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Patent Licensees May Challenge Licensor Patents
By Cassandra L. Kinkead and Kaustuv M. Das
[January 2007]
Businesses sometimes grudgingly take licenses from patent holders, thinking that the patent is probably invalid but that it's better to take a license rather than get into a costly and time consuming invalidity fight. Now businesses no longer face this Hobson's choice.
The Supreme Court's January 9, 2007 decision in MedImmune v. Genentech means that licensees can take a license and challenge the licensed patent. Previously, the rule was that the licensee must breach the license before suing for invalidity. The ruling was 8-1, with Justice Thomas dissenting.
The decision poses more questions for patent owners than it answers as it makes it easier for an entity to challenge the validity of a patent after having protected itself from an infringement lawsuit by entering into a license. Patent owners will need to address such bad faith licenses by including appropriate escape clauses in their licenses. Perhaps equally worrisome is the Supreme Court's rejection of the "reasonable apprehension of suit" prong of the Federal Circuit's two-prong test for a declaratory judgment action. Although the decision holds that the "reasonable apprehension of suit" test conflicts with various Supreme Court precedent and is presumably no longer valid, it offers little guidance on what test lower courts should adopt in determining when a person can bring a declaratory judgment action challenging the validity or enforceability of a patent. The Court's acknowledgment that its own cases "do not draw the brightest of lines between those declaratory-judgment actions that satisfy the case-or-controversy requirements and those that do not," makes the lack of guidance even more worrisome for patent owners.
Some worry the decision will have a chilling effect on patent deals, which are worth billions of dollars annually. Others, including the Bush administration, support the ruling, arguing that invalid patents are inefficient, anticompetitive, and retard innovation, thus causing real economic harm.
To view the decision, click here.
To view the AP story regarding the decision, click here.
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This Life Sciences Advisory Bulletin is a publication of the Life Sciences Group of Davis Wright Tremaine LLP. Our purpose in publishing this Advisory Bulletin is to inform our clients and friends of developments in life sciences law. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may be given only in response to inquiries regarding particular situations.
Copyright © 2007, Davis Wright Tremaine LLP.
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