39 Pages Posted: 20 Sep 2007 Last revised: 13 Mar 2013
Date Written: October 1, 2007
The Supreme Court decision in MedImmune Inc. v. Genentech Inc., 127 S. Ct. 764 (2007) broadened the opportunity for patent licensees to challenge licensed patents through declaratory judgment challenges without risking infringement. The decision also left the door open to patent scope and validity challenges from prospective licensees. While framed as a procedural question of standing to bring suit, the application of the decision has the potential to shift the decision making of licensors and licensees and to significantly change the volume and cost of patent licensing activity. In addition to having potentially wide reaching effects on licensing activity, the decision foreshadows similar changes to patent and licensing that could result from the adoption of proposed patent reform legislation. Indeed, many of the results and open questions raised in this paper feed into the larger debate over the social welfare effects of proposed patent reforms. Proponents of the MedImmune decision believe that the broader right to challenge patents will promote the competitiveness of the market for ideas by removing "bad patents," while detractors fear that the result will be to reduce the volume and increase the price of licenses and patenting activity. Missing from the debate is a systematic analysis of the ways in which the decision will impact patent and licensing activity and, more broadly, social welfare. This paper provides a law and economics framework for this analysis. It begins with a legal analysis of the Federal Circuit and Supreme Court decisions in the MedImmune case and in subsequent cases broadening the reach of the decision to clarify the scope and nature of the rule change. It then applies a simple law and economics model to examine how the greater ability of a licensee to challenge a licensed patent will impact the licensing decisions of licensors and licensees and how these decisions in turn will impact social welfare. The analysis suggests that the cost in terms of increased litigation and higher risk and cost of licensing is likely to dominate the potential benefit of removing "bad patents," although there will be disparate effects on exclusive versus non-exclusive licensing and on different categories of licensors and technologies. Allowing parties to contract away the right to bring a declaratory judgment will not remove these effects. Indeed, the impact on pre-contract negotiations will be one of the more significant factors in dampening licensing activity and promoting litigation. The paper indicates areas in which change in licensing behavior can be expected as a result of the MedImmune decision, leaving the magnitude of the changes and net impact on social welfare for future empirical study.
Keywords: patent, licensing, medimmune, patent reform
Suggested Citation: Suggested Citation
Vertinsky, Liza, Reconsidering Whether to License in the Aftermath of MedImmune (October 1, 2007). Houston Law Review, Vol. 45, No. 5, 2009; Emory Public Law Research Paper No. 07-19. Available at SSRN: https://ssrn.com/abstract=1015103