Petitioners Brief — MedImmune, Inc. v. Genentech, Inc.

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MEDIMMUNE, INC.,

Petitioner,

Vv.

GENENTECH, INC., ef al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF FOR PETITIONER

HARVEY KURZWEIL JOHN G. KESTER *

ALDO BADINI PAUL B. GAFFNEY

HENRY J. RICARDO JANET C. FISHER

DEWEY BALLANTINELLP AARON P. MAURER

1301 Avenue of the Americas MICHAEL T. MORLEY

New York, New York 10019 WILLIAMS & CONNOLLY LLP

(212) 259-8000 725 12th Street, N.W.

Washington, D.C. 20005

(202) 434-5000

ELLIOT M. OLSTEIN

WILLIAM C. BERTRAND, JR.

JONATHAN KLEIN-EVANS

MEDIMMUNE, INC.

| Medimmune Way CARELLA BYRNE BAIN

Gaithersburg, Maryland 20878 GILFILLAN CECCHI

(301) 398-4625 STEWART & OLSTEIN

Five Becker Farm Road

Roseland, New Jersey 07068

(973) 994-1700

* Counsel of Record : Attorneys for Petitioner

SF A a a a a EE TT TOT TE

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON. D. C. 2000"

QUESTION PRESENTED

Does Article III’s grant of jurisdiction of “all Cases .. .

arising under . . . the Laws of the United States,” im-

plemented in the “actual controversy” requirement of the

Declaratory Judgment Act, 28 U.S.C. § 2201(a), require a

patent licensee to refuse to pay royalties and commit material

breach of the license agreement before suing to declare the

patent invalid, unenforceable or not infringed?

(i)

LIST OF PARTIES

Petitioner was the only appellant in the court below.

Appellees in that Court were Genentech, Inc., City of Hope

National Medical Center, and Celltech R & D, Ltd.

LIST PURSUANT TO RULE 29.6

Petitioner is a publicly held corporation. No publicly held

entity owns 10% or more of its stock.

TABLE OF CONTENTS

Page

QUESTION PRESENT ED........0..:cccssecssvessenesessscessoveeess i

Bee Tr PPO II eelistickncccscdncicsutrinabstnescncecnanetiinadahiciantee il

LIST PURSUANT TO RULE 29.6... cceeeceeeeeeeeeees il

TABLE OF AUTHORITIES. ........:..cccccccsccsssesosesessvorseess vi

FD BO asi vvscvenvecsscxssnneresstnenionesbeceecsenteoveries l

I vids velh che dsihcintbeubstasedunpushencieteukimeneiebis l

CONSTITUTIONAL AND STATUTORY

PROVISIONS AND RULE INVOLVED.................. 2

Ee IEE Sbrhcsinciirsisehccsnieceiici-ceilnie viecistswenbigsinsbedbouibentens 2

A. MedImmune’s Development of Synagis? ......... 2

a. Re Pe Pi dinlisiidtaketanieestdaditiieneawtanteinin 3

C. Genentech’s 2001 Cabilly II Patent................... 4

D. Genentech’s Infringement Charge and Demand

REE SN Ente NTT et oo ENCE eee 6

The District Court Proceeding. ......................0...

F. The Court of Appeals Decision. ...................00. 9

SUMMARY OF ARGUMENT..........0.........00006 ncaneiSosee 11

IEEE ce bick snditivliniieracasnenctibdeiginicccaivanedunbaniniehistaniodoons 14

I. THE COMPLAINT STATED A “CASE OF

ACTUAL CONTROVERSY” UNDER THE

DECLARATORY JUDGMENT ACT AND

FRESE TN ed inciieennnicindancickelpinininnsaceeianiigiinsii 14

A. The Declaratory Judgment Act and Article

lll Do Not Exclude Patent Licensees

Paying Royalties Under Protest. .................. 14

(iii)

TABLE OF CONTENTS—Continued

A “Case of Actual Controversy” Is a

Concrete Legal Dispute Between Par-

ties With Adverse Interests....................

(a) Early Decisions. ...............:c:ccccceeeeeees

(b) Subsequent Decisions. .....................

The Federal Circuit Disregarded the

Decisions of This Court. ..............0:0eeees

B. This Is a “Case of Actual Controversy.” .....

sed

C. A

“Actual Controversy” Is Not Limited to

“Reasonable Apprehension of Suit.”.......

Petitioner Presented an “Actual Con-

Petitioner Presented a “Reasonable Ap-

prehension of Suit.” ...............:ceeeeeeeees

Requirement To Commit Breach of

Contract Would Be Contrary to the Text

and Purpose of the Declaratory Judgment

TAA: <xisisiiabiviitwtniinsiiaidintesiadiscunitaaemaaans

y J

The Declaratory Judgment Act Was

Adopted To Make Breach of Contract

CPUIIIIEY, nin cesepdiccyessscinwiitinapolaninienen

Rule 57 Contemplates Declaratory

Judgments “Before or After Breach.”....

TO BAR PETITIONER FROM DECLAR-

ATORY RELIEF WOULD CONSTITU-

TIONALIZE THE REJECTED DOCTRINE

OF LICENSEE ESTOPPEL. ..................ceseseeess

Page

TABLE OF CONTENTS—Continued

A. Pope Mfg. Co. v. Gormully Rejected Con-

tractual Prohibitions of Patent Challenges...

B. Lear, Inc. v. Adkins Rejected Barring Suits

By FUE LAOGIIOGD, ccc ccccsseccccoserrsesoosesososes

Il. ARTICLE Ill SHOULD NOT BE REIN-

TERPRETED TO FREEZE FEDERAL

PPE I: Wa stdpnesincetesnctsunneusernntnsinsienensies

A. As a Constitutional Holding, the Decision

Is Unsound and Disruptive. .................0.06.

B. As Patent Policy, the Decision Is Unsound

amd Unauthnorized..........00..csescccrossesssccceseesees

1. Declaratory Actions by Licensees Do

Not Unfairly Disadvantage Licensors ...

2. The Federal Circuit’s Decision Would

Add Another Disincentive to Patent

II, nich nasbnadapeiadaicdessiiecendhingeiiianses

3. Preventing Licensee Patent Challenges

Would Disserve a Rapidly Evolving

Technological Economy. ..................00+.

C. Patent Policy Should Be Revised by

Congress Legislating Under Article I, Not

by Courts Reinterpreting Article III. ...........

I ITENE cinthiha cihbintinnbaskudtonebeenincgedbaniotidecniinsstecconas

ADDENDUM

Constitutional and Statutory Provisions and Rulc.....

Page

TABLE OF AUTHORITIES

Page

Cases:

Abbott Labs. v. Gardner, 387 U.S. 136 (1967)..... 31

Advanced Card Technologies LLC v. Versatile

Card Technology, Inc., 410 F. Supp. 2d 158

I ee edneseiib einer tisieesuesibiinidetaidileissheetmindiecs 38

Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321

PML PNT covivhshiibabeeitaninbitastiisaieasipniniaansii 17

Aetna Life Ins. Co. v. Haworth, 300 U.S. 227

+, SRR ae ES RE eB SA a ob 11, 14-17,

20, 23, 25, 26, 30

Allstate Ins. Co. v. Green, 825 F.2d 1061 (6th

ee Pe es seticteciininitipciadansactiesiaeiitpiniainligb ciiiademin 39

Altvater v. Freeman, 319 U.S. 359 (1943)............ 12, 16,

17, 21, 24, 26, 27, 32

American Machine & Metals, Inc. v. De Bothezat

Impeller Co., 166 F.2d 535 (2d Cir. 1948)........ 18

American Sterilizer Co. v. Sybron Corp., 526

Fe PU OIE as: COUP wititistninantsinicnatcdnisninianinn 19, 42

Aralac, Inc. v. Hat Corp., 166 F.2d 286 (3d Cir.

PaI Ie inctcsssiaitcs inti ciindiintiliionetindicibensiniaieceiiaeisndnaieaiadblgeiadti 27

Arrowhead Indus. Water, Inc. v. Ecolochem,

Inc., 846 F.2d 731 (Fed. Cir. 1988)............... 12, 22, 27

Ashwander v. TVA, 297 U.S. 288 (1936) .............. 14

Atchison, T. & S.F. Ry. v. O'Connor, 223 U.S.

i itiedciinnihicela tec dietaiontideeiacnaaligi tia i 25

Atlantic Works v. Brady, 107 U.S. 192 (1883)...... 47

Blonder-Tongue Labs. yv. University of Ill

Foundation, 402 U.S. 313 (1971)............ 13, 35, 43, 45

Bresnick vy. United States Vitamin Corp., 139

we RPE Ee Saco es 24

Brillhart v. Excess Ins. Co., 316 U.S. 491 (1942)... 44

Vil

TABLE OF AUTHORITIES—Continued

Broadview Chem. Corp. v. Loctite Corp., 417

F.2d 998 (2d Cir. 1969), cert. denied, 397 U.S.

Pe ciisctictenssivtsiniticicnsnsniteaadsiihdtipeDeiinbtuinitiosin

Burnet v. Coronado Oil & Gas Co., 285 U.S. 393

ERASERS V AE SRR RR Se ec DE

Business Forms Finishing Service, Inc. vy. Car-

son, 452 F.2d 70 (7th Cir. 1971)... eee.

Calderon v. Ashmus, 523 U.S. 740 (1998)............

Cardinal Chem. Co. vy. Morton Int'l, Inc., 508

Re NI bicicich vei taittenoetahconienincbieibibiacaaatinntibucnties

Page

11-13,

17, 18, 21, 22, 24, 27, 35, 44, 45

Continental Cas. Co. v. Coastal Sav. Bank, 977

ge! 1 EE ea ee 20

Cordis Corp. v. Medtronic, Inc., 780 F.2d 991

(Fed. Cir. 1985), cert. denied, 476 U.S. 1115

FRE ERS S TRE BORE pate ree ne ee ee 27

C.R. Bard, Inc. v. Schwartz, 716 F.2d 874 (Fed.

Re. REE ON GN le ARE NU are SSE 9, 27, 39

Dewey & Almy Chem. Co. v. American Anode,

Inc., 137 F.2d 68 (3d Cir.), cert. denied, 320

SA Se IID cccitinenticceapticneelntadtitstisinplnadistibamuations 17,27

Diamond Scientific Co. v. Ambico, Inc., 848 F.2d

1220 (Fed. Cir.), pet'n for cert. dismissed, 487

SRI Se PIII aicn:stetodeicibedipicdeisceinestlomanebeapesiintenie 37

Diamond ¥. Chakrabarty, 447 U.S. 303 (1980)... 49

Diversey Lever, Inc. v. Ecolab, Inc., 191 F.3d

Ses a ED pednt “atscnnantiitintdadesiesiingiinsdnaiscss 37

Doody v. Ameriquest Mortgage Co., 242 F.3d

I EC ee RN Cee 20

Duane Reade, Inc. v. St. Paul Fire & Marine Ins.

Co., 411 F.3d 384 (2d Cir. 2005)... 20, 44

Eastern R.R. Presidents Conference v. Noerr

Motor Freight, Inc., 365 U.S. 127 (1961)......... 8, 10

Vili

TABLE OF AUTHORITIES—Continued

Page

Edward Katzinger Co. v. Chicago Metallic Mfg.

oR Ok eT renee 35

Eldred v. Ashcroft, 537 U.S. 186 (2003)............... 49

Evers v. Dwyer, 358 U.S. 202 (1958)................06 31

Festo Corp. v. Shoketsu Kinzoku Kogyo Kabu-

shiki Co., 535 U.S. 722 (2002) ...............seeeeceees 37, 41

Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362 (Fed.

Sis I dstiintacetsttniiindniichatdampmndincitecanbiintiadianiia 37

Foster v. Hallco Mfg. Co., 947 F.2d 469 (Fed.

CP Pa diiintpiiceiniiisciepicnennsceicetinln eibatibniedeiidliates 37

Gardner v. Toilet Goods Ass'n, 387 U.S. 167

ST Uist ints decchhnitctiosacdiissdiiindaeptncibicbttyapeicoanipiaiineiinas 32

Gen-Probe Inc. v. Vysis, Inc., No. 99-CV-2668

(S.D. Cal., Mar. 12, 2002), rev'd, 359 F.3d

1376 (Fed. Cir.), pet'n for cert. dismissed, 543

Rs We ID ccteicnisivtnttinenniiehaiitsaiahioheimnmcbibbadaie 40

Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376

(Fed. Cir.) pet'n for cert. dismissed, 543 U.S.

I Ce ichiccisasctépichinackacdesiciphiniinstimmatadiaiilanchtanises 8, 9, 20,

21, 32, 34, 37, 38, 40, 41, 43

Graham v. John Deere Co., 383 U.S. 1 (1966)..... 49

Grid Systems Corp. v. Texas Instruments, Inc.,

771 F. Supp. 1033 (N.D. Cal. 1991)... 40

Hal Roach Studios, Inc. v. Richard Feiner & Co.,

896 F.2d 1542 (9th Cir. 1990)... 19

Hamlin Inc. v. Hartford Accident & Indem. Co., ,

3 Pf . icy f+ SRN evecreee 39

Hanes Corp. v. Millard, 531 F.2d 585 (D.C. Cir.

Hartford Underwriters Ins. Co. v. Union Plant-

ers Bank, N.A., 530 U.S. 1 (2000)... 49

Haughey v. Lee, 151 U.S. 282 (1894) 00. 34

TABLE OF AUTHORITIES—Continued

Page

Hazel-Atlas Glass Co. v. Hartford-Empire Co.,

SER TE Fe Cee ccittsicniinnsnincihciitccisinstininin 35

Japan Gas Lighter Ass'n v. Ronson Corp., 257

F. Supp. 219 (D.N.J. 1966)... ccceeseeeeeeeeeees 23

Keener Oil & Gas Co. v. Consolidated Gas

Utilities Corp., 190 F.2d 985 (10th Cir. 1951).. 20

Lake Carriers’ Ass'n v. MacMullan, 406 U.S.

Ne PI citkesnstiidsccccikcccagteiinadivanbuisiaidantaibaindatliite 18

Lamb-Weston, Inc. vy. McCain Foods, Ltd., 78

F.3d $40 (Fed. Cir. 1996) ...................ccccocecssesees 22

Lang v. Pacific Marine & Supply Co., 895 F.2d

Fee Be ee I wevrekceetiechcintndaiinehbinntiinadinisa 42

Lear, Inc. v. Adkins, 395 U.S. 653 (1969).......... 9, 10, 13,

36-38, 41-43, 45-48

Liberty Warehouse Co. vy. Burley Tobacco

Growers’ Co-op. Mktg. Ass'n, 276 U.S. 71

Pi cincinsisisiscibaihsntsoteniniesnivinibiniacisisstiandcianbscdindiitditielies 28

Markman vy. Westview Instruments, Inc., 517

a Oe ID ecsikictctiricttinnsniptamaniaieetiabibistesabiiibcnins 46

Maryland Cas. Co. v. Pacific Coal & Oil Co.,

por gk Bel | | Rae arene 11, 15, 16,21, 26

MedImmune, Inc. v. Centocor, Inc., 271 F. Supp.

2d 762 (D. Md. 2003), overruled, 2004 U.S.

