Court Weighs MedImmune Bid To Sue Genentech

A Justice Department lawyer urged the Supreme Court to allow MedImmune Inc. to sue Genentech Inc. over the validity of a patent without first violating a licensing agreement between the two companies, a position several justices appeared to support.

MedImmune, a Gaithersburg, Md., biotech company, has been fighting patent claims by Genentech, of South San Francisco, Calif., over methods MedImmune uses to make Synagis, a drug designed to prevent respiratory-tract infections in infants. MedImmune, which says it signed the licensing agreement to reduce its exposure to patent-infringement claims, was barred from challenging the patent in lower courts.

The U.S. Federal Circuit Court of Appeals, a special patent court, ruled a company can't sue at the same time it has agreed to make royalty payments.

Deanne Maynard, an assistant to the U.S. Solicitor General, part of the Justice Department, urged the justices to strike down the Federal Circuit's ruling, arguing MedImmune was wrongly being denied a legal avenue to challenge Genentech's claims. "The parties here actually have a concrete dispute about the validity of the patent," she said.

The outcome of the case is important for companies that rely on few products or patents for revenue because it will determine how far companies can go in limiting their risks when challenging a patent. If MedImmune wins its appeal, companies will be able to pay royalties under protest until a court rules under federal declaratory-judgment laws on the validity of the patent. If Genentech wins, companies will have to refuse to pay royalties before they can challenge a patent, exposing themselves to patent-infringement claims.

The high court closely questioned both sides in the case with an eye toward the practicalities of licensing contracts, and a majority of justices sounded skeptical of arguments made by Genentech's attorney, Maureen Mahoney.

"The argument you just made really isn't relevant for us," Justice Anthony Kennedy told Ms. Mahoney after she said the licensing agreement was a compromise settlement that precluded court action.

Justice Antonin Scalia said the outcome of the appeal became clearer to him when he realized the licensing agreement between the two companies turned in part on whether the patent was determined to be valid.

Throughout the litigation brought by MedImmune, Genentech has maintained that one of several patent applications it licensed to MedImmune was approved in 2001 and required royalty payment on sales of Synagis.

A U.S. District Court judge dismissed MedImmune's case in 2004, saying it couldn't proceed because MedImmune was making royalty payments. The Federal Circuit upheld that decision in October 2005.