Are Declaratory Judgments in Private Actions Cases or Controversies?

MedImmune, Inc. v. Genentech, Inc.

Petitioner entered into a patent license agreement with Genentec to pay royalties on production and sale of a specified antibody, the agreement expressly limited to production or sale that would be covered by Genetec’s patent. Petitioner could terminate with 6 months notice. Genentec notified petitioner of its belief that the patent covered another product, petitioner believing that patent to be valid or enforceable. Does the Constitution’s jurisdictional limitation to Cases and Controversies (as a parallel to the “actual controversy” requirement of the Declaratory Judgment Act) require a patent licensee to terminate or be in breach of its license agreement before it can seek a declaratory judgment that the underlying patent is invalid, unenforceable, or not infringed?

Despite contentions to the contrary, the Court finds that Petitioners’ briefs do seek a declaration of their contractual duties, and that the reduction of its contract arguments to a few pages in the court below “[did] not suggest a waiver; it merely reflects counsel’s sound assessment that the argument would be futile.” In Lear, Inc v. Adkins the Court rejected the argument that a contract providing for royalties “until such time as the patent … is held invalid” obligated payment of royalties until a court ruled on the matter. The same court, however, required that the licensee 1) actually cease payments and 2) provide notice of the reason to the licensor.

Any doubt that the Court could comply with its Case or Controversy jurisdictional requirement and at the same time issue declaratory judgments was dispelled in Nashville, C& St. L. R. Co. v. Wallace (1933). The dispute must be “definite and concrete, touching the legal relations of parties having adverse legal interests,” and must be real and substantial” and “admit 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. “The justiciability problem that arises, when the party seeking declaratory relief is himself preventing the complained-of injury from occurring, can be described in terms of standing (whether plaintiff is or in terms of ripeness” both of which “boil down to the same question in this case.”

Where threatened action by government is concerned, the Court does not require a plaintiff to expose himself to liability before bringing suit because the threat-eliminating behavior is effectively coerced. In a previous private-action case (Atvater v. Freeman (1943)) where a Court had already issued an injunction, threatening treble damages, the Court held “that the involuntary or coercive nature of the exaction preserves the right to recover the sums paid or to challenge the legality of the claim.” The court suggests the test is about coercion itself, not who does the coercing; “Article III does not favor litigants challenging threatened government enforcement over litigants challenging threatened private action.”

Respondents argue a patent lease is really an insurance policy against litigation, so that permitting the challenge without actual damages alters the terms of their agreement (the implication being that the restriction is voluntary as a bargained term, and therefore not coercive). The Court responds that “promising to pay royalties on patents that have not been held invalid does not amount to a promise not to seek a holding of their invalidity. The other side of this theory is that petitioners should therefore not be allowed, under common law, to challenge the validity of an instrument while at the same time reaping its benefit, to which the court points out that the validity of the instrument is no in question, but only its breadth. Finally, the Court declines discretionary relief.

Justice Thomas, dissenting, notes that the Declaratory Judgment Act could not expand the Court’s jurisdiction, that advisory, moot, or unripe decisions are not “cases” or “controversies” in the meaning of the Constitution, and that the party seeking declaratory judgment has the burden of establishing a case or controversy. Because Petitioner’s contract claim relies on a determination of the validity of its patent, Justice Thomas would not treat this as a contract claim, and since “patent invalidity is an affirmative defense to patent infringement, not a freestanding cause of action” there is no case or controversy here.

Justice Thomas then argues that Altvater is not applicable because (1) it arose as a counterclaim to a bona fide suit; (2) it proceeds on the assumption that no license exists; and (3) the continuing compliance with license terms was under compulsion of an injunction. The dissent also distinguishes previous cases as being based on the particularly coercive nature of governmental power.