Supreme Court Will Decide if MedImmune Can Sue Genentech

February 28, 2006

Pharmaceutical Executive

Pharmaceutical Executive, Pharmaceutical Executive-02-28-2006, Volume 0, Issue 0

The high court’s decision on this licensing dispute could have far-reaching implications for patent negotiations, legal experts say.

A company that fears it will be sued for patent infringement can go to court and attempt to overturn the patent. But what if the company thinks the patent is unfair and doesn’t have reason to fear an infringement suit? That’s the key issue in MedImmune v Genentech-dismissed twice but alive again after the Supreme Court last week agreed to get involved. The suit could have major implications for how biotech licensing is handled in the United States.

    The high court will decide whether MedImmune has a right to sue Genentech over the validity of its “Cabilly” patent on a technology for manufacturing antibodies. (The patent was named for Shmuel Cabilly, the discoverer of the technology.) MedImmune claims that Genentech violated antitrust laws by colluding with UK-based Celltech R&D Ltd. to extend Cabilly’s life

    But the court will not determine this issue, explained Stephen Bent, partner at Foley and Lardner LLP’s Washington D.C. office. It will focus on the simple, but important, issue of whether MedImmune should even be allowed to sue Genentech.

    According to a 1969 Supreme Court decision, Lear Inc. v. Adkins, a person or company using patented technology could sue the patent-holder if they thought they were at risk of being sued for infringement, Bent explained.

    The catch is that even though MedImmune claims the patent is invalid, it continues to pay licensing fees for using the patented technique in the manufacture of its respiratory drug Synagis (palivizumab). As a result, two lower courts rejected the lawsuit, saying there was no threat.

    “In the two MedImmune cases, the challenger-licensee was thrown out of court because he, unlike the licensee in Lear, continued to pay royalties under the license, seeking, in effect, to have his cake and eat it, too,” Bent said via email.

    The heart of the case is a constitutional issue, according to Ron Daignault, partner at Jenner & Block LLP’s New York office. Article III of the US Constitution, which establishes the role of the courts, states that the judicial system should only be used when there is an actual “controversy.” This is interpreted to mean that courts should not be called in as merely advisors when two parties are in disagreement, Bent explained.

    If MedImmune breached the licensing agreement, then it would have an actual “controversy,” under the current interpretation, said Daignault. But because the company continues to pay royalties, there is no risk, and no controversy in the sense the Constitution intended.

    “Right now this keeps the court card out of the negotiation poker game,” Bent said.

    If the high court decides that MedImmune should be able to sue, it would allow companies to enter an agreement to use patented technology and at the same time challenge the validity of the patent, explained Tom Dewey, partner at Dewey Pegno and Kramarsky LLP.

    “If the Supreme Court reverses [the lower courts’ decisions], it will be a huge event,” Dewey said.

    Daignault said he could see no upside for patent-holders if MedImmune is granted the right to sue.

    It would probably shift the balance of power in licensing negotiations towards licensees, Bent said. This might encourage patent holders to settle disputes with terms they would not previously consider acceptable in order to stay out of court, he added.

    One potential result, according to Bent, would be a change in the base rates of royalty payments. Dewey agreed that this is a possibility.

    Either way, the court’s decision is unlikely to spur Congress to write new legislation, said Daignault.

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