Supreme Court Holds Licensees in Good Standing May Seek Declaratory Judgment on Patent Validity, Enforceability, or Infringement

Petitioner MedImmune entered a patent license agreement with respondent Genentech in 1997. Under the arrangement, MedImmune agreed to pay royalties on sales of antibodies that would otherwise infringe an existing patent and a pending patent application. The patent application matured into Genentech's "Cabilly II" patent in 2001. Shortly after this application matured, Genentech indicated its belief that MedImmune's product Synagis was covered by the Cabilly II patent and its expectation that MedImmune would pay royalties on sales of Synagis under the 1997 agreement. While MedImmune maintained both that the Cabilly II patent was invalid and that Synagis did not infringe its claims, it paid the royalties in order to avoid the consequences of a lawsuit in which Genentech should prevail: namely, the possibility of treble damages, attorney's fees, and an injunction against the continued sale of Synagis, which accounted for 80 percent of MedImmune's revenue.

MedImmune sought a declaration that the Cabilly II patent was invalid and/or not infringed by Synagis. The District Court dismissed MedImmune's claims for lack of subject matter jurisdiction, following Federal Circuit precedent requiring a licensee to terminate or breach its license agreement in order to establish a "case or controversy" under Article III. The Federal Circuit affirmed.

On appeal, the Supreme Court first determined that both a claim of patent invalidity and a contract claim were at issue, noting, however, that this question "probably makes no difference to the ultimate issue of subject-matter jurisdiction." The Court then moved on to address the core issue of whether Article III, reflected in the "actual controversy" requirement of the Declaratory Judgment Act (28 U.S.C. §2201(a)), requires a licensee to terminate or breach its license agreement before it may seek declaratory judgment respecting the validity and infringement of the underlying patent.

The Court held that the dispute at issue was an "actual controversy," and thus, that dismissal for lack of subject matter jurisdiction was inappropriate. The Court first noted that, in general, an action for declaratory relief satisfies the "actual controversy" requirement where there is a present, not merely hypothetical, controversy between parties with opposing legal interests. The Court then moved to consider whether this requirement can be satisfied where a plaintiff takes actions to eliminate the imminent threat of harm he would otherwise face. The Court found clear precedent indicating that the actual controversy requirement is satisfied where threatened action by the government coerces a plaintiff into taking such actions. While noting that authority is rarer in situations where the threat of enforcement is from a private actor, the Court held that the same rule applies under these circumstances. The important limiting principle in both scenarios is that compliance with the disputed requirement must be coerced rather than voluntary. The Court cited Altvater v. Freeman, 319 U.S. 359 (1943), where the threat of treble damages resulting from a patent infringement suit was found to be sufficiently coercive. It reasoned that since the threat to MedImmune was at least as significant, MedImmune's payment of royalties was not voluntary and the controversy was preserved.

Finally, the Court noted that discretionary dismissal under the Declaratory Judgment Act could still be appropriate. However, as this discretion is typically vested with district courts in the first instance, the Court left this issue for the lower courts' consideration on remand along with any substantive arguments for denial of declaratory relief.

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