Transcript DUE DILIGENCE

MedImmune and Quanta
FRANKLIN PIERCE LAW CENTER
17th ANNUAL ADVANCED LICENSING INSTITUTE
Concord, New Hampshire
Thursday, January 8, 2009
By Jeff Hawley
Of counsel Nixon Peabody LLP
Patent Law Professor FPLC
[email protected]
Sup Ct Changes the Landscape
— MedImmune:
• Declaratory Judgment Jurisdiction
• SanDisk v. ST Microelectronics
• Teva v. Novartis
• Cat Tech v. Tubemaster
• Caraco v. Forest
— Quanta:
• Patent Exhaustion of a Method
Prior to Medimune
— Gen-Probe Inc. v. Vysis Inc. 259 F.3d 1376 (CAFC 2004)
• DJ Jurisdiction appropriate only if: “reasonable
apprehension of imminent suit”
• A patentee in good standing cannot establish an
Article III case or controversy with regard to validity,
enforceability, or scope of the patent because the
license agreement “obliterates any reasonable
apprehension”
• A material breach can result in a “reasonable
apprehension of suit” Bard v. Schwartz 716 F. 2d 874
Prior to Medimune
—“..prior to MedImmune, this court articulated a
two-part test that first considers whether
conduct by the patentee creates a reasonable
apprehension on the part of the declaratory
judgment plaintiff that it will face an
infringement suit, and second examines whether
conduct by the declaratory judgment plaintiff
amounts to infringing activity or demonstrates
concrete steps taken with the intent to conduct
such activity.”
MedImmune v. Genentech
—Sup Ct 2007 Justice Scalia
—“chimeric antibodies”: DJ available
—Can a non-repudiating licensee bring a DJ
action?
—Article III Case or Controversy?
—Licensee should not have to “bet the farm”
MedImmune v. Genentech
—The agreement defined “Licensed Products” as a
specified antibody, “the manufacture, use or sale
of which. . . would, if not licensed under th[e]
Agreement, infringe one or more claims of either
or both of [the covered patents,] which have
neither expired nor been held invalid by a court
or other body of competent jurisdiction from
which no appeal has been or may be taken.”
MedImmune v. Genentech
—If respondents were to prevail in a patent
infringement action, petitioner [MedImmune]
could be ordered to pay treble damages and
attorney’s fees, and could be enjoined from
selling Synagis, a product that has accounted for
more than 80% of its revenue from sales since
1999. Unwilling to risk such serious
consequences, petitioner paid the demanded
royalties “under protest and with reservation of
all of [its] rights.”
MedImmune v. Genentech
—Treble damages after Seagate?
—Injunction after eBay?
MedImmune v. Genentech
—The Declaratory Judgment Act provides that,
“[i]n a case of actual controversy within its
jurisdiction . . . any court of the United States . . .
may declare the rights and other legal relations
of any interested party seeking such declaration,
whether or not further relief is or could be
sought.”28 U. S. C. §2201(a).
MedImmune v. Genentech
—Even if Altvater could be distinguished as an
“injunction” case, it would still contradict the
Federal Circuit's “reasonable apprehension of
suit” test (or, in its evolved form, the
“reasonable apprehension of imminent suit”
test, ..A licensee who pays royalties under
compulsion of an injunction has no more
apprehension of imminent harm than a
licensee who pays royalties for fear of treble
damages and an injunction fatal to his
business. [Footnote 11]
MedImmune v. Genentech
—(FN 11 Cont.) The reasonable-apprehension-ofsuit test also conflicts with our decisions
inMaryland Casualty Co..where jurisdiction
obtained even though the collision-victim
defendant could not have sued the declaratoryjudgment plaintiff-insurer without first
obtaining a judgment against the insured; and
Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, where
jurisdiction obtained even though the very
reason the insurer sought declaratory relief was
that the insured had given no indication that he
would file suit.
MedImmune v. Genentech
—(FN 11 Cont.) It is also in tension withCardinal
Chemical Co. v. Morton Int'l, Inc.,.., which held
that appellate affirmance of a judgment of
noninfringement, eliminating any apprehension
of suit, does not moot a declaratory judgment
counterclaim of patent invalidity.
MedImmune v. Genentech
• Aetna and the cases following it do not draw
the brightest of lines between those
declaratory-judgment actions that satisfy the
case-or-controversy requirement and those
that do not.
MedImmune v. Genentech
• Our decisions have required that the dispute
be “definite and concrete, touching the legal
relations of parties having adverse legal
interests”; and that it be “real and
substantial” and “admi[t] of specific relief
through a decree of a conclusive character, as
distinguished from an opinion advising what
the law would be upon a hypothetical state of
facts.”
