“It must be remembered that the public is a silent but an important and interested party in all patent litigation, and is entitled to protection against the monopolization of what is not lawfully patentable.”

Rota-Carb Corp. v. Frye Mfg., 313 F.2d 443, 444 (8th Cir. 1963).

In MedImmune, the Supreme Court reserved the question whether a patent challenge would have been precluded by a license term wherein the licensee expressly promised not to challenge the patent’s validity or enforceability.

One response to MedImmune that licensor firms will no doubt try is including such clauses in their new running-royalty licenses. (Of course, they will also be seeking many more paid-up-front licenses.) They should not blithely assume that such a term is enforceable. There’s good authority, in the years just after Lear, holding that such a term is void and unenforceable – whether in the license context, or the consent decree context. Massillon-Cleveland-Akron Sign Co. v. Golden State Advertising Co., 444 F.2d 425 (9th Cir. 1971) (license); Business Forms Finishing Service, Inc. v. Carson, 452 F.2d 70 (7th Cir. 1971) (consent decree). Of course, there’s also authority pointing the other way, especially in the Federal Circuit.

In thinking about the issue, consider these words (and their antitrust law flavor) from the Business Forms case:

An undertaking not to challenge the validity of a patent is, in effect, a covenant not to manufacture or sell the patented commodity without the consent of the patentee. It is, therefore, not surprising to find the same competing policy considerations reflected in common law cases dealing with the enforceability of covenants not to compete and in Supreme Court decisions limiting and ultimately repudiating the doctrine of licensee estoppel. Although the lines of authority have wavered from time to time, there has been consistent recognition of the fact that the private dispute has ramifications that may affect the public interest in free competition and in the free circulation of ideas. For that reason enforceability cannot be determined without reference to matters beyond the private interests of the litigants. …

Under the common law authorities, because of the public interests which are affected, the covenantee has the burden of justifying the restraint on competition. Some covenants, such as those unlimited in time or scope, are flatly condemned; others, if limited and ancillary to a valid business purpose, may be justified as reasonable. Presumably a private agreement between competitiors to refrain from challenging a patent may be justified in certain situations, but it seems clear that the burden of justification must rest on the covenantee. As we read the recent decisions of the Supreme Court, which are strikingly unanimous in result as well as reasoning, the desirability of settling a lawsuit would not in itself establish sufficient justification for such an agreement. …

We believe that the policy considerations which underlie Blonder-Tongue, Lear, Sears and Compco lead inescapably to the conclusion that the defendants’ agreement to accept the validity of plaintiff’s patent is unenforceable. We so hold.

452 F.2d at 73-75. The author of Business Forms? Then Judge, now Justice, John Paul Stevens.

MedImmune will no doubt prompt much thinking about the scope of the Supreme Court’s rejection of the licensee estoppel doctrine, in Lear, Inc. v. Adkins, 395 U.S. 653 (1971).

Rereading Lear this morning, I’m especially struck by this policy discussion in Justice Harlan’s opinion, explaining why preserving a clear path to patent challenges is more important than hewing to the basic contract logic of a license:

Under ordinary contract principles the mere fact that some benefit is received is enough to require the enforcement of the contract, regardless of the validity of the underlying patent. Nevertheless, if one tests this result by the standard of good-faith commercial dealing, it seems far from satisfactory. For the simple contract approach entirely ignores the position of the licensor who is seeking to invoke the court’s assistance on his behalf. Consider, for example, the equities of the licensor who has obtained his patent through a fraud on the Patent Office. It is difficult to perceive why good faith requires that courts should permit him to recover royalties despite his licensee’s attempts to show that the patent is invalid. Compare Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965).

Even in the more typical cases, not involving conscious wrongdoing, the licensor’s equities are far from compelling. A patent, in the last analysis, simply represents a legal conclusion reached by the Patent Office. Moreover, the legal conclusion is predicated on factors as to which reasonable men can differ widely. Yet the Patent Office is often obliged to reach its decision in an ex parte proceeding, without the aid of the arguments which could be advanced by parties interested in proving patent invalidity. Consequently, it does not seem to us to be unfair to require a patentee to defend the Patent Office’s judgment when his licensee places the question in issue, especially since the licensor’s case is buttressed by the presumption of validity which attaches to his patent. Thus, although licensee estoppel may be consistent with the letter of contractual doctrine, we cannot say that it is compelled by the spirit of contract law, which seeks to balance the claims of promisor and promisee in accord with the requirements of good faith.

Every bit as punchy today is it was 35 years ago.

The Federal Circuit’s reasonable-apprehension-of-suit test for declaratory judgment jurisdiction is no more. The Supreme Court’s MedImmune decision – especially footnote 11 – wipes it out.

The repercussions will be felt far beyond the “patent challenge by a non-repudiating licensee” context. For example, the complex regime for patent challenges and market entry by generic drug makers depends, in part, on the generic drug maker’s ability to get to court to challenge the validity/enforceability of one or more patents listed by the name drug maker in the FDA’s “Orange Book.” In January 2005, using the reasonable-apprehension-of-suit test, the Federal Circuit held that a generic drug maker could not bring a declaratory judgment action against the name brand drug maker – even after the generic drug maker had filed a certification with the FDA asserting the patent’s invalidity/unenforceability – once the name brand drug maker decided not to sue the generic during the 45-day window the statutory regime provides to the name for that purpose. According to the Federal Circuit, “[i]n order for this case to be one fit for judicial review, [the generic drug maker] Teva must be able to demonstrate that it has a reasonable apprehension of imminent suit.” Teva Pharmaceuticals USA, Inc. v. Pfizer, Inc., 395 F.3d 1324, 1333 (Fed. Cir. 2005) (emphasis in original). (Pfizer had, up to that point, used some fancy footwork to pit different generic drug makers against one another, thereby blocking any generic entry at all.)

One of the Federal Circuit cases the Supreme Court’s MedImmune opinion calls out for rejection, in footnote 11, is … you guessed it … this Teva v. Pfizer case.

What we now have, according to MedImmune, is this:

In Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U. S. 270, 273 (1941), we summarized as follows: “Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”

The Federal Circuit will be working this out, in the patent law context, for a number of years.  Perhaps one benefit, from an incentives perspective, is that there now appears to be greater coincidence between the moment when potential willful infringement liability will have attached and the moment when declaratory judgment jurisdiction will lie.

In October 2006, Patently-O offered a post about MedImmune that collects many useful links – to briefs, the oral argument transcript, the Federal Circuit’s opinion in this, and a similar, case, etc.  Take a look.

The Supreme Court has decided the case, according to SCOTUSblog:

The Supreme Court ruled on Tuesday that a person or firm that has been licensed to use a patent need not break that agreement before suing to challenge the patent’s valildity or to defend against a claim of infringement. The 8-1 decision came in the case of MedImmune v. Genentech (05-608).

The Court rejected the argument — accepted by Justice Clarence Thomas in dissent — that MedImmune could not sue because it had voluntarily entered into a license deal and was making all necessary royalty payments. Justice Antonin Scalia wrote for the Court.

More, later today.  I haven’t seen the opinion yet.