License the patent, or litigate, or both?

Many children suffer from respiratory illnesses in their first year of birth. Not surprisingly, a treatment was created for the virus that causes the illnesses.

The treatment was created in 1998 by a company called MedImmune. The treatment has been very successful and accounts for a significant proportion of MedImmune’s revenue.

Unfortunately for MedImmune, the technology behind the treatment was patented by another company called Genentech (after some litigation involving a British company).

The two companies fought, as you would expect, and eventually settled the matter. MedImmune began paying royalties to Genentech – but not al that willingly. Indeed, MedImmune sued Genentech for, among other things, patent infringement.

At the same time, it kept paying royalties to Genentech. Sounds somewhat odd I think you would agree.

The issue (or one of the issues) was MedImmune’s status as a party to a lawsuit while at the same time paying royalties to the party it is suing.

The problem was patent infringement case law said there must be a “justiciable controversy” in order for a patent suit to proceed. In the USA case of Gen-Probe, Inc. and Vysis, Inc. the court concluded that for a patent dispute to proceed either the licensee (in this case MedImmune) must have stopped paying royalties or the licensor (Genentech) must have violated the terms of the license agreement.

Here, neither event had occurred. Obviously MedImmune wanted to have the right to use the technology – its revenue stream depended on it, and Genentech had no interest in breaching the license agreement.

Several lower courts sided with Genentech and held that MedImmune’s suit should be dismissed.

Not dissuaded, MedImmune appealed to the USA Supreme Court – and won. It could proceed with the patent litigation while continuing to pay royalty payments.

All of which is to say that if you operate under a royalty agreement (either as licensee or licensor) you must now be a bit more wary in terms of the business relationship with the other contracting party.