Dist. Lexis 28800 (D. Md. June 17, 2004),

aff'd, 409 F.3d 1376 (Fed. Cir. 2005), pet’n for

cert. pending (NO. 05-656) 20.0.0... .ccccccecccesesene ees 40

MedImmune, Inc. v. Centocor, Inc., 409 F.3d

1376 (Fed. Cir. 2005), pet'n for cert. pending

SN METI vidisiitideins tsdicniesbséuaginanseteenpiesaileibosasededietions 10, 22

Mercoid Corp. v. Mid-Continent Investment Co.,

Fa I IE GOON ac cacsksnecvingsiceviccartedbiceintnintinis 35

Merrill v. Yeomans, 94 U.S. 568 (1877) ..........0. 47

TABLE OF AUTHORITIES—Continued

Page

Metabolite Labs., Inc. v. Laboratory Corp. of

America Holdings, 370 F.3d 1354 (Fed. Cir.

2004), cert. granted, 126 S. Ct. 601 (2005)

CEE ERO SESE ae Se woe 42

Morton Int'l, Inc. v. Cardinal Chem. Co., 967

F.2d 1571 (Fed. Cir. 1992), vacated, 508 U.S.

ee iivesis wideciph-crecctnsntndobimintgaaenaiioilitiebsainiinadsk 44

Nashville, C. & St. L. Ry. v. Wallace, 288 U.S.

OC iissietiiittsniininphiitcisinnsabiaibintaiaanspnin 11, 15, 25, 29

118 East 60th Owners, Inc. v. Bonner Properties,

Inc., 677 F.2d 200 (2d Cir. 1982)... eee. 20

Panther Pumps & Equip. Co. v. Hydrocrafi, Inc.,

468 F.2d 225 (7th Cir. 1972), cert. denied, 411

RFE, TET O cecchscaticcanicecicibniduniicndenindieadiioun: 36

Pope Mfg. Co. v. Gormully, 144 U.S. 224

o_O A Din Se CES Ra OER ON a RD 34, 36

Pope Mfg. Co. v. Gormully & Jeffery Mfg. Co.

(No. 4), 144 U.S. 254 (1892) oo... eects 34

Precision Instrument Mfg. Co. v. Automotive

Maintenance Machinery Co., 324 U.S. 806

CR Di sccsbiiinisctigulasipean tinivibibicagelchinantdivceiabbebaieinels 35, 36, 42

Precision Shooting Equip. Co. v. Allen, 646 F.2d

313 (7th Cir.), cert. denied sub nom. Allen

Archery, Inc. v. Precision Shooting Equip.

Co., 454 U.S. 964 (1981)... eeeeees 19, 23, 25

Public Serv. Comm'n v. Wycoff Co., 344 U.S.

BIPat CTI svsistosiicahsbeadcinandecieitbnhtisinttedindaiambheatalaserieudi 18, 29

Research Inst. for Medicine & Chemistry, Inc. v.

Wisconsin Alumni Res. Found. Inc., 647 F.

Supp. 761 (W.D. Wis. 1986) ............. eee 40

Sallen v. Corinthians Licenciamentos LTDA, 273

i. ee el ee iccvniaictecicdetenaiesdtdcdesaeetians 23, 28

Seminole Tribe v. Florida, 517 U.S. 44 (1996)..... 38

TABLE OF AUTHORITIES—Continued

Sheldon v. Sill, 8 How. 441 (1850).................00000+.

Sinclair & Carroll Co. v. Interchemical Corp.,

Re RL er eRe scteveisicennhsinintdnsdaabiednctenisenie

Société de Conditionnement v. Hunter Engi-

neering Co., 655 F.2d 938 (9th Cir. 1981)........

Sony Corp. v. Universal City Studios, Inc., 464

AF eee Sictncnpushieiinetlckopsnindiicndcetinieniienensions

State Contracting & Engineering Corp. v.

Condotte America, Inc., 346 F.3d 1057 (Fed.

Steel Co. v. Citizens for a Better Environment,

ere IE ehecechesitesiinthcdoteneiciininintitananiinies

Steffel v. Thompson, 415 U.S. 452 (1974).............

Studiengesellschaft Kohle, m.b.H. v. Shell Oil

Co., 112 F.3d 1561 (Fed. Cir.), cert. denied,

FEE es OT Dieta ticcevsnlncschinauiotabistnosennceseds

Super Sack Mfg. Corp. v. Chase Packaging

Corp., 57 F.3d 1054 (Fed. Cir. 1995), cert.

denied, 516 U.S. 1093 (1996)...........cceeeceeeeeeees

Swift Co. v. United States, 111 U.S. 22 (1884).......

Talbot v. Quaker State Ref. Co., 104 F.2d 967

Eas CHINE Gcuelchicnsaticdslhicectniinssipbecortdakooeseadiesinimens

Teva Pharmaceuticals USA, Inc. v. Pfizer, Inc.,

395 F.3d 1324 (Fed. Cir.), cert. denied, 126

Sah See iiticschhbsiebociorsniiesenenitendiopsitannessheinate

Teva Pharmaceuticals USA, Inc. v. Pfizer Inc.,

405 F.3d 990 (Fed. Cir.) (en banc), cert.

denied, 126 S. Ct. 473 (2005)... ceeee cee

Turner Broadcasting System, Inc. v. FCC, 520

Res WNIT aseiciecitinnanicicesasconsbiishacinbucabnencdseers

23, 32

28, 31

Xil

TABLE OF AUTHORITIES—Continued

Page

Union P.R.R. v. Public Serv. Comm'n, 248 U.S.

ea chssen Atesdcicindlasdidanteiiicieenda Ming nicteiiaiasiinens 24

United Carbon Co. v. Binney & Smith Co., 317

ey NTI ink itutgnniuchebastctahisitenhectsttarinineshidlchsioshanbes 46

United Mine Workers v. Pennington, 381 U.S.

ee casiciiciiscctiibsdetinnchabittediabtnduaisapeiacions 8, 10

United States v. Doherty, 786 F.2d 491 (2d Cir.

AUS ships insicshaicidtcelgc bdeachdeilindaicnaltnieateabdbadacthisindiaseceh 31

United States v. Glaxo Group Ltd., 410 U.S. 52

CU cisisivigicttes sptuévedémpetesoigeviiinuiiiiibedpitdseneds 35

Venator Group Specialty, Inc. v. Matthew/

Muniot Family, LLC, 322 F.3d 835 (Sth Cir.

SD ic vsterisiticsiivahstiidneden tddscéepinnaiteisaaatadbiinadicashaidouini 20

Walker Process Equip., Inc. v. Food Machinery

& Chem. Corp., 382 U.S. 172 (1965)............... 35

Warner-Jenkinson Co. v. Allied Chem. Corp.,

SOT FB BO GR CW, FOF FN vvevsiccscscrisetcosvesesiosee 19, 42

Warner-Jenkinson Co. v. Hilton Davis Chem.

Ck: SE ees Pe Picbicniahetescentehesddniiatoniondies 49

Whetstone Candy Co. v. Kraft Foods, Inc., 351

SOE gil Lt ae EN Eee 39

Willing v. Chicago Auditorium Ass'n, 277 U.S.

I re TL oe BS ea 28

Wilton v. Seven Falls Co., 515 U.S. 277 (1995)... 28, 44

Constitutional Provisions:

Eat SUED, GRID Dc ticnccnssnpcinciensietinnecnitonies 13, 48

Statutes:

Declaratory Judgment Act, 28 U.S.C. § 2201 ....2, passim

Fe ARs UI IIE sisciciacectsecbaicceasiensrcinddnesinbecan 49

Fe As EDF ssssncdciiviesceonsctvionsiinsrecvananeicnes 49

Xiil

TABLE OF AUTHORITIES—Continued

Page

de I iinet sciniaiinnsicthiessipssbiiosecatichasishnasdaes 49

I TI i a 49

i ater in eeaaelteeniciadindiled 49

I ie ain ccicinendiplinigtmemeddivantnend 49

I Siac ai a caictnceteandantoamebgidiion 49

ec so eomadbone 49

Ps SI sk since vee inteibuatahinpibabedudecminie 49

Bee ss TITY dint cabiichiodistateishiccbpactsiinbiicesiiatinleencich 2

I ee

ge SERRE RS PREG Mat oc ato ie eee Phe > a

Ue MRT sia cabs dnc deoasisacniiientseteieicnbhanoiiiootidpndslon 10

as i a 2

ad OE ESE Rae iekeet 9 ED eye BO Se 7, 36

ET, Tr IE isleitncsadaitacinehduntbepinchsidihcedanaptadastiel 7, 36

rs Se sxadiesanisnidndbinoresdantuidodadoniebensdstaiokes 8, 36

IAA SITIT iiclnirisdenieniticenstiaeniehdeahilestnicipincibcinatiitebindibedie 8, 36

Fen UP Mi ek issiccscneneihabssepidainisuiadinasescoianincsainabha 2

ak Oe hdbscieshstntaneiasncnsnnitadeciinintncianiitananide 5

a te AUT cceicceis-dossttsichinksadtdasaduhetibineiébeniudsinuies 2, 43, 45

Bas Or EN icadsdicenitededissctumetadsniendbabiiiaapentecees 2, 12, 32

8 a pI RPLR SE siren este, SUP eee Rao Pay 2, 12, 32

I IN via de trciesbinleapilisadioh ates binsntiadbelenateal y ey Me

ee ev itnstnleithitndinionniisduiinibihadacininnditaidasibalind 48

a I ithe ciiccd ili ciicintsinctialnidaia cidsdeidmaitesaalte 48

Ss a 48

ee Sh WE III ad ciccessceoinciictudensediniqinbnbibiies 29

es Se. eS OS § Pere o 29

er & .§ |) 8 Y peers 28

Pe ely i MIE ndiieisivncetnsicsnennceonsciieendnenindion 29

Rules:

Federal Rules of Civil Procedure, Rule 54............ 8

IE PT. cecectrunii 2,33

XIV

TABLE OF AUTHORITIES—Continued

Orders: Page

SI SUE Shas PERI AOE aeicncinsenarmteinscncnedsncbeuns 33

Onder, 306 U.S. G45 (1938) .....cccscrerscrvccccccsssvescenses 33

Supreme Court of Judicature, Order XXV_

(1883), 7 STATUTORY RULES AND ORDERS

EEE LES OCR IIT 28

Administrative Decisions:

Cabilly v. Boss, 55 U.S.P.Q.2d 1238 (PTO Bd.

Pe SA Fs FI, Be wiccechepiciicctatennivnibepblanstiends 5

Cabilly v. Boss, 60 U.S.P.Q.2d 1752 (PTO Bd.

2 Sf & & | Pavader IPRS ararmeiceRE Ht NEM 5

Miscellaneous:

ADVISORY COMMITTEE ON RULES FOR CIVIL

PROCEDURE, REPORT (1937)..............:c0seeeeeeeeeees 13, 33

Borchard, The Federal Declaratory Judgments

Act, 21 VA. L. REV. 35 (1936) .............esesseee0s 28, 30, 32

E. BORCHARD, DECLARATORY JUDGMENTS (2d

Ss ei ctnside inittieinicitnenvtsbinnindiplesdtipinbiheiubdsepiinndniniie 28, 31

a Fe a a ietetniniindecebididbesnsenisnniintiiive 30

Derzko, The Impact of Recent Reforms of the

Hatch-Waxman Scheme on Orange Book Stra-

tegic Behavior and Pharmaceutical Innova-

tion, 45 IDEA: J.L. & TECH. 165 (2005)........... 47

FEDERAL TRADE COMM’N, TO PROMOTE

INNOVATION: THE PROPER BALANCE OF

COMPETITION AND PATENT LAW AND POLICY

CO Re,

Hearings on H.R. 5623 Before Subcomm. of

Senate Comm. on Judiciary, 70th Cong., Ist

is EE Ncsidsidclcinniatcnsiceiebbiddsinitenndccpintibpintnias 30

A. JAFFE & J. LERNER, INNOVATION AND ITS

STITT GO wiidicnttndcnssnsectiostinnsntacistess 44, 47, 48

TABLE OF AUTHORITIES—Continued

Lerner, Patenting in the Shadow of Competitors,

pT fe T , _. | SRD ER ee

Meissner ef al., Revised Indications for the Use

of Palivizumab and RSV Immune Globulin

Intravenous for the Prevention of RSV Infec-

tions, 112 PEDIATRICS 1447 (2003)...................

J. MOORE et al., MOORE’S FEDERAL PRACTICE

EE en ichieshandaitielinassdavaseeinutbabdacnainapdinaneadaiies

National Institutes of Health Office of Technol-

ogy Transfer, Synagis® Helping Infants and

Parents Breathe Easier: A Case Study (2002) ..

NATIONAL RESEARCH COUNCIL, A PATENT

SYSTEM FOR THE 21ST CENTURY (2004)............

Petition for Certioran, Gen-Probe Inc. v. Vysis,

Bar, FOG; DO Ge cvcisctninstenscnsicdssossensinstonde

S. Rep. No. 1005, 73d Cong., 2d Sess. (1934)......

C. WRIGHT ef al., FEDERAL PRACTICE & PRO-

CEDURE (1998 and 3d ed. 2004) ....0.... ee.

IN THE

Supreme Court of the Anited States

No. 05-608

MEDIMMUNE, INC.,

Petitioner,

Vv.

GENENTECH, INC., ef al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF FOR PETITIONER

OPINIONS BELOW

The opinion of the United States District Court for the

Central District of California is unreported and is reproduced

at P.C.A. 2la.' The opinion of the United States Court of

Appeals for the Federal Circuit is reported at 427 F.3d 958

and is reproduced at P.C.A. la.

JURISDICTION

The judgment of the Court of Appeals was entered October

18, 2005. P.C.A. la, J.A. 455. The petition for certiorari was

filed November 10, 2005, and granted February 21, 2006.

‘ Citations to “P.C.A.” are to the appendix to the petition for certiorari.

Citations to “J.A.” are to the joint appendix.

J.A. 458. This Court has jurisdiction pursuant to 28 U.S.C.

§ 1254(1).

CONSTITUTIONAL AND STATUTORY PROVISIONS

AND RULE INVOLVED

Article III, § 2, of the Constitution of the United States, and

relevant portions of 28 U.S.C. §§ 1331, 1338, 2201 and 2202,

35 U.S.C. §§ 135, 282, 283, 284 and 285, and Rule 57, Fed.

R. Civ. P., are reproduced in the addendum.

STATEMENT

Petitioner, MedImmune, Inc., is a biotechnology company

in Gaithersburg, Maryland, founded in 1988. Unlike tradi-

tional pharmaceutical manufacturers, which develop and mar-

ket chemical compounds, MedImmune uses “bioengineering”

to alter the genetic arrangement of living cells so that they

produce antibodies (immunoglobulins) for use as medications

targeted specifically at particular harmful viruses and agents

that can attack the human body.

A. MedIimmune’s Development of Synagis”.

After seven years of effort and expense for research,

development and many clinical trials, MedImmune in 1998

received approval from the U.S. Food and Drug Admin-

istration for Synagis” (palivizumab), a bioengineered anti-

body that prevents infection from RSV (respiratory syncytial

virus), a contagious viral condition dangerous to vulnerable

infants. Nearly all young children contract RSV, half of them

in the first year of life, and soon recover. But RSV infections

are a serious threat to high-risk pediatric patients—partic-

ularly to newborns with low birth weight, whose natural

immune systems are not sufficiently developed to recognize

and combat RSV, and also to children with chronic heart or

lung ailments. For such vulnerable infants, RSV infection

unless prevented can be fatal.

