• Breach or Bust: Patent Licensees Seeking To Challenge Patent Validity Must Stop Paying Royalties To Establish Jurisdiction For Declaratory Judgment Lawsuit
  • May 16, 2004 | Author: Shawn G. Hansen
  • Law Firm: Manatt, Phelps & Phillips, LLP - Palo Alto Office
  • The U.S. Court of Appeals for the Federal Circuit recently held that there can be no actual, judicable controversy between a patent owner and a licensee in good standing regarding the validity of the licensed patent. Gen-Probe Inc. v. Vysis, Inc. As a result, a patent licensee cannot sue the patentee for a declaratory judgment of invalidity of the licensed patent before materially breaching the patent license, such as by ceasing payment of licensing fees.

    It has long been the law that patent licensees may challenge the validity of the patents they have licensed, even though the act of taking a patent license is an unambiguous acknowledgement of the validity of the licensed patent. See, e.g., Lear v. Adkins. However, in the instant case, the Federal Circuit noted a series of subsequent cases holding that the Lear doctrine does not provide blanket authority for patent licensees to challenge patent validity. In particular, the Court relied on Studiengesellschaft Kohle m.b.H. v. Shell Oil Co. for the proposition that a licensee cannot invoke the Lear doctrine to challenge the validity of the licensed patent until it ceases paying royalties and notifies the licensor that the reason for ceasing payment of royalties is because it has deemed the relevant claims to be invalid.

    Gen-Probe was a licensee of a patent (the "'338 Patent") owned by Vysis that covers methods of capturing and amplifying viral DNA in blood samples. At the time of the grant of the '338 Patent, Gen-Probe and Vysis were involved in litigation on unrelated patents. Vysis notified Gen-Probe of the '338 Patent and indicated that it may read on Gen-Probe's DNA testing technologies. The parties ultimately agreed that Gen-Probe would license the '338 Patent as part of the overall settlement of the unrelated litigation.

    Six months after the license under the '338 Patent was granted, Gen-Probe filed its declaratory judgment action alleging that the patent was invalid, among other things. However, hedging its bets against potential damages exposure in the event that its declaratory judgment action were to fail, Gen-Probe informed Vysis that it would "preserve the status quo" by continuing to pay royalties as required under the license.

    Vysis moved the federal trial court to dismiss Gen-Probe's action for want of subject matter jurisdiction, arguing that Gen-Probe had no reasonable apprehension of suit as a licensee in good standing. The trial court disagreed and, following a two-week trial, concluded that the '338 Patent was invalid and not infringed. In finding the existence of an actual controversy between the parties, the lower court relied on the history of litigation between the parties coupled with the parties' communications regarding Gen-Probe's possible infringement of the '338 Patent. Additionally, the trial court cited Lear for the proposition that a license does not bar a licensee from challenging the validity of a patent.

    The Federal Circuit vacated the lower court's judgment and instructed it to dismiss the case, holding that to establish the requisite "actual controversy," a declaratory judgment plaintiff must show both an explicit threat or other action by the patentee that creates a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement lawsuit and present activity that could constitute infringement or concrete steps taken with the intent to conduct such activity. Since Vysis had relinquished all claims against Gen-Probe for infringement of the '338 Patent for so long as Gen-Probe remained in good standing under the license, Gen-Probe's continued payment of royalties ensured that Vysis could not sue for infringement. The Court accordingly held that Gen-Probe could have no reasonable apprehension of suit under these circumstances.

    The practical effect of this case will be to force patent licensees to discontinue royalty payments as a prerequisite to seeking declaratory relief concerning the validity of the licensed patent.