Until recently, patent licensees have been faced with Hobson's choice when they believed that the licensed patent was invalid or unenforceable or was not infringed by their product. On the one hand, the licensee could terminate or breach the license (creating a "case or controversy" required for federal jurisdiction and satisfying the "actual controversy" requirement of the federal Declaratory Judgment Act) and seek a court declaration regarding the status of the patent. This approach, however, poses the risk of significant monetary exposure-treble damages and licensor's attorney fees-and a potential injunction if the licensor prevails. On the other hand, the licensee could continue to abide by the terms of the license agreement; without a justifiable case or controversy, the courthouse door was closed to the licensee.
In Medimmune, Inc. v. Genentech, Inc., the Supreme Court addressed this dilemma, concluding that a licensee need not "bet the farm" by breaching the agreement in order to challenge the underlying patent. In a footnote, the Court explained how the constitutional case or controversy requirement is met by stating that a licensee who pays royalties either in fear of an injunction or for fear of treble damages is being coerced in a way that creates case or controversy-a clear departure from the existing law. The decision is worded broadly enough to cover all forms of intellectual property, not just patents. Case makes mention of but does not address contractual provisions that could be used to block claims by licensees in good standing.
Vol. 53, June 2010