To develop Synagis", MedImmune’s scientists using re-

combinant DNA technology reengineered mouse genes that

encoded an RSV antibody in mice, removed most mouse-

specific features, and replaced those with human ones.

Synagis” is classified as 2 “humanized monoclonal antibody,”

i.¢., an animal antibody modified into a predominantly human

one (“humanized”), and produced as identical copies from a

single type of cell (“monoclonal”). When introduced into the

human body, Synagis” neutralizes the RSV virus before

infection can occur. Synagis" was the first monoclonal

antibody successfully developed to combat an infectious

disease. In 1998 MedImmune was granted U.S. Patent No.

5,824,307 for the Synagis” antibody and methods of using it.

Hospitalization of children for RSV infection has dropped

sharply since the introduction of Synagis™.”

B. The 1997 License.

Respondent Genentech, Inc., owns U.S. Patent No.

4,816,567 (“the Cabilly | patent”), applied for April 8, 1983,

and issued March 28, 1989, to inventors Shmuel Cabilly,

etal. J.A. 485. The Cabilly I patent was directed to a process

for synthesizing monoclonal antibodies that are “chimeric,”

i.¢., containing a relatively high proportion of animal to

human components. On June 4, 1997, a year prior to the

FDA approval of Synagis", MedImmune accepted a license

from Genentech covering any anti-RSV monoclonal antibody

MediImmune might thereafter make, use or sell that would be

covered by the Cabilly I “chimeric” patent, J.A. 399, or by

“continuations” of the Cabilly | patent, including a pending

“coexpression” patent application, the exact claims of which

were not disclosed. /d. At the time of the license it was

* See National Institutes of Health Office of Technology Transfer,

Syvnagis® Helping Infants and Parents Breathe Easier: A Case Study 2

(2002): Meissner ef al., Revised Indications for the Use of Palivizumah

and RSV Immune Globulin Intravenous for the Prevention of RSV

Infections, 112 PreDiaTRICS 1447 (2003). Synagis” currently is admin-

istered annually to approximately 180,000 infants in the United States.

and is widely used in other countries.

uncertain whether that pending application ever would be

granted, and if it were to be, what would be the scope of

its claims. The license called for an initial licensing fee

and subsequent quarterly royalties based on revenues from

“Licensed Product(s),” defined as those that “would, if not

licensed under this Agreement, infringe one or more claims

of either or both” of the patents included. J.A. 399, 402-03.

The license contained no mention of Synagis". The license

contemplated that the licensed patents and applications might

not be valid, and that MedImmune’s products might not

infringe, in which event no royalty would be due. J.A. 399,

see also J.A. 411. The license contained no promise by

MedImmune not to sue or to challenge patent validity.

When Synagis* became available in September 1998,

MedImmune concluded that respondents’ Cabilly | patent

which dealt with chimeric, rather than humanized, anti-

bodies—did not cover Synagis”, so that Synagis” was not a

“Licensed Product” under the 1997 license. J.A. 399, 416.

Accordingly, MedImmune never paid any royalties to Genen-

tech under the 1997 license of the Cabilly I patent for sales

of Synagis”. J.A. 388, 416. The Cabilly | patent expired

March 28, 2006.

C. Genentech’s 2001 Cabilly I! Patent.

Genentech’s patent application referred to in the 1997

license agreement, J.A. 399, had been filed in 1988 and

shortly thereafter became the subject of a prolonged dispute

between Genentech and a British firm, Celltech R&D, Ltd.,

concerning which firm’s scientists were the first inventors. In

1989, Celltech had obtained U.S. Patent No. 4,816,397,

naming Michael A. Boss as the first inventor (“the Boss

patent”). J.A. 459. Shortly thereafter Genentech amended its

pending patent application to add eighteen much broader

claims that concededly had been copied essentially verbatim

from the Boss patent. Compare J.A. 484 with J.A. 549-50.

These claims purported to cover the process of producing

any type of monoclonal antibody—chimeric, humanized, or

other—in one cell using recombinant DNA techniques.

Genentech’s amendment expectably triggered a contested

patent-interference proceeding against Celltech in the U.S.

Patent and Trademark Office (PTO), in which Genentech

contended that Cabilly, not Boss, was the first inventor, and

that its application was entitled to priority over Celltech’s

Boss Patent.

After seven years of administrative litigation, the PTO in

1998 confirmed that Celltech, not Genentech, was entitled to

its patent based on priority of invention. Cabilly v. Boss, 55

U.S.P.Q.2d 1238 (PTO Bd. Pat. App. & Int. 1998). But in

2001, after Genentech sought judicial review pursuant to 35

U.S.C. § 146, J.A. 276, the two companies settled. J.A. 334.

In stipulated findings and judgment drafted by the parties’

attorneys, Celltech agreed—disavowing its own victory in the

PTO decision—that Genentech had priority of invention, that

Celltech’s Boss patent (nearing its 2006 expiration date)

should be cancelled, and that a new patent based on the broad

claims and with an expiration seventeen years in the future

should issue to Genentech. J.A. 334, 343-46, 347-48. In

return Celltech received money payments and valuable

“preferential” rights under the new patent. J.A. 106-08, 228;

Ct. Apps. J.A. 1697, 1713. The PTO on remand from the

court declared the claims of Celltech’s Boss patent void,

based on the stipulated court judgment, but commenting on

the irregular judicial procedure observed that the effect of that

judgment was to grant Genentech a patent with a term of 29

years:

“We will note that if a patent is issued to Cabilly, its

term will begin to run now and the public has already

been subject to patent rights of Boss since 1989, and that

the interference has been pending since 1991.”

Cahilly v. Boss, 60 U.S.P.Q.2d 1752, 1755 n.7 (P.T.O. Bd.

Pat. App. & Int. 2001). Nevertheless, on December 18, 2001,

the PTO issued to Genentech U.S. Patent 6,331,415 BI (“the

Cabilly I patent”), with a term lasting until 2018. J.A. 509.

Upon that issuance in 2061—four years after the 1997

license agreement—the exact scope of the claims of the

Cabilly Il patent was publicly disclosed for the first time.

Genentech in a press release described its new patent as a

“Fundamental U.S. Patent for Antibody Technology” that

“covers a principal way that therapeutic and diagnostic

antibodies are made by biotechnology and pharmaceutical

companies and others using recombinant DNA technology.”

J.A. 417. The biotechnology press called it “a patent

claiming broad rights to fundamental methods for the

recombinant expression of antibodies” that “could potentially

block the production of antibody products by rival companies

or increase their royalty burden.” J.A. 423.

D. Genentech’s Infringement Charge and

Demand for Royalties.

Within days of issuance of the Cabilly II patent on

December 18, 2001, a member of Genentech’s legal staff

telephoned a senior officer at MedImmune to announce that

Synagis", on the market since 1998, infringed the new

Cabilly II patent, and that therefore it was a “Licensed

Product” for which royalties must be paid under the 1997

license. J.A. 419. By letter of January 7, 2002, Genentech

followed up with a written notice

“to confirm Genentech’s expectation that MedImmune

will pay royalties on sales of its Synagis” antibody

product pursuant to the license granted by Genentech

under the recently issued U.S. Patent No. 6,331,415.”

/d. Medimmune in response asked to know Genentech’s

“basis for believing that Medimmune’s product would in-

fringe any valid claim of the °415 [Cabilly II] Patent such

that royalties would be due.” J.A. 421. Receiving no re-

sponse for several wecks, MedImmune explained that it had

wired a payment:

“Such payment, however, was made under protest and

with reservation of all of our rights.”

J.A. 426. MedIimmune also warned that it would “evaluate

how further to proceed.” /d. Genentech reiterated its in-

fringement claim. J.A. 428.

Based on the communications from Genentech asserting

that Synagis” infringed the Cabilly II patent and demanding

royalties, and also on Genentech’s “public statements about

the breadth and importance of the Cabilly II patent,” J.A. 388;

see J.A. 417, MedImmune concluded “that Genentech would

terminate the 1997 License Agreement and sue MedImmune

for patent infringement based on sales of Synagis” if Med-

Immune did not make the royalty payments as demanded,”

J.A. 388. MedIimmune “chose not to risk . . . the potential

imposition of a preliminary or permanent injunction that

would prevent MedImmune from selling the product.” J.A.

389. “Accordingly, MedImmune decided to pay royalties

under protest . . . and subsequently challenge in court whether

the Cabilly II patent was valid, enforceable and/or infringed

by MedImmune’s Synagis” product.” /d. The dispute re-

mained unresolved while MedImmune continued to pay the

sums demanded for Synagis", and continued to do business

with Genentech on other products. E.g., J.A. 437.

E. The District Court Proceeding.

With demand for Synagis" growing, and payments to

Genentech correspondingly rising, on April 11, 2003, Med-

Immune brought suit in the United States District Court for

the Central District of California under, inter alia, 28 U.S.C.

$$ 1331 and 1338. J.A. 41, 103. The ¢ mplaint sought a

declaratory judgment under 28 U.S.C. § 2201(a) against

respondents Genentech and City of Hope, a co-owner, that

the Cabilly II patent was invalid as anticipated, obvious, not

adequately described and not enabled (35 U.S.C. §§ 101, 102,

103, 112), J.A. 136-37; unenforceable because Genentech had

knowingly failed to disclose material prior art and in other

respects misled the Patent and Trademark Office, J.A. 106-

30, 137-40; and not infringed by Synagis”, so that royalties

were not due under the license. P.C.A. 29a; J.A. 43, 46, 60-

63, 105, 136-41, 147.

Neither respondent questioned the District Court’s juris-

diction. Genentech said it “admits that, based on the alle-

gations, the Court has jurisdiction to hear this dispute.” J.A.

149. City of Hope likewise made no jurisdictional objection.

J.A. 183. The complaint also sought damages for federal and

state antitrust and unfair-competition violations, based on

collusion by Genentech and Celltech to obtain issuance of the

Cabilly II patent and share in its benefits, J.A. 63-68, 141-48;

those claims were dismissed on grounds of Noerr-Pennington

immunity.’ J.A. 349. The case moved towards trial. J.A. 24.

Then, on March 5, 2004, the United States Court of

Appeals fe the Federal Circuit decided Gen-Probe Inc. v.

Vysis, Inc., 359 F.3d 1376 (Fed. Cir.), pet'n for cert.

dismissed, 543 U.S. 941 (2004). Gen-Probe held that a patent

licensee seeking a declaratory judgment “must . . . materially

breach the agreement . . . before bringing suit,” 359 F.3d at

1381, and that as a matter of law, when a patent licensee

continued to pay royalties and did not violate the license, “no

actual controversy supports jurisdiction under the Declaratory

Judgment Act,” id. at 1382.

The District Court (Pfaeclzer, J.) granted motions by

Genentech and City of Hope to dismiss for lack of subject-

matter jurisdiction. P.C.A. 3la. The court explained that it

*See Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc .

365 U.S. 127 (1961); United Mine Workers v. Pennington, 381 U.S. 657

(1965). Judgment on those claims was entered under Fed. R. Civ. P. 54(b).

J.A. 380, and separately appealed, J.A. 381. Celltech was a party in the

courts below with respect to those claims: it is not a party in this Court.

had “no choice but to dismiss” because “Gen-Probe held that

a licensee in good standing cannot seek relief under the

Declaratory Judgment Act.” P.C.A. 28a. At the same time,

the District Court observed that it dismissed with reluctance:

“Even if it has serious misgivings about the panel’s

conclusion, this Court is not free to reconsider policy

ramifications that Gen-Probe rejected.”

P.C.A. 3la. The District Court characterized the Federal

Circuit’s new doctrine as a departure from that circuit’s and

this Court’s previous rulings:

“In the past, the ‘actual controversy’ requirement has

not been interpreted as precluding a licensee from

challenging a patent it licenses. See C.R. Bard Inc. vy.

Schwartz, 716 F.2d 874, 875 (Fed. Cir. 1983) (‘[A]

patent license need not be terminated before a patent

licensee may bring a declaratory judgment action’);

Lear, Inc. v. Adkins, 395 U.S. 653 (1969) (holding that a

license does not bar the licensee from challenging the

validity of the patent).”

P.C.A. 24a. The District Court added that “The public has a

strong interest in ferreting out invalid or unenforceable

patents,” P.C.A. 30a, and it quoted this Court:

“Surely the equities of the licensor do not weigh very

heavily when they are balanced against the important

public interest in permitting full and free competition in —

the use of ideas which are in reality a part of the public

domain.”

Id., quoting Lear, 395 U.S. at 670. But, obeying Gen-Probe,

the District Court dismissed, while expressing concern that

the Federal Circuit’s doctrine “forces licensees to take a

tremendous risk to challenge a patent, one that some with

valid claims will likely be unwilling to take.” P.C.A. 30a.

F. The Court of Appeals Decision.

On appeal the Federal Circuit (Newman, J., joined by

Mayer and Clevenger, JJ.) affirmed the dismissal, following

its jurisdictional rule stated in Gen-Probe and reiterated in

MedImmune, Inc. v. Centocor, Inc., 409 F.3d 1376 (Fed. Cir.

2005), pet'n for cert. pending, No. 05-656. P.C.A. la.* The

court held that because MedImmune had continued to pay,

albeit under protest, the royalties demanded by Genentech,

therefore as a matter of law MedImmune could not have a

“reasonable apprehension . . . that it will face an infringement

suit,” P.C.A. 7a, and therefore there could be no “actual

controversy” satisfying “the constitutional and statutory

requirements,” P.C.A. 7a-8a. In order to constitute an “actual

controversy,” the Federal Circuit held,

“there must be both (1) a reasonable apprehension on the

part of the declaratory judgment plaintiff that it will face

an infringement suit, and (2) present activity by the

declaratory judgment plaintiff which could constitute

infringement... .”

P.C.A. 7a, quoting Med/mmune, Inc. v. Centocor, Inc., 409

F.3d at 1379. To permit a declaratory-judgment action, the

court believed, would create an “inequity” that would permit

the licensee to sue but retain its rights under the license if it

lost. P.C.A. 7a.

The Court of Appeals devoted one paragraph to putting

aside this Court’s decisions construing the Declaratory Judg-

ment Act. P.C.A. 8a. The Court of Appeals also rejected the

pertinence of this Court’s decision in Lear, Inc. v. Adkins,

which had held that federal patent policy strongly encourages

the testing of patent claims, and that a licensee could not be

estopped to challenge the validity of a licensed patent. Lear,

the court said, did not apply because there the patent licensee

had stopped paying royalties under the license. P.C.A. 4a-6a.

“(T]he issue here is not one of estoppel, but of availability of

the declaratory judgment procedure.” P.C.A. 6a.

* The Court of Appeals also affirmed summary judgment on the anti-

trust and unfair-competition claims based on Noerr-Pennington immunity.

P.C.A. Lla-12a. Judge Clevenger dissented from that part of the decision,

reasoning that the appeal of that judgment should have been transferred to

the Ninth Circuit pursuant to 28 U.S.C. § 1631. P.C.A. 17a-20a.

The Court of Appeals similarly found no useful guidance

in this Court’s admonition in Cardinal Chem. Co. v. Morton

Int'l, Inc., 508 U.S. 83, 100, 102 (1993), that the policy

enacted in the patent code favors adjudication of the validity

of patents, and that validity should be decided under the

Declaratory Judgment Act even after a finding of non-

infringement, id. at 96. Because Cardinal Chemical “was an

infringement suit, not a declaratory action,” the Court of

Appeals concluded that “the present case is unaffected by

Cardinal Chemical.” P.C.A. 8a.

