Supreme Court eases criteria for challenging patents


Published: Wednesday, January 10, 2007 at 6:01 a.m.
Last Modified: Tuesday, January 9, 2007 at 11:33 p.m.

WASHINGTON — The Supreme Court made it easier Tuesday to challenge patents, bolstering arguments by some in business that they are too readily granted and can stymie new drugs and other innovations.

In an 8-1 decision, the court said that biotech firm MedImmune Inc. may pursue a court case in a patent dispute over its childhood respiratory drug Synagis.

MedImmune, based in Gaithersburg, Md., went to court to challenge a patent agreement with Genentech Inc. Genentech argued that the case should be dismissed because MedImmune had agreed to make royalty payments, although under protest.

The decision "opens the courthouse door and lets people come in and possibly allows them to challenge, but it also leaves many questions unanswered," said Washington attorney George C. Best. The outcome, he said, will depend on how lower courts interpret MedImmune's contract with Genentech.

The Bush administration supported MedImmune, telling the Supreme Court that invalid patents can hurt efficient licensing, hinder competition and undermine incentives for innovation.

Corporations that are major patent holders backed Genentech, saying that creating a unilateral right for a licensee like MedImmune to challenge a licensed patent will destabilize thousands of existing patent settlements and license agreements.

While Tuesday's ruling focused on legal procedure, during arguments in a patent case in November several justices expressed broader skepticism about the current standard for granting patents and seemed to signal a willingness to make them harder to obtain. That case focuses on whether an invention is obvious and therefore ineligible for a patent.

Twenty years ago, the government issued 77,000 patents a year; for the 12 months ending last Sept. 30, the number was 183,000. The volume of patent applications has exploded in the past two decades — 131,000 in 1986 and 443,000 last year.

The debate over patents also has been fueled by the Internet explosion and questions over whether some patents for e-commerce and software should have been granted.

Justice Antonin Scalia, writing for the majority in Tuesday's case, said that MedImmune had satisfied the legal requirement that there was in fact a dispute, despite the continued royalty payments.

MedImmune "assuredly did contend that it had no obligation under the license to pay royalties on an invalid patent," Scalia wrote. "Promising to pay royalties on patents that have not been held invalid does not amount to a promise" not to contest the matter.

In dissent, Justice Clarence Thomas said that by continuing to make royalty payments, MedImmune had no cause of action against Genentech.

which is based in South San Francisco, Calif.

MedImmune has said it could not take the risk of violating its agreement with Genentech, because an injunction blocking sales of Synagis, one of MedImmune's top sellers, could put the company out of business. Synagis accounted for 70 percent of the company's sales in the third quarter of 2006. After the ruling, MedImmune said it would "vigorously" pursue its case. Genentech said it remains confident in the validity of the patent.

The Supreme Court ruling means a licensee like MedImmune "can have its cake and eat it too," said Chicago attorney Joshua Rich. "It can avoid the jeopardy of patent infringement damages by continuing to pay royalties, limiting its liability."

Attorney William Atkins said future patent license agreements will probably include clauses stating that any challenge to a patent's validity automatically violates the terms of the license.

"The problem is the billions of dollars worth of existing licenses that don't have such protective clauses," Atkins said.

The decision reverses a ruling by the U.S. Court of Appeals for the Federal Circuit. Created in 1982, the court has nationwide jurisdiction over cases dealing with patents, international trade, government contracts and trademarks.

Attorney Erik Puknys of Palo Alto, Calif., called the decision "another in a series of cases questioning long-standing federal circuit precedent in a way defenders of the existing standard don't like too much."

In two other rulings in criminal cases Tuesday, the court upheld the conviction of a Mexican man who was caught trying to enter the country illegally. The justices also rejected a plea from a convicted rapist from Washington state to reduce his sentence.

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