Implications for Patent Licensing
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V3I2SERVER.DOCX (DO NOT DELETE) Licensee Patent Validity Challenges Following MedImmune: Implications for Patent Licensing by ALFRED C. SERVER∗ AND PETER SINGLETON**♦ I. INTRODUCTION .........................................................................245 II. MEDIMMUNE V. GENENTECH AND THE NONREPUDIATING LICENSEE IN GOOD STANDING.....248 A. Holding Of The U.S. Supreme Court In MedImmune.....249 B. Issues Not Decided In MedImmune...................................254 C. The Licensor’s Dilemma.....................................................258 III. LICENSEE ESTOPPEL AND THE SCOPE OF LEAR’S REPUDIATION OF THE DOCTRINE .......................................260 A. The Doctrine Of Licensee Estoppel ..................................261 1. Early U.S. Case Law..................................................262 2. The U.S. Supreme Court’s Affirmation of Licensee Estoppel ......................................................265 3. Limits to the Doctrine of Licensee Estoppel..........268 a) The Eviction Limitation ..................................268 b) Expiration, Termination, and the Repudiation Limitation ..................................272 4. Two recognized versions of the doctrine of licensee estoppel........................................................283 5. Exceptions to the estoppel doctrine........................288 a) Patent policy exceptions .................................289 b) Antitrust-related exceptions ..........................291 B. Automatic Radio Manufacturing v. Hazeltine Research ......295 2010 Alfred C. Server and Peter Singleton ∗ Partner, Wilmer Cutler Pickering Hale and Dorr LLP, [email protected]. ** Graduated Hastings College of the Law, summa cum laude, 2008, [email protected]. ♦ The views expressed here are those of Dr. Server and Mr. Singleton and not of Wilmer Cutler Pickering Hale and Dorr LLP. The authors would like to thank Dawn Giovino and Tina Lampros for valuable assistance in the preparation of this Article. [243] V3I2SERVER.DOCX (DO NOT DELETE) 244 HASTINGS SCIENCE & TECHNOLOGY LAW JOURNAL [Vol. 3:2 1. Facts of the case and holding of the U.S. Supreme Court...........................................................295 2. Uncertainty regarding the U.S. Supreme Court’s licensee estoppel holding in Automatic Radio and insights from the First Circuit’s opinion in the case.....................................................298 3. The Automatic Radio holding interpreted...............307 C. Lear v. Adkins........................................................................309 1. The facts in Lear .........................................................310 2. The holding of the Supreme Court of California – Application of the “strong form” version of licensee estoppel .....................................312 3. The U.S. Supreme Court’s Lear decision ................315 4. The scope of the Lear decision .................................323 a) The direct effects of the Lear holding............323 b) The language and reasoning of the Lear decision .............................................................327 c) Post-Lear case law ............................................333 i. The U.S. Supreme Court .......................334 ii. Regional Circuits and District Courts ......................................................337 iii. The Federal Circuit................................354 · Assignor Estoppel........................355 · Res Judicata and Contractual Estoppel.........................................358 · Licensee Patent Validity Challenges; Prerequisites and Jurisdictional Barriers..................366 · “Challenge-but-face-the- consequence” Decisions..............382 iv. MedImmune Revisited............................390 D. Licensee Estoppel and the Nonrepudiating Licensee in Good Standing ................................................................397 IV. EXPLICIT CONTRACTUAL PROTECTIONS OF THE LICENSOR FOLLOWING MEDIMMUNE ...............................399 A. An Approach to Contract Provision Analysis ................400 B. Analysis of Representative Contract Provisions ............403 1. Licensee “no-challenge” clause ...............................403 2. “Termination-for-challenge” clause .......................417 3. Royalty payment provisions....................................430 4. Other pro-licensor contract provisions ..................436 V. CONCLUSION..............................................................................438 V3I2SERVER.DOCX (DO NOT DELETE) SUMMER 2011] PATENT LICENSING FOLLOWING MEDIMMUNE 245 I. INTRODUCTION In MedImmune v. Genentech,1 the U.S. Supreme Court resolved a jurisdictional question in concluding that the case or controversy requirement of Article III