SUMMARY OF ARGUMENT

One would have thought that the issue in this case had been

settled for almost seventy years. In 1934, encouraged by a

unanimous 1933 decision of this Court holding that Article III

embraces declaratory judgments in actual, concrete legal

controversies,’ Congress with the support of academics,

business enterprises and the bar enacted the Declaratory

Judgment Act, now 28 U.S.C. § 2201. A very simple pro-

vision, the Act authorizes a federal court to issue a judgment

declaring legal rights in a “case of actual controversy.” The

Act was adopted so that in such a case it would not be

“necessary to breach a contract or a lease, or act upon one’s

own interpretation of his rights when disputed;” instead,

under the Declaratory Judgment Act “it is not necessary to

bring about such social and economic waste and destruction

in order to obtain a determination of one’s nights.” S. Rep.

No. 1005, 73d Cong., 2d Sess. 3 (1934).

The Act soon was applied by this Court in three leading

cases. In Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241

(1937), this Court held unanimously that the Act and Article

lll required simply “a concrete case admitting of an

immediate and definitive determination of the legal nghts of

the parties in an adversary proceeding.” In Marvland Cas.

* Nashville, C. & St. Lo Rv. v. Wallace, 288 U.S. 249 (1933).

Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941),

again unanimously, this Court described “the question in each

case” as whether there is “a substantial controversy, between

parties having adverse legal interests, of sufficient immediacy

and reality.” And in Al/tvater v. Freeman, 319 U.S. 359, 364

(1943)—a challenge to the validity of a patent, brought by

licensees paying royalties—this Court held that “(t]he fact

that royalties were being paid” did not affect jurisdiction.

This Court later summarized, also without dissent, that “[t}he

sole requirement for jurisdiction under the Act” is that there

be a “real and immediate . . . actual ‘controversy.’” Cardinal

Chem. Co. v. Morton Int'l, Inc., 508 U.S. 83, 96 (1993),

quoting Arrowhead Indus. Water, Inc. v. Ecolochem, Inc.,

846 F.2d 731, 735 (Fed. Cir. 1988).

Nevertheless, in a recent series of jarring decisions, of

which this is the latest, the Federal Circuit has paid little heed

to this Court’s holdings and has ignored the central purpose

of the Declaratory Judgment Act. The Federal Circuit holds

that under Article II] and the Act, a manufacturer accused by

a patentee of liability under a license for an assertedly

infringing product cannot seck a declaratory judgment unless

it first commits material breach of the license by refusing to

pay royalties—thereby placing itself in jeopardy not only of

damages for breach of contract, but of an injunction pro-

hibiting sales of its product, treble-damage penalties, interest,

attorneys’ fees and other costly sanctions for patent

infringement under 35 U.S.C. §§ 283, 284 and 285. That

absolute rule has no support in the statute’s text or history,

nor in this Court’s precedents.

That new constitutional interpretation would have amazed

the drafters of the Declaratory Judgment Act—whose pur-

pose, expressed in a simple, encompassing text and unam-

biguous explanations by the enactors—was to allow contract-

ing parties to resolve their disputes in court without breach

and without risking economic destruction and multiplying

damages. The Act, as often recognized and reiterated, was

designed to permit judicial resolution of contract disputes

“before or after breach.” REPORT OF ADVISORY COMMITTEE

ON RULES FOR CIVIL PROCEDURE 145 (1937). That has long

been settled law throughout the country. The holding here,

besides disregarding decades of contrary appellate decisions

and the understanding of leading treatise writers, would on

unsupported constitutional grounds disrupt the law of licenses

and contracts throughout the economy, essentially undoing

the achievement of the reformers of 1934.

Apart from its constitutional error and disregard of pre-

cedent, the Federal Circuit also is entirely at odds with a

century of decisions of this Court applying federal patent law.

This Court repeatedly has emphasized that the patent laws

enacted by Congress favor and encourage and protect chal-

lenges to patent validity. See Cardinal Chemical, 508 U.S. at

100; Blonder-Tongue Labs. v. University of Ill. Foundation,

402 U.S. 313, 344-45 (1971). This Court has recognized that

a licensee often will be the most likely and effective

challenger to an invalid patent. Lear, Inc. vy. Adkins, 395 U.S.

653, 670 (1969). Yet the Federal Circuit holds that by

agreeing to a license—in this case, a license including a broad

patent not issued and its claims not disclosed until four years

later—the licensee is paralyzed from challenging a patentee’s

assertion of liability, unless it is willing to jeopardize its

principal product, and risk potential financial ruin if a

preliminary injunction is entered or its case does not succeed.

The Federal Circuit, citing its own policy judgments,

would revive for patent licensees not in breach the discredited

doctrine of licensee estoppel, which this Court emphatically

rejected in Lear. Further, it would write that new barrier into

Article Ill of the Constitution, beyond the corrective power of

Congress-—the body assigned by Article | to adjust patent

policy.

ARGUMENT

I. THE COMPLAINT STATED A “CASE OF

ACTUAL CONTROVERSY” UNDER’ THE

DECLARATORY JUDGMENT ACT AND

ARTICLE III.

The Declaratory Judgment Act has been a useful part of the

federal judicial code for more than seventy years. Enacted in

1934, its text provides:

“In a case of actual controversy within its jurisdiction

[with specified exceptions] . . . any court of the United

States, upon the filing of an appropriate pleading, may

declare the rights and other legal relations of any

interested party seeking such declaration, whether or not

further relief is or could be sought... .”

28 U.S.C. § 2201(a). The Act, it has been recognized since

its beginning, reaches to the full scope of the federal judicial

power of Article III]. Aetna Life Ins. Co. v. Haworth, 300

U.S. 227, 239-40 (1937); Ashwander v. TVA, 297 U.S. 288,

325 (1936).

A. The Declaratory Judgment Act and Article Ill

Do Not Exclude Patent Licensees Paying

Royalties Under Protest.

1. A “Case of Actual Controversy” Is a Con-

crete Legal Dispute Between Parties With

Adverse Interests.

(a) Early Decisions._-Aetna Life Ins. Co. v. Haworth.—

The requirements for a “case of actuai controversy” under the

1934 Act were soon explained by this Court unanimously

through Chief Justice Hughes:

“A justiciable controversy is .. . distinguished from a

difference or dispute of a hypothetical or abstract

character: from one that is academic or moot. ... The

controversy must be definite and concrete, touching the

legal relations of parties having adverse legal interests.

It must be a real and substantial controversy

admitting of specific relief through a decree of a con-

clusive character, as distinguished from an opinion

advising what the law would be upon a hypothetical

state of facts.”

Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41 (1937)

(emphasis supplied). In Aetna, a policyholder of five life

insurance policies gave notice that he was permanently

disabled and so entitled to benefits under two of them, and

also that he was no longer obliged to pay premiums but that

the insurance company would be liable at his death. Al-

though the company refused to recognize his claims, he did

not bring suit. /d. at 238. The insurance company then

sought relief under the Declaratory Judgment Act, alleging

that without a resolution of the dispute, evidence might be

lost, and that it would need to set aside a reserve for potential

liability. /d. at 239. This Court held that the requirements of

the Act and the Constitution were satisfied. The complaint

“calls, not for an advisory opinion upon a hypothetical basis,

but for an adjudication of present right upon established

facts.” /d. at 242. This Court reaffirmed, as it had in Nash-

ville, C. & St. L. Ry. v. Wallace, 288 U.S. 249 (1933), that

what Article III requires is

“a concrete case admitting of an immediate and

definitive determination of the legal rights of the parties

in an adversary proceeding.”

Aetna, 300 U.S. at 241—a dispute that “is definite and

concrete, not hypothetical or abstract,” id. at 242.

Maryland Casualty..-Four years after Aetna this Court

emphasized that the Declaratory Judgment Act prescribes no

rigid or mechanical formula for a “case of actual contro-

versy,” as long as the essentials of a concrete, adversarial

legal dispute are present. In language often quoted since, this

Court held that the Act calls for examing the particular

circumstances:

“The difference between an abstract question and a

‘controversy’ contemplated by the Declaratory Judgment

Act is necessarily one of degree, and it would be

difficult, if it would be possible, to fashion a precise test

for determining in every case whether there is such a

controversy. 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.”

Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270,

273 (1941).

Altvater v. Freeman.—Completing the trilogy of this

Court’s foundational decisions construing the Declaratory

Judgment Act was a case like this one—a declaratory claim

of patent invalidity by patent licensees paying royalties.

Altvater v. Freeman, 319 U.S. 359 (1943), decided the same

jurisdictional issue before this Court today. The petitioners,

patent licensees in good standing who were sued for making

unauthorized sales, filed a counterclaim for a declaratory

judgment that the licensed patents were invalid. The licens-

ees.did not “cancel[] the license agreement” or “refuse[] to

pay any royalties under it,” because if they did “they would

be subject to infringement suits.” /d. at 361. Just as here, the

patentee-licensors deried that there was an “actual con-

troversy,” arguing that “so long as they continue to pay

royalties, there is only an academic, not a real controversy,

between the parties.” /d. at 364. This Court squarely rejected

that argument:

“The fact that royalties were being paid did not make

this a ‘difference or dispute of a hypothetical or abstract

character.” Aetna .... That controversy was ‘definite

and concrete, touching the legal relations of parties

having adverse legal interests.’ Aetna... .”

Id. This Court emphasized that if the royalties, which were

paid “under protest and under the compulsion of an injunction

decree,” had not been paid, the licensees faced a “risk . . . [of]

treble damages in infringement suits.” /d. at 365. They

sought a declaratory judgment “to lift the heavy hand of that

[royalty] tribute from the business.” /d.

“It was the function of the Declaratory Judgments Act to

afford relief against such peril and insecurity .... And

certainly the requirements of case or controversy are met

where payment of a claim is demanded as of right and

where payment is made, but where the involuntary or

coercive nature of the exaction preserves the right to

recover the sums paid or to challenge the legality of

the claim.”

Id. Further, this Court later explained that in Altvater “we

nowhere stated that a [licensee] counterclaimant could seek

the affirmance of a declaratory judgment only if it ensured

that its future actions would continue to violate the patentee’s

alleged rights.” Cardinal Chem. Co. v. Morton Int'l, Inc.,

508 U.S. 83, 100 n.22 (1993).

Contemporaneous decisions authored by distinguished

appellate judges underscored the seminal holdings of this

Court. Six months after Aetna, Judge Parker explained that

the Declaratory Judgment Act was enacted “to settle legal

rights and remove uncertainty and insecurity from legal

relationships without awaiting a violation of the mghts or a

disturbance of the relationships.” Aetna Cas. & Sur. Co. v.

Quarles, 92 F.2d 321, 325 (4th Cir. 1937). Judge Magruder

wrote that “(t]his constitutional requirement [Article III], as

applied to declaratory judgments, is not interpreted in any

narrow or technical sense.” Dewey & Almy Chem. Co. v.

American Anode, Inc., 137 F.2d 68, 70 (3d Cir.), cert. denied,

320 U.S. 761 (1943). Judge Swan explained that if a patent

licensee were required to terminate the contract before seck-

ing declaratory judgment, “it will be too late to avoid an

action for damages,” yet “[t]he very purpose of the declara-

atory judgment procedure is to prevent the accrual of such

avoidable damages,” American Machine & Metals, Inc. v. De

Bothezat Impeller Co., 166 F.2d 535, 536 (2d Cir. 1948).

Rather than requiring a licensee to “risk an otherwise profit-

able business in order to present a justiciable ‘controversy[,]’

[t]he Declaratory Judgments Act was designed to obviate just

this sort of peril.” /d. at 537.

(b) Subsequent Decisions.—This Court in later decisions

explained that a dispute as to whether one is under a legal

obligation with which one must comply is a classic “actual

controversy”: “if appellants are now under such an obli-

gation, that in and of itself makes their attack on the validity

of the law a live controversy, and not an attempt to obtain an

advisory opinion.” Lake Carriers’ Ass'n v. MacMullan, 406

U.S. 498, 507 (1972). What matters is that—as here—

“(t]he disagreement must not be nebulous or contingent

but must have taken on fixed and final shape so that a

court can see what legal issues it is deciding, what effect

its decision will have on the adversaries, and some

useful purpose to be achieved in deciding them.”

Public Serv. Comm'n v. Wycoff Co., 344 U.S. 237, 244

(1952). In Cardinal Chemical this Court confirmed that “a

party may... seck a declaratory judgment, even if the paten-

tee has not filed an infringement action,” and held that Article

III jurisdiction persisted on appeal “as long as the parties

continued to dispute the issue of validity.” 508 U.S. at 95, 97.

The regional courts of appeals when they had jurisdiction

of patent cases held on several occasions that a “case of

actual controversy” under the Declaratory Judgment Act does

not require a patent licensee to withhold royalties or terminate

a license. Otherwise the licensee would be forced to

“sit back and continue to wonder if it is justly paying

royalties or merely paying a bribe to the patentee not to

threaten him with business disruption and a possible

damage suit if he terminates royalty payments.”

Precision Shooting Equip. Co. v. Allen, 646 F.2d 313, 318

(7th Cir.), cert. denied, 454 U.S. 964 (1981). The Second

Circuit held that

“Addressing the question whether a patent licensee

must actually withhold royalty payments before he can

challenge validity, we conclude—as have most courts

who have considered the issue—that such repudiation

of the licensing agreement should not be precondition

fo suit.”

Warner-Jenkinson Co. vy. Allied Chem. Corp., 567 F.2d 184,

187 (2d Cir. 1977) (emphasis supplied). “There is clearly a

case and controversy here since the plaintiffs-licensees have

an interest in proving patent invalidity and thereby escaping

liability for royalties.” /d. at 187 n.4. Accord, American

Sterilizer Co. v. Sybron Corp., 526 F.2d 542, 543 (3d Cir.

1975). The Moore treatise summarized:

“In general, the fact that a declaratory relief plaintiff

holds a valid license to use the allegedly patented item is

irrelevant; the licensee need not terminate the license in

order to maintain a federal declaratory relief action for

patent invalidity.”

“J J. Moore et al, MOore’s’ FEDERAL PRACTICE

7.22{8][c][i] at 57-80 (3d ed. 2005).

The jurisdictional principle of course is not confined to

patent licenses. For instance, a “licensee need not terminate

its license agreement in order to maintain a federal declara-

atory action for copyright invalidity.” //al Roach Studios,

Inc. v. Richard einer & Co., 896 F.2d 1542, 1556 n.23 (9th

Cir. 1990). Parties to all kinds of contracts are permitted to

bring declaratory-judgment actions without first committing

material breaches. “[A] party to a contract is not compelled

to wait until he has committed an act which the other party

asserts will constitute a breach, but may seek relief by

declaratory judgment and have the controversy adjudicated in

order that he may avoid the risk of damages or other

untoward consequence.” Keener Oil & Gas Co. v. Con-

solidated Gas Utilities Corp., 190 F.2d 985, 989 (10th Cir.

1951). Last year the Second Circuit “easily rejected” a

challenge to declaratory jurisdiction when parties not in

breach disputed the scope of coverage of an insurance policy.

Duane Reade, Inc. v. St. Paul Fire & Marine Ins. Co., 411

F.3d 384, 389 (2d Cir. 2005). In a suit challenging liability

on a commercial lease, the same court held:

“We agree with the plaintiff's implicit premise that it

need not fail to make payments in violation of its lease

or mortgage obligations in order to have a justiciable

controversy concerning its obligation to make such

payments.”

