For many years it has been the understanding of most that a person or company which has taken a license under a patent cannot sue to seek invalidity of the patent as long as they are in compliance with the terms of the license. This has created a dilemma for many companies that have a license under a patent which they believe to be invalid. Do I keep paying the royalties on a patent which cannot be successfully enforced against my competitors? Do I stop paying royalties and can challenge the patent, only to get sued by the patent owner for willful infringement and an injunction?

The Supreme Court recently resolved the dilemma in a manner that will cheer many licensees and give heartburn to patent owners. In Medimmune v. Genentech, the Supreme Court ruled 8-1 that a licensee does have standing to sue to seek a declaratory judgment that the patent is invalid or not infringed without breaching the license agreement. The Court found that the threat that the patent owner would seek to enforce the patent if the licensee failed to pay licensing fees under the patent was sufficient to establish a case or controversy as required by Article III of the Constitution. For many years the courts have found that a person can challenge the validity of a law without first breaking it. The Supreme Court found that an entity should likewise be able to challenge the validity of a patent without first having to breach the license agreement and expose itself to damages and an injunction.

The Supreme Court’s decision has already spawned a host of commentary about how to prevent one’s licensees from challenging a patent while simultaneously enjoying the benefits of the license. It has also caused considerable discussion of whether this signifies a growing hostility of the Supreme Court to patents, or simply the logical extension of prior Supreme Court precedent. Either way, it is important for both patent owners and licensors to more carefully consider patent license agreements.

This blog post is intended for informational purposes only, and should not be construed as legal advice or as pertaining to specific factual situations. Consult with an attorney concerning your own needs and circumstances and to obtain any legal advice with respect to the topics discussed in this post.