of the U.S. Constitution does not require that a patent licensee terminate or be in breach of its license agreement before seeking a declaratory judgment that the licensed patent is invalid, unenforceable or not infringed. The Court’s decision overruled the Federal Circuit’s holding in Gen-Probe v. Vysis2 that had established a jurisdictional barrier to a patent validity challenge by a nonrepudiating licensee in good standing with respect to its license agreement. The U.S. Supreme Court’s MedImmune holding, however, raised questions as to the current status of the common law doctrine of licensee estoppel. According to the doctrine, a licensee operating under a patent license agreement and enjoying its benefits is estopped from challenging the validity of the licensed patent. In Lear v. Adkins,3 the U.S. Supreme Court had rejected the doctrine of licensee estoppel in the context of a licensee that had ceased paying royalties due under a patent license agreement on the basis of the licensee’s contention that the licensed patent application could not issue as a valid patent. The question brought into sharp focus by the Court’s MedImmune holding was whether the Lear Court’s rejection of licensee estoppel extends to the nonrepudiating licensee in good standing, an issue addressed but not resolved by the Court in MedImmune. The MedImmune Court’s elimination of the jurisdictional barrier to a patent validity challenge by a licensee in good standing has been viewed by many as a pronounced shift in favor of the licensee in the balance of rights between licensor and licensee in patent license agreements. Moreover, the Court’s ruling has given rise to a dilemma for patent licensors, namely, how to redress the shift in the balance of rights. Specifically, the questions to be answered are as follows: (1) Is there a vestige of the doctrine of licensee estoppel to protect a patent licensor from a validity challenge by a licensee in good standing, and (2) if one cannot rely on the doctrine, are explicit contract provisions that prohibit, reduce the incentive for, and/or 1. 549 U.S. 118 (2007). 2. 359 F.3d 1376 (2004). 3. 395 U.S. 653 (1969). V3I2SERVER.DOCX (DO NOT DELETE) 246 HASTINGS SCIENCE & TECHNOLOGY LAW JOURNAL [Vol. 3:2 specify a consequence of, a licensee’s challenge of the validity of a licensed patent enforceable? This Article addresses the legal basis for resolving the licensor’s dilemma following MedImmune. Part II of this Article discusses the Supreme Court’s MedImmune holding and its implications for interpreting the legality of a patent validity challenge by a licensee in good standing. A review of the MedImmune’s Court’s decision reveals a skepticism as to whether contract law can be relied on to prevent a patent validity challenge by a nonrepudiating licensee. As noted above, however, the MedImmune holding settled the jurisdictional question before the Court, but did not resolve the merits-based contract arguments against a patent validity challenge by a licensee in good standing. In particular, the Court was clear in its refusal to opine on the question of whether the Court’s rejection of the doctrine of licensee estoppel in Lear was so broad as to cover a nonrepudiating licensee. In Part III of this Article we argue that the answer to that question is to be found in an analysis of the Lear decision itself. The holding in Lear and the Court’s reasoning in support of its holding provide an adequate basis for assessing the scope of Lear’s rejection of licensee estoppel. We begin our argument with a brief history of the doctrine of licensee estoppel, which is essential to an understanding of the impact of the Lear holding. We then review the seminal U.S. Supreme Court decisions addressing licensee estoppel through the last decision of the Court in support of the doctrine, Automatic Radio v. Hazeltine Research.4 The Lear Court cited certain of these prior decisions regarding licensee estoppel as evidence that the doctrine had been sufficiently eroded over time to justify its rejection. We next provide a detailed discussion of the facts and the holding in Lear, and the public policy rationale relied on by the U.S. Supreme Court in deciding the case. We end our analysis of the scope of the Lear decision by reviewing relevant post-Lear case law, including a Supreme Court case that provided an interpretation of the holding, regional circuit and district court decisions—the majority of which aggressively applied the Lear public policy argument to encourage patent validity challenges by licensees—and the Federal Circuit’s subsequent efforts to limit the applicability of the Lear decision. We conclude that if and when the issue is presented, the U.S. Supreme Court will interpret its prior Lear holding as having rejected the doctrine of licensee estoppel