office of the law firm of Akin Gump. Goldstein is also the author of the SCOTUSBlog.
This case is Echostar Communications Corp. v. Fox Broadcasting Co., et al., Sup. Ct. No. 06-545, a petition for writ of certiorari to the U.S. Court of Appeals for the 11th Circuit, App. Ct. No. 03-13671-DD. The Court of Appeals heard an appeal from the U.S. District Court for the Southern District of Florida.
1/8. The U.S. Court of Appeals (8thCir) issued its opinion [10 pages in PDF] in Rural Iowa Independent Telephone Association v. Iowa Utilities Board, affirming the judgment of the District Court. which upheld an order of the Iowa Utilities Board (IUB) regarding rural wireless service.
This case is Rural Iowa Independent Telephone Association v. Iowa Utilitites Board, et al., U.S. Court of Appeals for the 8th Circuit, App. Ct. No. 05-3579, an appeal from the U.S. District Court for the Southern District of Iowa.
11:00 AM - 12:00 NOON. The President's National Security Telecommunications Advisory Committee (NSTAC) will meet by teleconference. The "NSTAC members will receive comments from their DHS stakeholders related to National Security/Emergency Preparedness communications issues. The committee will also discuss and vote on the NSTAC's Emergency Communications and Interoperability Task Force Report, and discuss the work of the International Task Force". See, notice in the Federal Register, December 29, 2006, Vol. 71, No. 250, at Page 78451.
12:00 NOON. The Federal Communications Bar Association's (FCBA) International Telecommunications Committee will host a brown bag lunch titled "Results of the ITU Plenipotentiary Conference". The speakers will be John Kneuer (head of the NTIA) and David Gross (Department of State). For more information, contact Fiona Alexander at falexander at ntia dot doc dot gov. Location: Verizon, 1300 I Street, NW, Suite 400 West.
Second extended deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its Further Notice of Proposed Rulemaking (FNPRM) regarding its media ownership rules. The FCC adopted this FNPRM on July 21, 2006, and released the text [36 pages in PDF] on July 24, 2006. See also, story titled "FCC Adopts FNPRM on Rules Regulating Ownership of Media" in TLJ Daily E-Mail Alert No. 1,397, June 22, 2006. This FNPRM is FCC 06-93 in MB Docket No. 02-277, MM Docket No. 01-235, MM Docket No. 01-317, MM Docket No. 00-244, and MB Docket Nos. 06-121. See also, original notice in the Federal Register, August 9, 2006, Vol. 71, No. 153, at Pages 45511-45515, order [PDF] extending deadlines, and order [PDF] further extending reply comment deadline.
Deadline to submit reply comments to the Office of the US Trade Representative regarding the operation, implementation and effectiveness of all trade agreements regarding telecommunications products and services to assist it in preparing its annual Section 1377 report. See, notice in the Federal Register, November 15, 2006, Vol. 71, No. 220, at Pages 66563-66564.

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