By Charles Lane
Washington Post Staff Writer
Thursday, October 5, 2006
A lawyer for MedImmune Inc. asked the Supreme Court yesterday to let the company sue to overturn a patent owned by Genentech Inc. on a component of MedImmune's blockbuster drug Synagis, even though MedImmune is paying royalties to use it.
The U.S. Court of Appeals for the Federal Circuit, which has jurisdiction over patent law, blocked MedImmune from suing in 2004, ruling that a 1998 deal that MedImmune agreed to with Genentech amounted to a recognition of its patent's validity, leaving no genuine conflict for the courts to resolve.
MedImmune maintains that it always questioned the patent, and agreed to license it "under protest" because its only alternatives were to give up a huge piece of business or face the threat of a triple-damages infringement suit by Genentech.
"What we are presenting in this case is a dispute about money," MedImmune's lawyer, John G. Kester, told the court. "It is not abstract. It is not hypothetical. It is not conjectural."
Comments and questions from the justices left little indication of how they might rule, with the court's main concern seeming to be that, even if the justices grant MedImmune a right to sue Genentech, patent holders might simply ask licensees to sign away their right to sue.
"At some point, either in this case or some later case, we may have to address the question of whether or not such a provision is enforceable," Justice Anthony M. Kennedy noted. "If it is, we may not be talking about much. It's just going to be boilerplate in every license agreement, and that's the end of it."
But Kester argued that the "licensee cannot, by contract, be [stopped] from challenging the patent."
That seemed not to convince Chief Justice John G. Roberts Jr. If firms could always sue over patents they had agreed to respect, he said, "How do you ever end these things?"
Genentech's lawyer, Maureen E. Mahoney, reinforced that point in her argument, saying MedImmune is essentially seeking the right to back out of a deal that both sides made in good faith, and that "it has been settled [law] forever that . . . an agreement for making payments pursuant to an agreement in the nature of a compromise, you can't come and say that it has been coerced or is some form of duress."
But MedImmune contends that a federal law enacted in 1936 permits a party to take a contract dispute to court without having to break the agreement first. It argues that the Federal Circuit's recent rulings, including its decision against MedImmune, reversed years of precedent that favored what some call the "pay and sue" strategy.
The case has potentially wide implications for other technology firms, since it will affect the ability of patent holders to deflect challenges to their monopolies over inventions.
MedImmune is supported in the case by the Generic Pharmaceutical Association and by the Bush administration -- which told the court in its brief that "there is a strong federal policy . . . in ridding the economy" of invalid patents.
Genentech is the world's top biotechnology company, with an estimated market capitalization of $88.3 billion. MedImmune, with a market cap of $6.9 billion and more than 2,400 employees, is the eighth-largest biotech firm in the world, measured by stock value, and by far the biggest in the Washington region.
About 80 percent of its revenue comes from sales of Synagis, which prevents certain respiratory infections in premature babies. In 2005, worldwide Synagis sales exceeded $1 billion for the first time. Still, the company reported a loss of $16.6 million in part because of poor sales of its inhaled flu vaccine, FluMist.
Synagis is made with the use of an antibody synthesis technology on which Genentech holds a patent, known as the Cabilly II patent after the inventor Shmuel Cabilly.
The patent runs through 2018, though MedImmune says it is invalid and the U.S. Patent and Trademark Office is reviewing it.
Because of a confidentiality agreement with Genentech, MedImmune does not disclose how much it pays in royalties on Synagis. Kester said yesterday, however, that the quarterly payments cause "major injury" to MedImmune.
The case is MedImmune v. Genentech , No. 05-608. A decision is expected by July.