118 East 60th Owners, Inc. v. Bonner Properties, Inc., 677

F.2d 200, 202 n.1 (2d Cir. 1982). “The Declaratory Judgment

Act exists to allow litigants to determine an actual con-

troversy . . . before the dispute grows into a contract violation

....” Doody v. Ameriquest Mortgage Co., 242 F.3d 286, 288

(Sth Cir. 2001).°

2. The Federal Circuit Disregarded

the Decisions of This Court.

The Federal Circuit offered no convincing way to escape

the declaratory-judgment holdings of this Court. In Gen-

Probe it had acknowledged this Court’s Aefna decision but

denied its authority on this basis:

“While this language [in Ae/na] suggests that a litigant

may sue to determine contract rights before a breach,

this 1937 Supreme Court case did not involve a de-

* See also. e.g. Venator Group Specialty, Inc. v. Matthew/Muniot

Family, LLC, 322 ¥.3d 835, 840 (Sth Cir. 2003): Continental Cas. Co. v.

Coastal Sav. Bank, 977 F.2d 734, 738 (2d Cir. 1992).

claratory judgment action instituted by a patent licensee

in good standing.”

359 F.3d at 1382. But “this 1937 Supreme Court case” stated

a fundamental constitutionally-based rule of general appli-

cation. There is no separate constitutional rule for patent-

license cases that specially limits a federal court’s jurisdic-

tion under the Declaratory Judgment Act and Article III.

The Federal Circuit in the present case acknowledged

Maryland Casualty, P.C.A. 8a, which looked to whether

“under all the circumstances” there was a “substantial contro-

versy” with “immediacy and reality” between parties with

“adverse legal interests,” 312 U.S. at 273. But the Federal

Circuit, to the contrary, has announced an absolute rule that

no “actual controversy” can exist without breach of contract.

It maintained that its automatic rule was not a departure from

Maryland Casualty, but simply a “synthesis of the totality-of-

the-circumstances test for determining whether there is a

justiciable controversy.” P.C.A. 7a-8a.

The Federal Circuit here made no mention of Altvater,

which approved a declaratory-judgment claim by patent

licensees not in breach. In Gen-Probe (which was settled

soon after a petition for certiorari was filed) the Federal

Circuit had held A/tvater inapplicable because “[t}he royalty

payments in Altvater were paid not under the terms of a

license agreement: rather, they were paid ‘under the compul-

sion of an injunction decree,” 359 F.3d at 1382, quoting

Altvater, 319 U.S. at 365—even though this Court in A/mater

had equally noted that, as here, the royalties also were paid

“under protest,” 319 U.S. at 365, and this Court explicitly

held that ongoing royalty payments and absence of breach did

not preclude an “actual controversy” under the Declaratory

Judgment Act. /d.

Cardinal Chemical was previously dismissed by the Fed-

eral Circuit as a decision that “did not concern the jurisdiction

of federal district courts” (as opposed to appellate courts) and

therefore was “inapposite,” and should be “limited to the

specific facts of that case.” MedImmune, Inc. v. Centocor,

Inc., 409 F.3d at 1380, quoting in part Lamb-Weston, Inc. v.

McCain Foods, Ltd., 78 F.3d 540, 546 (Fed. Cir. 1996). In

the present case once again the Federal Circuit concluded that

“nothing in Cardinal undermines our decisions on declaratory

justiciability at the trial court level.” P.C.A. 8a, quoting

Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d

1054, 1060 (Fed. Cir. 1995). It has called Cardinal Chem-

ical’s applicability “twice rejected” by its own prior

decisions, Med/mmune, 409 F.3d at 1380, and held that “[t}he

present case is unaffected by Cardinal Chemical.” P.C.A. 8a.

B. This Is a “Case of Actual Controversy.”

The judgment on review here endorses a rule that as a

matter of law there can be no “actual controversy” in a patent

challenge by a licensee unless the licensee has a “reasonable

apprehension of suit”—and that, also as a matter of law, as

long as royalties are being paid and no breach has occurred,

“reasonable apprehension of suit” cannot exist.’ The statute,

however, speaks of “case of actual controversy.” The phrase

“reasonable apprehension of suit” is not to be found in the

text or history of the statute, nor has this Court ever used it.

“The sole requirement for jurisdiction under the Act is

that the conflict be real and immediate, i.e., that there be

a true, actual ‘controversy’ required by the Act.”

Cardinal Chemical, 508 U.S. at 96, quoting Arrowhead

Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 734-35

(Fed. Cir. 1988). However, under either formulation—

“actual controversy” or “reasonable apprehension of suit”—

the Act is satisfied here.

"In one case the Federal Circuit escalated its requirement to “reason-

able apprehension of imminent suit.” Teva Pharmaceuticals USA, Inc. v.

Pfizer, Inc., 395 F.3d 1324, 1333 (Fed. Cir.) (emphasis in original), cer.

denied. 1268. Ct. 473 (2005).

1. “Actual Controversy” Is Not Limited to

“Reasonable Apprehension of Suit.”

“Reasonable apprehension of suit” first appeared in the

context of the typical action for declaration of invalidity and

non-infringement brought by a potential infringer against a

patentee. In such suits “reasonable apprehension of suit,”

along with likelihood of producing the disputed item (here

already produced and sold for four years) could establish a

concrete legal controversy. See Société de Conditionnement

v. Hunter Engineering Co., 655 F.2d 938, 944 (9th Cir. ~

1981); Japan Gas Lighter Ass'n v. Ronson Corp., 257 F.

Supp. 219, 237 (D.N.J. 1966).

A “reasonable apprehension of suit” certainly can be

significant, and often may be sufficient in the circumstances

to establish an “actual controversy.” But apprehension of suit

is not a necessary condition, and this Court has never

suggested such a thing. It scarcely would have, given that in

Aetna this Court noted that the plaintiff was suing precisely

because the adverse party had declined to bring its asserted

claim to court; the insurance company properly sought a

declaratory judgment when the insured and beneficiary

“have not instituted any action wherein the plaintiff

would have an opportunity to prove the absence of the

alleged disability.”

300 U.S. at 239. °

Courts of appeals have confirmed that apprehension of a

lawsuit “is not the only way to establish the existence of a

case for purposes of Article III.” Sallen v. Corinthians

Licenciamentos LTDA, 273 F.3d 14, 25 (1st Cir. 2001). In

Precision Shooting, 646 F.2d at 314, the Seventh Circuit

recognized that an “actual controveisy” existed even if a

patent licensee paying royalties had “no reasonable appre-

hension of liability in an infringement suit.” The appropriate

question, the court held, was whether there was “a reasonable

apprehension that the patentee will bring an infringement suit

against [the licensee] if there is non-compliance with the

license.” 646 F.2d at 318 (emphasis supplied). This Court

explained:

“If... a party has actually been charged with in-

fringement of the patent, there is, necessarily, a case or

controversy adequate to support jurisdiction of a

complaint . . . under the Act.”

Cardinal Chemical, 508 U.S. at 96 (emphasis in original).

This Court in Cardinal Chemical further observed that an

“actual controversy” under the Declaratory Judgment Act

could include a challenge to a patent’s validity even without a

prior charge of infringement:

“Merely the desire to avoid the threat of a ‘scarecrow’

patent, in Learned Hand’s phrase, may therefore be

sufficient to establish jurisdiction under the Declaratory

Judgment Act.”

Id. (footnote omitted), quoting Bresnick v. United States

Vitamin Corp., 139 F.2d 239, 242 (2d Cir. 1943). See also

Hanes Corp. v. Millard, 53\ F.2d 585, 592 (D.C. Cir. 1976).

Certainly payment under protest, as occurred here, does not

negate an “actual controversy” under the Act. See Al/tvater,

319 U.S. at 365. This Court never has abided the argument

that a payment made under threat of financial ruin is

voluntary and waives judicial relief. As explained through

Justice Holmes,

“It always is for the interest of a party under duress to

choose the lesser of two evils. But the fact that a choice

was made according to interest does not exclude duress.

It is the characteristic of duress properly so called.”

Union P.R.R. vy. Public Serv. Comm'n, 248 U.S. 67, 70

(1918). See also, ¢.g., Swift Co. v. United States, 111 U.S.

22, 28-29 (1884) (“The appellant had no choice. The only

alternative was to submit to an illegal exaction, or discontinue

its business.”); Atchison, T. & S.F. Ry. v. O'Connor, 223 US.

280, 286-87 (1912) (Holmes, J.) (when party paying tax “had

no certainty of ultimate success,” and chose not “to take the

risk of having its contracts disputed and its business injured

and of finding the tax more or less nearly doubled,” then “the

payment was made under duress”).

2. Petitioner Presented an “Actual Controversy.”

The statutory requirements are satisfied here. The court

acknowledged that the parties had “adverse legal interests.”

P.C.A. 8a, quoting Aetna, 300 U.S. at 241. The dispute was

as to the parties’ “rights and other legal relations.” 28 U.S.C.

§ 2201(a). And there was an “actual controversy within its

jurisdiction,” in which the material facts are concrete rather

than speculative, and a court ruling can resolve the dispute.

That statutory template is not affected by whether in addition

Medimmune “take[s}] some additional act to deepen gray into

black,” Precision Shooting, 646 F.2d at 318, by putting itself

in breach of the license agreement to which Genentech as-

serted it was subject.

A central concern when Article II] was first applied to

declaratory judgments was that the facts and issues be actual,

adverse and concrete. Nashville Ry., 288 U.S. at 264; Aetna,

300 U.S. at 240-41. Medimmune was not a stranger with no

interest. Here the uncontroverted record shows a specific

assertion of liability based on infringement of a patent by

sales of a product approved by the FDA and on the market; a

demand for royalties: denial of infringement and liability;

denial of the validity and enforceability of the patent; and

payment under protest. For MedImmune to commit breach of

the license would not make this case any more concrete and

“admitting of an immediate and definitive determination of

the legal nights of the parties.” Aetna, 300 U.S. at 241. All

that breach would accomplish would be to heighten the risks

and consequences—exactly what the Declaratory Judgment

Act was enacted to avoid.

This dispute fits easily within this Court’s decisions. As in

Aetna, it is a dispute about legal obligations that “is definite

and concrete, not hypothetical or abstract.” 300 U.S. at 242.

As in Maryland Casualty, it is “a substantial controversy,

between parties having adverse legal interests, of sufficient

immediacy and reality.” 312 U.S. at 273. And if the Federal

Circuit decision here is correct, A/tvater could not have been

decided as it was.

3. Petitioner Presented a “Reasonable

Apprehension of Suit.”

Even if “reasonable apprehension of suit,” rather than

“actual controversy” were the only constitutional and statu-

tory test, the undisputed facts here amply demonstrated not

only an “actual controversy,” but a “reasonable apprehension

of suit” as well.”

Beginning in the 1930s, countless decisions have allowed

declaratory-judgment actions by manufacturers which have

been accused by a patentee of infringement, but have not

been sued for it. Those cases have held that such accusation

creates a “reasonable apprehension of suit” sufficient for an

“actual controversy.” That assertion of infringement is

exactly what occurred here, with Genentech also asserting

that therefore Synagis” upon the issuance of the Cabilly II

patent in 2001 became a “Licensed Product” that “would, if

not licensed under this Agreement, infringe,” J.A. 399, so that

royalties were due under the 1997 license. J.A. 419, 428.

MedImmune did not agree, and paid royalties only “under

* The Court of Appeals incorrectly stated that “MedImmune concedes

that it is free of apprehension of suit.” P.C.A. 4a. MedImmune spe-

cifically declared. J.A. 389, and argued in the Court of Appeals that

“Genentech’s demands for royalties under an existing license for a new

patent created a reasonable apprehension of an infringement suit.” Brief

of Plaintiff-Appellant, U.S. Ct. Apps., Fed. Cir., at 30.

protest.” J.A. 389, 426. Genentech did not deny its “clear

threat to enforce the Cabilly II patent against MedImmune.”

J.A. 388; see pp. 6-7, supra. Medlmmune sought a

/ declaration that Synagis“ did not infringe, that it therefore

was not covered by the license, and that the Cabilly II patent

was both invalid and unenforceable. J.A. 60-63, 136-41. It

was exactly “to lift the heavy hand of . . . tribute” without

having to defend infringement actions that the Declaratory

Judgment Act was enacted. Altvater, 319 U.S. at 365. The

communications here went well beyond the minimum for

“reasonable apprehension of suit;” “(t]he [patentee’s] claim

need not be formally asserted; it is not necessary that notice

be given directly to the plaintiff or that any threat be made to

sue the plaintiff.” Aralac, Inc. v. Hat Corp., 166 F.2d 286,

292 (3d Cir. 1948); see also Dewey & Almy Chem. Co. v.

American Anode, Inc., 137 F.2d 68, 70 (3d Cir.), cert. denied,

320 U.S. 761 (1943).

The Federal Circuit not only mistakenly narrowed the

statute’s “actual controversy” to “reasonable apprehension of

suit.” The court also assumed that Synagis” was a “Licensed

Product” under the contract, which would be so only if it

infringed the Cabilly Il patent. The court then redefined and

narrowed apprehension of suit to require material breach of

contract. Even the Federal Circuit’s own prior holdings do

not support this. E.g., Arrowhead Indus. Water, 846 F.2d at

735, quoted in Cardinal Chemical, 508 U.S. at 96; C.R. Bard,

Inc. v. Schwartz, 716 F.2d 874, 880 (Fed. Cir. 1983) (“We

reject the blanket approach . . . that there can never be an

apprehension of a federal infringement suit and thus no

controversy when a license ts still in effect.”); Cordis Corp.

v. Medtronic, Inc., 780 F.2d 991, 994 (Fed. Cir. 1985) (“In

(.R. Bard .. . this court held that a patent licensee may seek a

federal declaratory judgment to declare a patent, subject to a

license, invalid without prior termination of the license.”),

cert. denied, 476 U.S. 1115 (1986).”

C. A Requirement To Commit Breach of Con-

tract Would Be Contrary to the Text and

Purpose of the Declaratory Judgment Act.

Few fan: iar federal laws have a clearer text and legislative

history than the Declaratory Judgment Act. Declaratory

judgments were recognized in England in 1883'° and in the

United States by a New Jersey statute in 1915, followed by

several other states.'' A federal declaratory judgment act was

first proposed in Congress in 1919, and bills were rein-

troduced thereafter. See Borchard, The Federal Declaratory

Judgments Act, 21 VA. L. Rev. 35, 36 (1936). During the

1920s, however, there had been uncertainty whether an action

for declaratory relief, which some opinions addressing state

laws suggested would amount to an “advisory opinion,” could

satisfy the requirements of Article 111.'* The constitutional

doubt was dispelled in 1933 when this Court through Justice

* See also Teva Pharmaceuticals USA, Inc. vy. Pfizer Inc., 405 F.3d

990, 997 (Fed. Cir.) (Dyk, J., dissenting as to rehearing en banc) (“In my

view, the First Circuit [in Sal/en, supra] is correct: the proper test under

Article III is whether there is a present concrete controversy, and the panel

here applied an incorrect test [reasonable apprehension of suit].”), cert.

denied, 1268S. Ct. 473 (2005).

- Supreme Court of Judicature, Order XXV, § 5 (1883), 7 SEATUTORY

RULES AND ORDERS ReviseD 54 (1904). See E. BORCHARD,

DECLARATORY JUDGMENTS 129-130 (2d ed. 1941).