MedImmune v. Genentech
—“Basically, the question in each case is
whether the facts alleged, under all the
circumstances, show that there is a
substantial controversy, between parties
having adverse legal interests, of sufficient
immediacy and reality to warrant the
issuance of a declaratory judgment.”
MedImmune v. Genentech
—“The rule that a plaintiff must destroy a large
building, bet the farm, or (as here) risk treble
damages and the loss of 80 percent of its
business, before seeking a declaration of its
actively contested legal rights finds no
support in Article III.”
• Terrace v. Thompson, 263 U. S. 197 (1923)
• Willing v. Chicago Auditorium Association, 277 U.
S. 274
SanDisk v. STMicroelectronics
—CAFC 2007 Judge Linn
—“flash memory storage”: DJ Available
—“At the end of the meeting, Jorgenson [ST]
handed Thompson [SD] a packet of materials
containing, for each of ST's fourteen patents
under discussion, a copy of the patent, reverse
engineering reports for certain of SanDisk's
products, and diagrams showing how elements
of ST's patent claims cover SanDisk's products.”
SanDisk v. STMicroelectronics
—But: “Jorgenson further told Thompson that “ST
has absolutely no plan whatsoever to sue
SanDisk.””
—CAFC applies MedImmune, particularly FN 11
—“Promise not to sue” did not save ST
—Under the CAFC ruling, District Court does not
have discretion: “we discern little basis for the
district court's refusal to hear the case..”
SanDisk v. STMicroelectronics
—Footnote 2: “In this case, we address only the
first prong of this court’s two-part test. There is
no dispute that the second prong is met. We
therefore leave to another day the effect of
MedImmune, if any, on the second prong.“
SanDisk v. STMicroelectronics
—“..declaratory judgment jurisdiction generally
will not arise merely on the basis that a party
learns of the existence of a patent owned by
another or even perceives such a patent to pose a
risk of infringement, without some affirmative
act by the patentee.”
—“We need not define the outer boundaries of
declaratory judgment jurisdiction ..”
SanDisk v. STMicroelectronics
—“We hold only that where a patentee asserts
rights under a patent based on certain identified
ongoing or planned activity of another party,
and where that party contends that it has the
right to engage in the accused activity without
license, an Article III case or controversy will
arise and the party need not risk a suit for
infringement by engaging in the identified
activity before seeking a declaration of its legal
rights.”
SanDisk v. STMicroelectronics
—Bryson concurs: “In sum, the rule adopted by the
court in this case will effect a sweeping change in
our law regarding declaratory judgment
jurisdiction. Despite the references in the court’s
opinion to the particular facts of this case, I see no
practical stopping point short of allowing
declaratory judgment actions in virtually any case in
which the recipient of an invitation to take a patent
license elects to dispute the need for a license and
then to sue the patentee.”
Teva v. Novartis
—CAFC 2007 Judge Gajarsa
—“Famvir®”: DJ Allowed
—Novartis has an “NDA” including five patents
—Teva filed an ANDA: Novartis filed an
infringement suit on only one of the 5 patents
—Teva seeks a DJ on the other four
Teva v. Novartis
—In the ANDA context, Congress explicitly
extended federal court declaratory judgment
jurisdiction under 28 U.S.C. § 2201 to ANDA
paragraph IV disputes such as Teva's and did so
“to the extent consistent with the Constitution.”
—“A “controversy” is “ripe” if the question
presented is “fit for judicial review,” meaning it
is entirely or substantially a question of law and
postponing a decision would work a substantial
hardship on the challenging party.”
Teva v. Novartis
—Circumstances giving rise to the controversy:
• Novartis listed its Famvir® patents in the
Orange Book
• Teva's submission of its ANDA certifying that
it did not infringe Novartis' Famvir® Orange
Book patents
• combination of three statutory provisions
• Novartis' pending infringement litigation
• the possibility of future litigation
Cat Tech LLC v. TubeMaster, Inc.
• CAFC 2008 Judge Mayer
• “catalyst loading”: DJ appropriate
• “There is, however, no facile, all-purpose
standard to police the line between
declaratory judgment actions which satisfy
the case or controversy requirement and those
that do not.”
Cat Tech LLC v. TubeMaster, Inc.
—“..the issue of whether there has been
meaningful preparation to conduct potentially
infringing activity remains an important element
in the totality of circumstances which must be
considered in determining whether a declaratory
judgment is appropriate.”
Cat Tech LLC v. TubeMaster, Inc.
