The U.S. Supreme Court sided with MedImmune Inc. yesterday, ruling that the Gaithersburg biotech is allowed to sue over the validity of a patent - even while paying user fees to the patent holder.
Legal scholars said the decision opens the door for more patent lawsuits across a variety of sectors. And some said it could have a chilling effect on licensing deals - particularly those in key Maryland industries such as biotechnology, which often relies on such collaboration to further drug development.
Previous legal interpretations have said that active licensing contracts between companies essentially act as a "covenant not to sue," according to the American Bar Association. As such, the "actual controversy" required to have a case under the U.S. Constitution doesn't exist.
But in an 8-1 opinion yesterday - with Justice Clarence Thomas dissenting - the court struck down that idea as "mistaken."
"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," Justice Antonin Scalia wrote on behalf of the majority. (Thomas contended the courts had no jurisdiction over the case because no controversy existed.)
Those who license access to patented technology may now decide it's more in their interests to try to have a suspect patent legally overturned. And patent holders may likely scrutinize potential partners more closely or charge higher fees to cover the risk of a lawsuit.
"Clearly, this will have some impact on how people look at licensing their technology," said Lawrence M. Sung, a professor and director of the Intellectual Property Law Program at University of Maryland School of Law.
"The difficult question is knowing how much of an impact there will be," Sung said.
For MedImmune, the opinion means a lower court will have to consider the company's original 2003 claim filed in California U.S. District Court. The case contends that a patent held by California competitor Genentech Inc. was obtained through improper collusion with a British biotechnology company and amounts to an illegal 12-year extension of an earlier patent.
2 rulings reversed
Called Cabilly II, the patent covers a process for making monoclonal antibodies - an increasingly important substance in the biotech world and the basis of many therapies, including MedImmune's top seller, the billion-dollar infant respiratory treatment Synagis.
MedImmune's case concerning the patent was dismissed by the District Court and an appeals court upheld that decision.
Yesterday's opinion reversed those rulings and remanded the case for "proceedings consistent with this opinion." If the patent is maintained, MedImmune and dozens of others will continue to pay millions of dollars in licensing fees through the year 2018 for access to technology Genentech describes as "fundamental." If declared invalid, businesses could use the technology free.
"It will significantly restructure everything; it has that potential," said David A. Gay, a biotech patent attorney with McDermott Will & Emery in San Diego.
In a statement issued yesterday, MedImmune executives said they intend to pursue the complaint "vigorously and are confident that our position will prevail."
Genentech issued a similar statement, saying it was confident in the strength of its intellectual property and promising a vigorous defense.
"The Supreme Court's decision has no impact on the validity of the Cabilly patent," the statement said.
MedImmune's stock closed up 58 cents (1.7 percent) to $34.83 yesterday, while Genentech's rose 89 cents (1 percent) to $84.69. Yesterday's Supreme Court decision was seen as a blow by other major patent holders, including Procter & Gamble Co. and 3M Co., all of which filed legal briefs supporting Genentech in the case.
"It essentially gives your licensee a free shot at knocking out the patent and their obligation to pay royalties, and from a licensor's - from Genentech's - point of view, that's not a good thing," said George C. Best, senior counsel with Washington's Foley & Lardner LLP.
The high court's ruling, however, seemed to suggest the benefits of being able to challenge suspect patents outweighed the risks.
Right to sue
During arguments in October, Chief Justice John G. Roberts Jr. suggested there may be some way to structure a licensing agreement to diminish the threat of a lawsuit.
Best predicts companies will likely try including contractual provisions prohibiting filing suit, potentially charging lower fees for those who agree to waive that legal right. But it's unclear whether such measures are legal.
Courts generally hold that the right to sue should be retained - a sentiment that came out in this case.
"The tea leaves were pretty clear based on the transcript," Best said. "I think people who have been following this case weren't particularly surprised. The perception is the Supreme Court generally [takes on an issue] when they want to reverse."