'' NJ. Laws, 1915, ch. 116, § 7, called “the first effective statute” of

this kind in a country. E. BORCHARD at 132. Professor Edwin Borchard

was recognized as the “author of the Federal Declaratory Judgment Act.”

Steffel v. Thompson, 415 U.S. 452. 468 n.19 (1974). His treatise con-

tinues to be cited regularly in decisions construing the Act. F.g., Wilton v.

Seven Falls Co., 515 U.S. 277, 288, 289 (1995).

= See E. BORCHARD at 134; Willing v. Chicago Auditorium Ass'n, 277

U.S. 274, 289 (1928): Liberty Warehouse Co. v. Burley Tobacco

Growers’ Co-op. Marketing Ass'n, 276 U.S. 71, 89 (1928).

Stone unanimously held that Article III did not stand in the

way of reviewing a Tennessee declaratory judgment

“so long as the case retains the essentials of an ad-

versary proceeding, involving a real, not a hypothetical,

controversy, Which is finally determined by the judg-

ment below.”

Nashville, C. & St. L. Ry. v. Wallace, 288 U.S. 249, 264

(1933) (emphasis supplied). Article III, this Court held, is

satisfied

“when the complainant asserts rights which are chal-

lenged by the defendant, and presents for decision an

actual controversy to which he is a party, capable of

final adjudication by the judgment or decree to be

rendered.”

Id. at 260. That explanation of what Article III requires

cleared the way for enactment of the Declaratory Judgment

Act the following year. See S. Rep. No. 1005, 73d Cong., 2d

Sess. 5 (1934); Public Serv. Comm'n v. Wycoff Co., 344 US.

at 241-42.

1. The Declaratory Judgment Act Was Adopted To

Make Breach of Contract Unnecessary.

To demand that a declaratory-judgment plaintiff first

commit a contractual breach, risking injunction of its major

product, substantial damages and penalties, is the last thing

that Congress in 1934 thought it was doing. The Declaratory

Judgment Act applies by its terms to a “case of actual

controversy.” 28 U.S.C. § 2201(a).'* The express purpose of

'" Article III, § 2, extends the federal judicial power to inter alia “ali

Cases. in Law and Equity, arising under . . . the Laws of the United

States” and “Controversies . . . between Citizens of different States.” See

also Calderon vy. Ashmus, 523 U.S. 740. 746 (1998). The phrase “case

of actual controversy” was borrowed from contemporaneous state

declaratory-judgment statutes. ¢.g . Kan. Laws, 1921, ch. 168, § 1 (“cases

of actual controversy”); Cal. Stats.. 1921, p. 689 (same): Va. Laws, 1922, p.

the Act was to authorize the adjudication of real and concrete

disagreements without forcing a party first to put itself in

jeopardy of paying damages or other penalties if its legal

claim ultimately did not succeed. The Senate report quoted

with approval a supporter in a previous Congress:

“Under the present law you take a step in the dark and

then turn on the light to see if you have stepped into a

hole. Under the declaratory judgment law you turn on

the light and then take the step.”

S. Rep. No. 1005 at 3, quoting 69 CONG. REc. 2108 (1928)

(Rep. Gilbert). See also Hearings on H.R. 5623 Before

Subcomm. of Senate Comm. on Judiciary, 70th Cong., Ist

Sess. 55 (1928) (letter of Chief Judge Benjamin N. Cardozo)

(“useful expedient to litigants who would otherwise have

acted at their peril, or at best would have been exposed to

harrowing delay”).

Contract disputes, of which patent-license controversies are

a subset, were a primary focus of Congress when it enacted

the Declaratory Judgment Act in 1934. Congress explained

its purpose to

“enable|| parties in disputes over their rights over a

contract, deed, lease, will, or any other written instru-

ment to sue for a declaration of nghts, without breach of

the contract... .”

S. Rep. No. 1005 at 2 (emphasis supplied). Citing states’

experience, the drafters observed:

“The [declaratory judgment] procedure has been es-

pecially useful in avoiding the necessity, now so often

present, of having to act at one’s peril or to act on one’s

own interpretation of his rights, or abandon one’s rights

because of a fear of incurring damages. ... Persons now

often have to act at their peril, a danger which could be

902 (same). See Borchard, 21 VA. L. Riv. at 44. “The word ‘actual’ is one

of emphasis rather than of definition.” Aetna, 300 US. at 240.

frequently avoided by the ability to sue for a declaratory

judgment as to their rights or duties.”

Id. at 2-3 (emphasis supplied), quoted in Steffel v. Thompson,

415 U.S. 452, 480 n.1 (1974) (Rehnquist, J., concurring). See

also, ¢.g., Abbott Labs. v. Gardner, 387 U.S. 136, 152 (1967)

(risk of potential penalties before adjudication was “a

dilemma that it was the very purpose of the Declaratory

Judgment Act to ameliorate”).

The understanding from the beginning has been that the

Declaratory Judgment Act “enable[s] a party who is chal-

lenged, threatened or endangered in the enjoyment of what he

claims to be his rights, to initiate the proceedings against his

tormentor and remove the cloud.” United States v. Doherty,

786 F.2d 491, 498-99 (2d Cir. 1986) (Friendly, J.), quoting

E. BORCHARD, DECLARATORY JUDGMENTS 280 (2d ed. 1941).

One accused of patent infringement “should not be compelled

to act at its peril when it has the foresight to seek declaratory

relief.” Broadview Chem. Corp. v. Loctite Corp., 417 F.2d

998, 1001 (2d Cir. 1969), cert. denied, 397 U.S. 1064 (1970).

“The purpose of the Declaratory Judgment Act is to enable

partics to adjudicate their disputes before cither suffers great

damage.” 12 J. MOORE e7 al. § $7.03[2] at 57-11; see also 5

C. WRIGHT ef al., FEDERAL PRACTICE & PROCEDURE § 1238

at 411 (3d ed. 2004).

To require breach of the contract as a condition to suit

would not make the present dispute any more clear or con-

crete. But it would place petitioner in a “very real dilemma”

and “quite clearly exposed to the imposition of strong

sanctions.” Abbott Labs., 387 U.S. at 153, 154. “[T]he

declaratory judgment procedure is an alternative to pursuit of

the arguably illegal activity.” Sreffel, 415 U.S. at 480 & n.1

(Rehnquist, J., concurring). See also Evers v. Dwyer, 358

U.S. 202, 204 (1958) (“We do not believe that appellant, in

order to demonstrate the existence of an ‘actual controversy’

over the validity of the statute here challenged, was bound to

continue to ride the Memphis buses at the risk of arrest if he

refused to seat himself in the space in such vehicles assigned

to colored passengers.”); Gardner v. Toilet Goods Ass'n, 387

U.S. 167, 172 (1967) (alternative to declaratory-judgment

action is “beset with penalties and other impediments”).

Declaratory judgments, it has been noted, are particularly

appropriate for patent litigation. //anes Corp. v. Millard, 531

F.2d 585, 592 (D.C. Cir. 1976) (“indisputably appropriate”’);

Societe de Conditionnement, 655 F.2d at 943 (same); The

practical risks of being held liable for infringement are

particularly serious. See 35 U.S.C. §§ 283 (injunction), 284

(treble Camages), 285 (attorneys’ fees). Absent prompt

judicial resolution of disputes about patent validity and

infringement, the licensee’s only alternative is “to risk not

only actual but treble damages in infringement suits... . It

was the function of the Declaratory Judgments Act to afford

relief against such peril and insecurity.” A/twater, 319 U.S.

at 365.

The ena _s of the Declaratory Judgment Act also had in

mind the sit. .on in which

“the plaintiff, desiring not to sunder the economic or

social relations involved, which a ‘fight to the finish’

might entail, contents himself with a suit for a judgment

declaring his rights in the premises, eaabling him thus

to proceed to adjust his established legal relations

accordingly.”

Borchard, 21 VA. L. Rev. at 39. In Gen-Probe, for example,

“Gen-Probe expressly acknowledged its desire to maintain

the status quo and remain a faithful licensee. Moreover, Gen-

Probe exercised options to extend the duration of the license

* 359 F.3d at 1380. Similarly, in the present case

petitioner in 2003 sought and negotiated with respondent

Genentech licenses for additional products, even though the

dispute concerning alleged infringement of the Cabilly Il

patent by Synagis” and its validity remained unresolved. See

J.A. 429, 431, 433, 434, 437. “[T]}he declaratory judgment . . .

enables litigants to . . . settle the controversy before an

accumulation of differences and hostility has engendered a

wide and general conflict, involving numerous collateral

issues.” S. Rep. No. 1005 at 3.

It would confound the goal of the Declaratory Judgment

Act to hold, as the Federal Circuit did here, that petitioner

needed to commit breach of contract and place itself in great

jeopardy before seeking judicial resolution of a clear legal

dispute. The whole purpose of the Act was to eliminate the

need for such risk-taking, commercial uncertainty, and piling

on of potential damages.

2. Rule 57 Contemplates Declaratory

Judgments “Before or After Breach.”

The same year Aetna was decided, this Court also adopted

the new Federal Rules of Civil Procedure. Order, 302 U.S.

783 (1937). Rule 57, unchanged in substance today, provided

for declaratory judgments. Order, 308 U.S. 645, 736 (1938).

The distinguished Advisory Committee this Court appointed

summarized concisely the requirements for seeking declara-

tory relief: the plaintiff “must have a practical interest in the

declaration sought,” which may be as to “[t}he existence or

non-existence of any right, duty, power, liability, privilege,

disability, or immunity or of any fact upon which . . . legal

relations depend.” REPORT OF THE ADVISORY COMMITTEE ON

RULES FOR Civit. PRocepuURE 145 (1937) (Rule 58, later

renumbered 57). The Advisory Committee’s explanation

specified that in declaratory actions

“Written instruments, including ordinances and statutes,

may be construed before or after breach at the petition

of a properly interested party . . . .”

Id. (emphasis supplied). Yet the Federal Circuit’s recent

decisions hold just the opposite-—as if Rule 57 instead had

meant, to the contrary, that “written instruments . . . may be

construed only after breach.” The Federal Circuit, unlike any

other, explicitly holds as an absolute rule that a licensee “must

... matenally breach the agreement . . . before bringing suit.”

Gen-Probe, 359 F.3d at 1381. The notion that a litigant must

first commit breach of the contract at issue—negating the very

purpose of the Rule and the Act—surely would have puzzled

the drafters both of the Act and of the Rule.

Il. TO BAR PETITIONER FROM DECLARATORY

RELIEF WOULD CONSTITUTIONALIZE

THE REJECTED DOCTRINE OF LICENSEE

ESTOPPEL.

The Federal Circuit's new jurisdictional holding would

write into Article Ill of the Constitution a policy that this

Court has repeatedly held the patent laws reject.

A. Pope Mfg. Co. v. Gormully Rejected Contractual

Prohibitions of Patent Challenges.

In 1892 this Court held that a licensee’s promise in a patent

license not to challenge the patent’s validity would be

unenforceable in equity, because the nght to challenge a

patent “is not only a private right to the individual, but it is

founded on public policy.” Pope Mfg. Co. v. Gormully, 144

U.S. 224, 235 (1892).

“It is as important to the public that competition should

not be repressed by worthless patents, as that the

patentee of a really valuable invention should be pro-

tected in his monopoly . . . .”

Id. at 234. See also Haughey v. Lee, 151 U.S. 282, 285

(1894) (“relieve the public from an asserted monopoly”).

Therefore a patent license could “not operate to estop the

defendants from contesting the validity of these patents.”

Pope Mfg. Co. v. Gormully & Jeffery Mfg. Co. (No. 4), 144

U.S. 254, 255 (1892).

Many decisions of this Court since 1892 have reiterated

“the importance to the public at large of resolving

questions of patent validity ”

Cardinal Chemical, 508 U.S. at 100, citing Blonder-Tongue

Labs., Inc. vy. University of Ill. Foundation, 402 U.S. 313

(1971). “It is the public interest which is dominant in the

patent system.” Mercoid Corp. v. Mid-Continent Investment

Co., 320 U.S. 661, 665 (1944). “The possession and assertion

of patent rights are ‘issues of great moment to the public.””

Precision Instrument Mfg. Co. v. Automotive Maintenance

Machinery Co., 324 U.S. 806, 815 (1945), quoting in part

Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238,

246 (1944). Federal patent policy is generally to “encourage

authoritative testing Of patent validity,” “eliminating ob-

stacles to suit by those disposed to challenge the validity of a

patent,” Blonder-Tongue, 402 U.S. at 344-45 (citing cases),

“keeping open the way for interested persons to challenge the

validity of patents which might be shown to be invalid.”

Edward Katzinger Co. v. Chicago Metallic Mfg. Co., 329

U.S. 394, 400 (1947). “{Wy)hat will usually be the better

practice [is] inquiring fully into the validity of this patent.”

Sinclair & Carroll Co. vy. Interchemical Corp., 325 U.S. 327,

330 (1945), quoted in Cardinal Chemical, 508 U.S. at 100.

See also United States v. Glaxo Group Ltd., 410 U.S. 52, 57

(1973) (this Court has “repeatedly held that the private

licensee-plaintiff in an antitrust suit may attack the validity of

the patent under which he is licensed even though he has

° 4 ° ” 4

agreed not to do so in his license”). '

'* The concern of the patent laws extends not just to the validity of the

patent itself, but also to whether, as the complaint here alleged. J.A. 53-

54. 137-40. the patent had been deceptively or fraudulently obtained.

“The far-reaching social and economic consequences of a patent. . . give

the public a paramount interest im seeing that patent monopolies spring

from backgrounds free from fraud or other inequitable conduct and that

such monopolies are kept within their legitimate scope.” Walker Process

The Federal Circuit’s holding that a license per se prevents

an accused infringer not in breach from challenging patent

validity is irreconcilable with Pope Mfg. Co. v. Gormully

and a century of this Court’s patent decisions. The Federal

Circuit would imply as a matter of law a contract provision

against challenging validity which not only was entirely

absent here,'* but would have been void and unenforceable if

it had been present.

B. Lear, Inc. vy. Adkins Rejected Barring

Suits by Patent Licensees.

In Lear, Inc. v. Adkins, 395 U.S. 653 (1969), this Court

through Justice Harlan rejected the doctrine of “licensee

estoppel” as “inconsistent with the aims of federal patent

policy.” 395 U.S. at 673. The patent code, in 35 U.S.C.

§§ 101, 102, 103 and 112, prescribes standards of utility,

novelty, non-obviousness and specificity required for a patent

to be valid. But the PTO, with limited staff and resources and

a flood of applications, and acting ex parte, is in no position

to assure that the statutory limitations always are honored.

See FEDERAL TRADE COMM’N, TO PROMOTE INNOVATION,

Exec. Sum. at 8-9, ch. 5 at 5-6 (2003) (“FTC Report”). “If

[licensees] are muzzled, the public may continually be re-

quired to pay tribute to would-be monopolists without need or

justification.” Lear, 395 U.S. at 670; see also Panther Pumps

& Equip. Co. v. Hydrocrafi, Inc., 468 F.2d 225, 231 (7th Cir.

1972) (Stevens, J.) (after Lear, “the ‘no contest’ provision in

the LEMCO license is plainly unenforceable”), cert. denied,

411 U.S. 965 (1973).

Equip., Inc. v. Food Machinery & Chem. Corp., 382 U.S. 172, 177

(1965). quoting Precision Instrument, 324 U.S. at 816.