—Tubmaster has:
• Developed two basic loading device designs
• Developed four loading device configurations
• Generated AutoCAD® drawings
• Already successfully manufactured and
delivered a loading device
—Technology is substantially fixed
Caraco Pharm. Labs v. Forest Labs
—CAFC 2008 Judge Friedman
—“Lexapro®”: DJ allowed to proceed
—“Forest unilaterally granted Caraco a covenant
not to sue for infringement of the patent-in-suit”
—“in the context of the Hatch-Waxman
framework, Forest's covenant not to sue did not
eliminate the controversy between the parties”
Quanta v. LG
—Supreme Ct 2008 Justice Thomas
—Method patent exhausted
—LG purchased patents from WANG; licensed to
Intel
• Two Agreements
oLicensing agreement
o“Master Agreement”
Quanta v. LG
— Licensing Agreement:
• Authorizes Intel to manufacture and sell
microprocessors and chipsets using the LGE Patents
(Intel Products); does not purport to alter patent
exhaustion rules
— Master Agreement
• Required Intel to give its customers written notice that
the license does not extend to a product made by
combining an Intel Product with a non-Intel product
Quanta v. LG
— The doctrine of patent exhaustion applies to method
patents
— License Agreement authorizes the sale of components that
substantially embody the patents in suit
— “The authorized sale of an article that substantially
embodies a patent exhausts the patent holder’s rights and
prevents the patent holder from invoking patent law to
control post sale use of the article.”
Quanta v. LG
—Court concluded that the traditional bar on patent
restrictions following the sale of an item applies
when the item sufficiently embodies the patent—
even if it does not completely practice the
patent—such that its only and intended use is to
be finished under the terms of the patent.
(United States v. Univis Lens Co., 316 U. S. 241
(1942)
Quanta v. LG
—“Eliminating exhaustion for method patents would
seriously undermine the exhaustion doctrine.
Patentees seeking to avoid patent exhaustion
could simply draft their patent claims to describe
a method rather than an apparatus.”
—What does “substantially embodies” mean??
Quanta v. LG
— “..the only apparent object of Intel’s sales to Quanta was
to permit Quanta to incorporate the Intel Products
intocomputers that would practice the patents.”
— “..the Intel Products constitute a material part of the
patented invention and all but completely practice the
patent. Here, as in Univis, the incomplete article
substantially embodies the patent because the only step
necessary to practice the patent is the application of
common processes or the addition of standard parts.”
Quanta v. LG
—“Quanta was not required to make any creative or
inventive decision when it added those parts.”
—“Intel all but practiced the patent itself by
designing its products to practice the patents,
lacking only the addition of standard parts.”
Quanta v. LG
—What does “authorized” mean??
—“Nothing in the License Agreement restricts Intel’s
right to sell its microprocessors and chip-sets to
purchasers who intend to combine them with nonIntel parts.”
Quanta v. LG
—Footnote 7:
—“We note that the authorized nature of the sale to
Quanta does not necessarily limit LGE’s other
contract rights. LGE’s complaint does not include
a breach-of-contract claim, and we express no
opinion on whether contract damages might be
available even though exhaustion operates to
eliminate patent damages. See Keeler v.
Standard Folding Bed Co., 157 U. S. 659, 666
(1895)
Quanta v. LG
—Footnote 7 (continued):
—“(“Whether a patentee may protect himself and
his assignees by special contracts brought home
to the purchasers is not a question before us, and
upon which we express no opinion. It is, however,
obvious that such a question would arise as a
question of contract, and not as one under the
inherent meaning and effect of the patent laws”).”
Compare “Implied License”
—An “implied license” is created when:
• No noninfringing uses
• “..the circumstances of the sale ... 'plainly
indicate that the grant of a license should be
inferred'” (Met-Coil Sys. Corp v. Komers
Unlimited, 803 F. 2d 684 (CAFC 1986)
What to do next?
— After MedImmune and SanDisk??
— If you are the patentee:
• Be even more careful with language when attempting to put
someone on notice – good luck!
• Try to get a confidentiality agreement – good luck!
• Mark more often
• File first, negotiate second
— If you are the target – get the patentee to use the “I” word
— What happens to Non-Practicing Entity tactics??
What to do next?
—Licensing provisions After MedImmune??
• Prohibit validity challenge (What about Lear v.
Adkins?)?
• Royalty rate increases upon challenge?
• Predetermined forum for DJ action?
• Agree that licensee will pay licensor's litigation
costs for DJ action?
What to do next?
—After Quanta:
• If the patentee wants to control down-stream
infringement, MAKE THE LICENSE
AGREEMENT EXPLICIT!!
• Some have suggested patent grouping into
different categories (method, apparatus and
systems) and license separately
• Separately license down-stream users? How?