If You License A Patent, Does That Mean You Think It's Valid?

from the important-cases dept

Earlier this year, we noted some of the important patent law cases the Supreme Court (surprisingly) decided to hear this session. One of them, MedImmune v. Genentech presented arguments to the court yesterday. In the case, MedImmune licensed a patent from Genentech that they felt was invalid. However, to avoid being sued, they felt it best to just license the patent, and then deal with the validity issue later. They later sued to invalidate the patent, but the lower courts basically said that MedImmune can’t sue, because there was no breach of the agreement. Effectively, they said, by licensing the patent, MedImmune was saying it was a valid patent. There are a few different issues at play here, including the system in place to challenge a patent. With MedImmune, they waited until their own drug was successful, meaning that their payments to Genentech were high. Some might say this just shows they want out from under those payments, but a better explanation would be that it wasn’t worth the expensive fight over the validity until it was shown to be a material issue for MedImmune. Still, at least from one of the questions the Chief Justice asked, it looks like the eventual ruling may not touch on the patent system at all, but rather focus on the contractual side of things. That is, if MedImmune was unsure of the validity of the patent, they could have put into the contract some sort of language that made it clear the deal did not limit their ability to question the validity at a later date. So, in the end, the lesson may simply be to write your contracts better — and we won’t actually learn very much about whether licensing a patent is a fundamental admission that you believe it’s valid.

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Comments on “If You License A Patent, Does That Mean You Think It's Valid?”

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Anonymous Coward says:

Im fine with someone deciding that the patent theyre paying for is bogus and fighting it and getting it invalidated… as long as part of that isnt some kind retroactive reimbursement for the fees that were paid to the patent holder.

It actually seems like a reasonable way to work within the current broken patent system.. work with the system and pay the bogus patent holder, but if you find that the invention is incredibly useful and profitable, besides just being incredibly obvious, then start the fight. Can you spot a chilling effect on invention? I can’t. Seems safe.

Anyway, as something reasonable, it should be no surprise the courts rejected it ^_^

Alan Camerik Heller, "Rik" says:

Patent validity assumed by licensing

The licensing process is a bona fide transaction acknowledging an exchange and benefit of the license. By licensing, the licensor is implicitly acknowledging the validity or is giving their acceptance of the validity of the patent.

If evidence to the contrary appears over time, understandably the license should be reasonably subject to being held invalid as well from that point forward.

In short, for a licensee to license and then attack the underlying property is beyond disengenuous. It seems to me, as a layman, to be a fraudulent adventure in contracting which increases conflict in the IP enforcement system, not mitigate as bona fide licensing was intended to do. Rik

Anonymous Coward says:

Re: Patent validity assumed by licensing

I dont see why you would assume that the licensee was stipulating that the patent is valid. I can imagine many cases where it would be advantageous to license even a bogus patent.

By making it easier to contest bogus patents, you bet this concept would increase conflict! Conflict is a mechanism that can be used to right wrongs. Avoidance of conflict is not necessarily the only goal here. We can’t avoid all wrong, because the costs from that conflict would be extreme, but we can avoid some of it. And I think many folks believe that we could avoid some more of it than we do now.

And anyway–this whole issue is circumventable. Should a completely disinterested 3rd party be allowed to attack the validity of a patent? Seems like the courts in this case ruled no. But why not? If someone gets an invalid patent, it is effectively stealing from society.

The licensee could just get a 3rd party to do the attack and then cancel their license as soon as it is decreed invalid–and continue to use the invention.

Anonymous Coward says:

What’s to stop the licenser from saying “I won’t accept a contract that can challenge my validity?”

Also, #4, did you miss the part where it’s less expensive to settle than litigate, and the corrolary that sometimes you don’t have enough money to litigate? Sometimes you have no choice but to settle.

Anonymous Coward says:

Re: Negotiating contracts

What’s to stop the licenser from saying “I won’t accept a contract that can challenge my validity?”

Nothing. Moreover, since the form of agreement that the licensor presented would have had the provision in it, by asking to remove it the licensee is already tipping his hand to the other side on his intent, which more than likely means no contract will get signed.

That said, I’m still a little bit sympathetic to the argument that with every compromise comes a downside — In this case, the licensee decided that there was a benefit in going for the license today rather than litigating today, and that may well come with costs including the waiver of the right to challenge the IP. It’s an interesting question, but I don’t think we can dismiss out of hand the idea that sometimes life just ain’t fair.

Joe Smith says:

its all a question of construction

If you look in Warren’s Forms of Agreements for basic precedents on patent licences you will find clauses where the patentee warrants that the patent is valid and dealing with the question of what happens to royalties during a proceeding to invalid the patent.

The parties can agree on whatever they want. The question is: What is the defaul?; what if the contract is silent?

It seems to me that unless the contract contains an acknowledgement by the licensee that the patent is valid or an agreement that the licensee will not take steps to challenge the validity of the patent then the licensee should retain the freedom they had before the contract to challenge the validity. If the patentee wanted a no-challenge clause they could have asked for one and accepted a lower royalty rate in exchange.

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