'* The license contract in fact provided that royalties would not be due

on any patent held invalid, and Genentech disclaimed any warranty. J.A.

399. 411.

For the same reasons, it was recognized soon after Lear

that a promise not to challenge patent validity is unen-

forceable when contained in a settlement agreement. Busi-

ness Forms Finishing Service, Inc. v. Carson, 452 F.2d 70,

73-75 (7th Cir. 1971) (Stevens, J.). The Federal Circuit,

however, has not shared that view. Thus the Federal Circuit

held in Flex-Foot, Inc. v. CRP, Inc., 238 F.3d 1362, 1368

(Fed. Cir. 2001), that Lear’s “holding with respect to licensee

estoppel is meaningfully distinguishable from the present

case concerning a settlement agreement.” See also Diversey

Lever, Inc. v. Ecolab, Inc., 191 F.3d 1350, 1352 (Fed. Cir.

1999) (permitting agreement in consent decree not to chal-

lenge patent validity).

Indeed, the Federal Circuit long has expressed and demon-

strated hostility to Lear. It has characterized Lear as sound-

ing “tones that echo from a past era of skepticism over

intellectual property principles.” Studiengesellschaft Kohle,

m.b.H. v. Shell Oil Co., 112 F.3d 1561, 1567 (Fed. Cir.), cert.

denied, 522 U.S. 996 (1997). It has acknowledged that “[i]n

several instances, this court has declined to apply the Lear

doctrine.” Gen-Probe, 359 F.3d at 1381. See also, e.g.,

Diamond Scientific Co. v. Ambico, Inc., 848 F.2d 1220, 1224-

25 (Fed. Cir.) (Lear does not bar assignor estoppel), id. at 1228

(concurring opinion) (Lear rests on “outmoded theory” that

“disserves the national interest’), pet'n for cert. dismissed, 487

U.S. 1265 (1988); Foster v. Hallco Mfg. Co., 947 F.2d 469,

476 (Fed. Cir. 1991) (“[t]he Supreme Court in Lear did not

consider the policy concerns” affecting a consent decree);

Flex-Foot, 238 F.3d at 1368 (“this court has in the past dis-

tinguished a number of other cases from Lear”). But whether

or not it agrees with this Court, the Federal Circuit is not at

liberty to “ignore[] the guidance” of decisions of this Court.

Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535

U.S. 722, 739 (2002).

Now the Federal Circuit has invoked Article III to elim-

inate Lear itself, and effectively to revive licensee estoppel

except for those licensees willing to commit breach of contract

with all the accompanying risks as a precondition to chal-

lenging a patent. Unable to overturn Lear frontally under the

patent laws, the Federal Circuit has adopted a constitutional

holding that serves a policy exactly opposite to Lear—-explain-

ing that challenges like petitioner's would produce “undesirable

results,” Gen-Probe, 359 F.3d at 1382, “inequity,” P.C.A. 7a.

Already the present case has been recognized as holding that a

licensee paying royalties “is estopped to challenge the validity

of the patents in suit.” Advanced Card Technologies LLC v.

Versatile Card Technology, Inc., 410 F. Supp. 2d 158, 161

(S.D.N.Y. 2006). And even if a patent license in spite of Lear

could block a claim of invalidity or non-infringement, that still

would be only a defense for the licenso:, not a jurisdictional

defect. “[A]jbsence of a valid . . . cause of action does not

implicate subject-matter jurisdiction.” Steel Co. v. Citizens for

a Better Environment, 523 U.S. 83, 89 (1998).

il. ARTICLE Ill SHOULD NOT BE REINTER-

PRETED TO FREEZE FEDERAL PATENT

POLICY.

The decision under review would reinterpret Article III of

the Constitution, as implemented in the Declaratory Judgment

Act. Even if the Federal Circuit were authorized to adopt its

own patent policy contrary to Lear, there certainly was no

basis or authority for that court to turn its view of desirable

patent policy into an Article III holding. Most immediately,

the present decision would disrupt a basic tenet of federal

patent policy—encouragement of challenges to patent valid-

ity—and then elevate that revision to a constitutional ruling,

beyond Congress’s power to correct. C/. Seminole Tribe v.

Florida, 517 U.S. 44, 63 (1996) (for constitutional decisions

“correction through legislative action is __ practically

impossible”), quoting Burnet v. Coronado Oil & Gas Co.,

285 U.S. 393, 407 (1932) (Brandeis, J., dissenting). More

broadly, the decision would excise from the Declaratory

Judgment Act the heart of what Congress enacted, and call

into question prior decisions of this Court.

A. As a Constitutional Holding, the Decision

Is Unsound and Disruptive.

Since its enactment in 1934 the declaratory judgment

remedy has been a valuable resource in federal litigation to

resolve a wide range of controversies, from commercial

contracts to civil rights cases to insurance-coverage disputes,

and its utility and role are well-recognized, “to enable parties

to adjudicate their disputes before cither suffers great

damage.” Starter Corp. v. Converse, Inc., 84 F.3d 592, 596

(2d Cir. 1996) (declaratory “actions are particularly useful in

resolving trademark disputes”); Al/state Ins. Co. v. Green,

825 F.2d 1061, 1064 (6th Cir. 1987) (“an extremely useful

procedural device for adjudicating disputes concerning

insurance”); see also, ¢.g., /lamlin Inc. v. Hartford Accident

& Indem. Co., 86 F.3d 93, 94 (7th Cir. 1996) (Posner, C.J.)

(insurance companies “often seek a declaratory judgment of

noncoverage” in order “to avoid liability for breach’);

Whetstone Candy Co. v. Kraft Foods, Inc., 351 F.3d 1067,

1072 (11th Cir. 2003) (settlement agreement). To hold that

Article II] requires a party as a prerequisite to a declaratory

judgment to perform the very act of which it wishes to as-.

certain the legality, would upset the law in many contexts

beyond patents.

In so doing it would also disrupt the expectations of both

patent licensees and licensors. Heretofore there has been no

constitutional barrier to licensees’ challenging patents while

paying royalties under protest. The Federal Circuit soon after

its creation in 1982 confirmed that established view. In CR.

Bard, Inc. v. Schwartz, 716 ¥.2d 874 (Fed. Cir. 1983)—-which

the District Court here noted was controlling until Gen-

Probe, sec P.C.A. 24a—the Federal Circuit held:

“We reject the blanket approach . . . that there can never

be an apprchension of a federal infringement suit and

thus no controversy when a license is still in effect.”

716 F.2d at 880. That has been the law relied on by the

district courts. E.g., Grid Systems Corp. v. Texas Instru-

ments, Inc., 771 F. Supp. 1033, 1042 (N.D. Cal. 1991) (citing

C.R. Bard); Research Inst. for Med. Chemistry, Inc. v. Wis-

consin Alumni Res. Found., Inc., 647 F. Supp. 761, 767 n.5

(W.D. Wis. 1986) (same). The district court that was

reversed in Gen-Probe had thought it “settled law that an

effective license between the parties does not preclude federal

question jurisdiction over a licensee’s declaratory judgment

action.”'® Another district court likewise had held that

“{ajithough the parties are under license, there is a clear and

concrete dispute between them about whether Synagis”

infringes,” but then overruled itself after Gen-Probe. Med-

Immune, Inc. v. Centocor, Inc., 271 F. Supp. 2d 762, 768 (D.

Md. 2003), overruled, 2004 U.S. Dist. Lexis 28800 (D. Md.

June 17, 2004), aff'd, 409 F.3d 1376 (Fed. Cir. 2005), pet’n

for cert. pending (No. 05-656). In this case as well, such was

the understanding of the sophisticated attorneys representing

respondents, who until Gen-Probe suddenly appeared had not

challenged the subject-matter jurisdiction of the District

Court. J.A. 149, 183; p. 8, supra.

Patent applications now approach 300,000 per year, and

lately have been increasing 10% annually. See FTC Report,

Exec. Sum. at 9. The number of patents tested in court is

relatively small, and likely to remain so. Most patent licenses

now in effect were negotiated and entered on the assumption

that the pre-Gen-Prohe understanding of the Declaratory

'’ Gen-Probe Inc. v. Vysis, Ine, No. 99-CV-2668. at 10 (S.D. Cal.

Mar. 12. 2002). reprinted in Pet. Cert. in Gen-Probe, No, 04-260 (2004),

at 25a.

Judgment Act, allowing declaratory suits by _licensces,

applied. “[CJourts must be cautious before adopting changes

that disrupt the settled cxpectations of the inventing com-

munity.” Festo, 535 U.S. at 739.

B. As Patent Policy, the Decision Is Unsound

and Unauthorized.

Constitutional rules of general application concerning

federat jurisdiction, like Article III's “Case” or “Controversy”

requirement, should not be reconstructed to fit a patent

policy. Even if that were permissible, the policy chosen by

the Federal Circuit is not consistent with this Court's past

interpretations—of the patent laws. Although this Court

repeatedly has emphasized that federal patent policy favors

judicial testing of whether patents are valid, pp. 34-37, supra,

the Federal Circuit instead has created a new, constitutionally

entrenched; obstacle. And that Article III barrier would be

erected at a time when commentators observe that the number

of overbroad and invalid patents has grown far beyond the

ability and resources of the PTO to control, and when

practical inhibitions to such suits already are formidable.

| tory Actions by Licensees Do Not

-Unfairly Disadvantage Licensors.

The Federal Circuit denounced “the inequity when the

patent owner, having contracted away its right to suc, is in

continuing risk of attack on the patent whenever the licensee

chooses.” P.C.A. 7a. It called this “undesirable.” Gen-

Probe, 359 F.3d at 1382.

However, this Court in Lear announced exactly the op-

posite judgment. Emphasizing “the demands of the public

interest,” 395 U.S. at 670, this Court addressed head-on and

rejected “[t}he theory . . . that a licensee should not be

permitted to enjoy the benefit afiorded by the agreement

while simultancously urging that the patent which forms the

basis of the agreement is void.” /d. at 656.

“(I]t 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.”

Id. at 670. “{T]}he seeming inequity of allowing a licensee to

keep his license while he attacks the validity of the licensor’s

patent is outweighed by the public interest in placing no

impediment in the way of those in the best position to contest

the validity of the underlying patent.” Warner-Jenkinson Co.

v. Allied Chem. Corp., 567 F.2d 184, 188 (2d Cir. 1977); see

also American Sterilizer Co. v. Sybron Corp., 526 F.2d 542,

546-47 (3d Cir. 1975) (“We read the Supreme Court’s opin-

ion in Lear as resolving the competing equities between the

licensee and the licensor in favor of the licensce.”).

The Federal Circuit’s policy argument forgets this Court’s

conclusion that

“the equities of the licensor do not weigh very heavily

when they are balanced against the important public

interest in permitting full and free competition in the use

of ideas which are in reality a part of the public domain.”

Lear, 395 U.S. at 670. “A patent by its very nature is affected

with a public interest” that is “recognized by the Constitu-

tion.” Precision Instrument, 324 U.S. at 816. The public is a

silent party in all patent-validity litigation.

Moreover, there is no rule that a patentee may not seek a

declaratory judgment; enjoying the presumption of validity,

however, few have reason to do so. See Talbot v. Quaker

State Ref. Co., 104 F.2d 967, 968 (3d Cir. 1939); see also

Lang v. Pacific Marine & Supply Co., 895 F.2d 761, 764 .

(Fed. Cir. 1990) (“no reason why a patentee should be unable

to seek a declaration of infringement against a future in-

fringer”): Metabolite Labs., Inc. vy. Laboratory Corp. of

America Holdings, 370 F.3d 1354, 1369 (Fed. Cir. 2004)

(same), cert. granted on another point, 126 8. Ct. 601 (2005)

(No. 04-607); 10B C. WRiGH1, ef al., FEDERAL PRACTICE &

PROCEDURE § 2761 at 572 (1998).

It is quite correct that licensor and licensee do not stand on

equal footing—but the advantages are on the side of the

licensor. “[{P]atentees are heavily favored as a class of litigants

by the patent statute.” Blonder-Tongue, 402 U.S. at 335.

Patents—-and every claim within those patents—are statutorily

presumed valid and “(t}he burden of establishing invalidity of a

patent or any claim thereof shall rest on the party asserting

such invalidity.” 35 U.S.C. § 282. Further, this presumption

of validity cannot be overcome except by “clear and

convincing evidence.” State Contracting & Engineering Corp.

v. Condotte America; Inc., 346 F.3d 1057, 1067 (Fed. Cir.

2003). Given the powerful presumption of validity, there is

little need for a licensor to obtain further confirmation of its

patent's validity outside an infringement action.

The Court of Appeals also opined that “[a]llowing this

action to proceed would . . . discourage patentees from

granting licenses.” Gen-Probe, 359 F.3d at 1382. But that

speculation is unsupported. There is no evidence that patent-

licensing abated after Lear, nor that such would occur if

jurisdictional law returns to the pre-Gen-Probe norm. Nor is

the assumption logical. Patentees grant licenses to generate

royalties. Their financial incentive to do so is not altered by

whether licensees can sue without breach. If a patentee

preferred instead not to license, but rather to use its patent to

prevent competition, it would not have licensed in the first

place. Removing the licensee's ability to challenge validity

in a declaratory action would simply add to the economic

power of the patent. x

Also, any attempt to weigh fairness would consider that

patent licenses often are entered under economic constraint,

and sometimes without full information. “[C]ompanies and

individuals must constantly fear that their research and

product development may come to naught, because someone

is going to assert an as-yet unknown or untested patent

against them.” A. JAFFE & J. LERNER, INNOVATION AND ITS

DISCONTENTS 172 (2004). This “often leads either to aban-

donment of the allegedly infringing technology, or to an

agreement to pay possibly unnecessary royalties.” /d. Some-

times, too, as here, a patentee’s potentially invalid claims may

not be known when the license is entered. The Cabilly Il

application claimed an invention date of 1983, was not filed

until 1988, was vastly broadened in 1989, provoking a

lengthy interference proceeding, and was not issued as a

patent and its claims revealed until its issuance (to the

consternation of the PTO Board, p. 5, supra) in 2001—four

years after MedImmune’s license.

Finally, if in a particular case declaratory relief really

would involve unfairness, the Act itself provides a solution.

Declaratory relief, like an injunction, is discretionary. Wilton

v. Seven Falls Co., 515 U.S. 277, 286-88 (1995); Cardinal

Chemical, 508 U.S. at 95 n.17; Brillhart v. Excess Ins. Co.,

316 U.S. 491, 494 (1942). Discretion looks, for example,

to “whether the judgment will serve a useful purpose in

clarifying or settling the legal issues involved” and “finalize

the controversy and offer relief from uncertainty.” Duane

Reade, Inc. v. St. Paul Fire & Marine Ins, Co., 411 F.3d 384,

389 (2d Cir. 2005). The Federal Circuit, however, would

deny district courts the jurisdiction to exercise that discretion.

Accordingly, here the District Court obediently dismissed for

lack of subject-matter jurisdiction, with no opportunity “to

exercise any discretion at all.” Cardinal Chemical, 508 U.S.

at 103 (Scalia, J., concurring in part) (emphasis in original).

2. The Federal Circuit’s Decision Would Add Another

Disincentive to Patent Challenges.

