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Patent licensees gain more power

I touched briefly on the Medimmune v. Genentech case in a previous Carnival of Biotechnology, but I didn’t go into great detail on the case because I didn’t want to scoop David Morrill who interviewed me for an article on the case.

You can read my thoughts in David’s article, but I’ll go ahead and repeat them here.

In order to challenge a patent, the challenger must either be in litigation with the patenter, or be able to demonstrate that they are likely to be sued for infringement. This restriction is presumably in place to prevent deep-pocketed bullies or uninvolved firms from racking up legal expenses for innovators. Under this system, licensing a patent therefore grants benefits to both parties. The licensee is assured that they won’t be sued for infringment, and the licensor is assured that the licensee won’t infringe and/or challenge their patent. The case of Medimmune v. Genentech has redefined the balance of power in patent licensing.

In this case, Medimmune was licensing a patent from Genentech. In 2001 Genentech claimed that a new Medimmune product, Synagis, was covered by the patent and demanded additional royalty payments. Interpreting this demand as a threat of litigation, Medimmune proceeded to pay royalyies into an escrow account ‘in protest’ and challenged the validity of Genentech’s patent – effectively licensing a patent while challenging it. The Supreme Court validated Medimmune’s actions, effectively making it possible for a company to abide by license terms in escrow (thereby avoiding a potential trebling of damages if they were found to be willfully infringing a patent) while challenging a patent.

The effect of this ruling is that patent licensors have more power because, while licenses still protect them from being challenged for infringement, they do not prevent them from challenging patents upon which licenses are based.

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