To establish a patent's invalidity is likely to demand “great

effort and expense.” Cardinal Chemical, 508 U.S. at 99,

quoting Morton Int'l, Inc. v. Cardinal Chem. Co., 967 F.2d

1571, 1577 (Fed. Cir. 1992) (Nies, J., dissenting from denial

of rehearing en banc), vacated, 508 U.S. 83 (1993). It has

been estimated that to challenge a patent can cost in legal fees

$5-7 million. See FTC Report, Ex. Sum. at 6, ch. 3 at 22; see

also Lerner, Patenting in the Shadow of Competitors, 38 J.L.

& ECON. 463, 470 (1995). A challenger faces also the

statutory presumption of validity, 35 U.S.C. § 282, which lets

a patentee “easily put the alleged infringer to his expensive

proof,” so that “prospective defendants will often decide that

paying royalties under a license or other settlement is

preferable to the costly burden of challenging the patent.”

Cardinal Chemical, 508 U.S. at 101 n.24, quoting Blonder-

Tongue, 402 U.S. at 338.

Licensees often enter licenses reluctantly. Small, start-up

companies, particularly in the pharmaceutical and biotech-

nology industries, may agree to be bound by licenses for

patents of uncertain scope and validity because the licensee

may be unable to afford the high cost of patent litigation. As

this Court observed in Lear, “by accepting a license and

paying royalties for a time, the licensee may have avoided the

necessity of defending an expensive infringement action

during the period when he may be least able to afford one.”

395 U.S. at 669. Small start-up companies and even larger

ones may, like MedImmune, depend on a single product for

most of their revenue.'’ Quite understandably, such entre-

preneurs may find it imprudent to forgo a license and risk an

injunction of their principal product, which could effectively

put them out of business. MedImmune, of course, was

acutely aware of the risks of defying Genentech’s demand, by

stopping payments in a bet-the-company lIecgal judgment

jeopardizing its principal product, instead of resolving the

matter by declaratory adjudication. J.A. 389, 393.

Licensees may not be sure what a license ultimately will

purport to include. Here MedImmune agreed to the license

from Genentech in 1997. The Cabilly II patent was not

'" More than 80% of Medimmune’s revenues from 1999 to 2003

depended on Synagis”, J.A. 387. and the same is true since then.

issued and its claims disclosed until late in 2001. Genen-

tech’s demand for royalty payments followed in a matter of

days. J.A. 414. Given the high cost of litigation to test the

validity of a patent, a small company is unlikely to undertake

such a challenge unless and until the product is successful

enough to generate large revenues, carrying a correspond-

ingly increasing burden of royalty payments. See FTC

Report, ch. 3 at 29 (observations that “litigation is too ex-

pensive and time-consuming for small biotechnology com-

panies”). At the time of the 1997 license, Synagis” had not

been approved by the FDA. By the time MedImmune sought

a declaratory judgment, royalties demanded had risen to

millions of dollars per year.

Licensees often agree to a single license for several patents

and products together, and with a provision that failure to pay

any royalty due is a material breach of the entire contract.

The prudent licensee very likely will be unwilling to lose its

license to all the patents or products, if that is the conse-

quence of challenging a demand based on one patent it

believes invalid or not infringed. The licensee’s dilemma is

heightened in a case like the present one, in which not all the

licensed claims are known at the time of licensing, and later

there appears a broad “continuation” patent, the claims of

which the licensee does not learn until years after agreeing to

the license.

3. Preventing Licensee Patent Challenges Would

Disserve a Rapidly Evolving Technological Economy.

Presciently this Court warned in Lear that to disallow

licensee challenges to patent validity would have an effect

“particularly severe in the many scientific fields in which

invention is proceeding at a rapid rate.” 395 U.S. at 673. A

“zone of uncertainty which enterprise and experimentation

may enter only at the risk of infringement claims would

discourage invention... .” Markman vy. Westview Instru-

ments, Inc., 517 U.S. 370, 390 (1996), quoting United Carbon

Co. v. Binney & Smith Co., 317 U.S. 228, 236 (1942), and

citing Merrill v. Yeomans, 94 U.S. 568, 573 (1877). That is

certainly true for biotechnology, and also for active fields like

electronic information, communications, medicine and others

of highest innovation. “Firms in the biotechnology industry

reported that they avoid infringing even questionable patents

and therefore refrain from entering or continuing with a

particular field of research.” FTC Report, ch. 3 at 21. Also,

“invalid patents” are “hampering pharmaceutical innovation.”

Derzko, The Impact of Recent Reforms, 45 \DeEA: J.L. & TECH.

165, 265 (2005). “{T]he pattern of costly litigation—or

payments to forestall litigation—are leading to reductions or

distortions in innovative investments, particularly for small

firms.” Lerner at 471.

Burdens on challenging patents are less appropriate today

than ever. The increasingly ineffective scrutiny applied in

issuing patents has been widely criticized. F.g., A. JAFFE & J.

LERNER at 34 (PTO is “so overtaxed, and its incentives have

become so skewed towards granting patents”); FTC Report,

Exec. Sum. at 8-10, ch. 3 at 19, ch. 5 at 5-8. By various

estimates the PTO grants 74% to 98% of all patent ap-

plications, which now approach 300,000 per year. /d.,

Exec. Sum. at 9, ch. 5 at 6; NATIONAL RESEARCH COUNCIL,

A PATENT SYSTEM FOR THE 21ST CENTURY 52-55 (2004).

“{T]}he ultimate granting of some patent from each original

application has become almost a sure thing.” A. JAFFE & J.

LERNER at 171. But when validity is challenged and litigated

to final judgment, about 45% of patents are held invalid.

FTC Report, ch. 5 at 6. Such “an indiscriminate creation of

exclusive privileges tends rather to obstruct than to stimulate

invention.” Atlantic Works v. Brady, 107 U.S. 192, 200

(1883). See also Lear, 395 U.S. at 674 n.19 (“public's inter-

est in the elimination of specious patents”).

This Court has pointed out that patents are granted “in an ex

parte proceeding, without the aid of the arguments which

could be advanced by parties interested in proving patent

invalidity.” Lear, 395 U.S. at 670.'* The public’s interest is

not only to reward useful innovation, but also to ensure that

unpatentable ideas remain in the public domain, encouraging

innovation, investment, competition, and lower costs to

consumers. It is also to prevent higher prices of medicines and

other commodities resulting from royalties paid to holders of

invalid patents. FTC Report, Exec. Sum. at 6-7.

“Licensees may often be the only individuals with enough

economic incentive to challenge the patentability of an

inventor's discovery.” Lear, 395 U.S. at 670. If licensees are

prevented from testing validity without giving up their

licenses and risking ruin, there will be fewer challengers to

step forward to undertake that role.

C. Patent Policy Should Be Revised by Congress

Legislating Under Article 1, Not by Courts

Reinterpreting Article III.

If changes in the legal relationships of licensors and

licensees of patents are to be adopted, such adjustments are

constitutionally assigned to Congress by Article |. See

'* The narrow and limited procedure of patent reexamination under 35

U.S.C. §§ 301-302 ts ex parte and considers only prior printed pub-

lications and patents. Reexamination 1s not available for other funda-

mental violations raised here, such as lack of enablement or written

description, fraud on the Patent Office. prior acts evidencing invention by

another, non-infringement. etc. The PTO has granted two requests for

reexamination of the Cabilly I] patent under § 302. one by petitioner. A

preliminary ruling has held the Cabilly I] patent invalid for obviousness-

type double-patenting. (Reexamination under 35 U.S.C. § 311. not

pertinent here, is not «x parte, but otherwise suffers from the same

limitations, plus a number of others.) See generally A. Jartt & J. LiRner

at 186-88; FIC Report. ch. 3 at 21 (reexamination mechanisms “are

generally madequate’)

Diamond v. Chakrabarty, 447 U.S. 303, 317 (1980) (in

addressing scope of patentable subject matter, “the conten-

tions now pressed on us should be addressed to the political

branches of the Government”): cf. Hartford Underwriters Ins.

Co. v. Union Planters Bank, N.A., 530 U.S. 1, 13-14 (2000)

(bankruptcy policy); Turner Broadcasting System, Inc. v.

FCC, 520 U.S. 180, 224 (1997) (communications policy).

Congress, for its part, pays active and frequent attention to

adjusting patent provisions: “our patent and copyright

statutes have been amended repeatedly.” Sony Corp. v.

Universal City Studios, Inc., 464 U.S. 417, 429 (1984)."°

Revising intellectual-property policy falls “inside the domain

the Constitution assigns to the First Branch.” Eldred v.

Ashcroft, 537 U.S. 186, 222 (2003). So, for that matter, does

revising the statutory jurisdiction of the federal courts within

Article III. Sheldon v. Sill, 8 How. 441, 449 (1850). “Con-

gress can legislate” on those subjects “any time it chooses.”

Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S.

17, 28 (1997).

“(The Patent Act was amended. revised or codified some S50 times

between 1790 and 1950.° Graham v. John Deere Co., 383 US. 1, 10

(1966). and in recent years the pace of amendment has not slackened. See

118 Stat. 3596 (2004): 117 Stat. 2066 (2003), 116 Stat. 1758 (2002): 114

Stat. 1742 (2000): 113 Stat. 1501 (1999): 112 Stat. 2780 (1998): 109 Stat.

351 (1995): 108 Stat. 4809 (1994): 107 Stat. 2057 (1993)

CONCLUSION

For the reasons stated, the judgment of the Court of

HARVEY KURZWEIL

ALDO BADINI

HENRY J. RICARDO

DEWEY BALLANTINE LLP

1301 Avenue of the Americas

New York, New York 10019

(212) 259-8000

WILLIAM C. BERTRAND, JR.

JONATHAN KLEIN-EVANS

MEDIMMUNE, INC.

1 MedImmune Way

Gaithersburg, Maryland 20878

(301) 398-4625

May 15, 2006

* Counsel of Record

Respectfully submitted,

JOHN G. KESTER *

PAUL B. GAFFNEY

JANET C. FISHER

AARON P. MAURER

MICHAEL T. MORLEY

WILLIAMS & CONNOLLY LLP

725 12th Street, N.W.

Washington, D.C. 20005

(202) 434-5000

ELLIOT M. OLSTEIN

CARELLA BYRNE BAIN

GILFILLAN CECCHI

STEWART & OLSTEIN

Five Becker Farm Road

Roseland, New Jersey 07068

(973) 994-1700

Attorneys for Petitioner

ADDENDUM

CONSTITUTIONAL AND STATUTORY

PROVISIONS AND RULE

Article Ill, § 2, of the Constitution of the United States

provides in part:

“The judicial Power shall extend to all Cases, in Law

and Equity, arising under this Constitution, the Laws of

the United States... .

Title 28 U.S.C. § 1331 provides:

The district courts shall have original jurisdiction of

all civil actions arising under the Constitution, laws, or

treaties of the United States.

Title 28 U.S.C. § 1338(a) provides:

The district courts shall have original jurisdiction of

any civil action arising under any act of Congress

relating to patents, plant varicty protection, copyrights

and trademarks. Such jurisdiction shall be exclusive of

the courts of the states in patent, plant variety protection

and copyright cases.

Title 28 U.S.C. § 2201(a) provides:

In a case of actual controversy within its jurisdiction,

except with respect to Federal taxes othur than actions

brought under section 7428 of the Internal Revenue

Code of 1986, a proceeding under section 505 or 1146 of

title 11, or in any civil action involving an antidumping

or countervailing duty proceeding regarding a class or

kind of merchandise of a free trade area country (as

defined in section SI6OA(f)(10) of the Tariff Act of

1930), as determined by the administering authority, any

court of the United States, upon the filing of an ap-

propriate pleading, may declare the rights and other legal

relations of any interested party seeking such decla-

ration, whether or not further relief is or could be sought.

Any such declaration shall have the force and effect of a

final judgment or decree and shall be reviewable as such.

Title 28 U.S.C. § 2202 provides:

Further relief

Further necessary or proper relief based on a dec-

laratory judgment or decree may be granted, after rea-

sonable notice and hearing, against any adverse party

whose rights have been determined by such judgment.

Title 35 U.S.C. § 135(a) provides:

Interferences

(a) Whenever an application is made for a patent

which, in the opinion of the Director, would interfere

with any pending application, or with any unexpired

patent, an interference may be declared and the Director

shall give notice of such declaration to the applicants, or

applicant and patentee, as the case may be. The Board

of Patent Appeals and Interferences shall determine

questions of priority of the inventions and may deter-

mine questions of patentability. Any final decision, if

adverse to the claim of an applicant, shall constitute the

final refusal by the Patent and Trademark Office of the

claims involved, and the Director may issue a patent to

the applicant who is adjudged the prior inventor. A final

judgment adverse to a patentee from which no appeal or

other review has been or can be taken or had shall

constitute cancellation of the claims involved in the

patent, and notice of such cancellation shall be endorsed

on copies of the patent distributed after such cancellation

by the Patent and Trademark Office.

Title 35 U.S.C. § 282 provides in part:

Presumption of validity; defenses

A patent shall be presumed valid. Each claim of a

patent (whether in independent, dependent, or multiple

dependent form) shall be presumed valid independently

of the validity of other claims; dependent or multiple

dependent claims shall be presumed valid even though

dependent upon an invalid claim. Notwithstanding the

preceding sentence, if a claim to a composition of matter

is held invalid and that claim was the basis of a de-

termination of nonobviousness under section 103(b)(1),

the process shall no longer be considered nonobvious

solely on the basis of section 103(b)(1). The burden of

establishing invalidity of a patent or any claim thereof

shall rest on the party asserting such invalidity.

The following shall be defenses in any action in-

volving the validity or infringement of a patent and shall

be pleaded:

(1) Noninfringement, absence of liability for

infringement or unenforceability,

(2) Invalidity of the patent or any claim in suit on

any ground specified in part Il of this title as a

condition for patentability,

(3) Invalidity of the patent or any claim in suit for

failure to comply with any requirement of sections

112 or 251 of this title,

(4) Any other fact or act made a defense by this

Ge. ...

Title 35 U.S.C. § 283 provides:

Injunction

The several courts having jurisdiction of cases under

this title may grant injunctions in accordance with the

principles of equity to prevent the violation of any right

secured by patent, on such terms as the court deems

reasonable.

Title 35 U.S.C. § 284 provides:

Damages

Upon finding for the claimant the court shall award

the claimant damages adequate to compensate for the

- infringement, but in no event less than a reasonable

royalty for the use made of the invention by the

infringer, together with interest and costs as fixed by the

court.

When the damages are not found by a jury, the court

~—~sShall assess them. In either event the court may increase

the damages up to three times the amount found or

assessed. Increased damages under this paragraph shall

not apply to provisional rights under section 154(d) of

this title.

The court may receive expert testimony as an aid to

the determination of damages or of what royalty would

be reasonable under the circumstances.

Title 35 U.S.C. § 285 provides:

Attorneys Fees

The court in exceptional cases may award reasonable

attorney fees to the prevailing party.

Rule 57, Federal Rules of Civil Procedure, provides:

Declaratory Judgments.

The procedure for obtaining a declaratory judgment

pursuant to Title 28, U.S.C., § 2201, shall be in ac-

cordance with these rules, and the right to trial by jury

may be demanded under the circumstances and in the

manner provided in Rules 38 and 39. The existence of

another adequate remedy does not preclude a judgment

for declaratory relief in cases where it is appropriate.

The court may order a speedy hearing of an action for

a declaratory, judgment and may advance it on the

calendar.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.