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Supreme Court’s Genentech Patent Ruling May Cloud IP Deals; Academia, Biotech Vulnerable

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A recent ruling by the US Supreme Court allowing MedImmune to challenge a fundamental Genentech patent while Genentech continues to out-license the IP may hinder future technology licensing deals, the Licensing Executives Society said recently.
 
The Court’s decision may be particularly detrimental to future deals in the biotechnology industry and in academic technology-transfer offices, according to the LES, an approximately 30-year-old tech transfer professional society comprising more than 6,000 members. The ruling, handed down on Jan. 9, allows MedImmune to sue Genentech over the validity of a patent that covers techniques for making monoclonal antibodies.
 
According to the LES, 80 percent of a 186-participant survey said that the Court’s ruling would “hold large implications for the [IP] licensing profession.” The survey, released last month at the LES winter meeting in San Francisco, also found that 79 percent of participants said that licensees would be either “somewhat” or “much more” likely to challenge patents even after striking a licensing agreement, and that 57 percent thought that licensors would be “somewhat” or “much more” likely to seek higher upfront payments to offset the risk of losing out on future royalties.
                
“Historically, once you did a [licensing] deal, for the most part you stopped thinking about whether the patent you licensed was really valid,” Allen Baum, president of the LES and a partner with Raleigh, NC-based Hutchison Law Group, told BTW. As a result of the ruling, licensees “are going to think about whether they need the relationship and whether they need the rights; or whether they should roll the dice and challenge the patent.”
 
Before the ruling, a patent licensee would have to breach a license agreement in order to challenge the patent in court. “Now you don’t have to do that,” Baum said.
 
“Under the old rules, if you decided to go ahead and breach, you exposed yourself to the potential of enhanced damages, up to triple,” he said. “Now, because you can keep paying royalties and challenge the patent, there is really no downside risk to the licensee other than … legal expenses if they ultimately lose.”
 
In addition, according to Baum, “biotechnology is an obvious place where [challenging a patent] is likely to happen because you’ve got such big dollar values — where you’ve got large amounts of money changing hands for enabling technologies.
 
“If you start thinking about the patents that are going to be most affected by this decision, [then] what you’re talking about typically are sort of fundamental, enabling technologies,” he added.
 
Academic tech-transfer offices could be particularly vulnerable. “This case will particularly hurt academic institutions, which cannot afford litigation costs and have relied on licensing fees to pay for their technology transfer efforts,” an unnamed survey respondent said, according to the LES.
 
Some experts believe that the decision may also spur university tech transfer offices to add language to license contracts that would prohibit licensees from challenging the validity of a patent, which in turn could further hamper future tech-transfer efforts.
 
In a live online discussion held recently by The Chronicle of Higher Education, Jonathan Soderstrom, managing director of the Yale University Office of Cooperative Research, wrote that it is still too early to judge exactly how the court ruling will change university licensing practices.
 

As a result of the ruling, licensees “are going to think about whether they need the relationship and whether they need the rights; or whether they should roll the dice and challenge the patent.”

“My guess is that it will have a bigger impact in non-exclusive licenses than in exclusive licenses,” Soderstrom wrote. “I think obtaining contractual prohibitions will be very difficult to negotiate into license agreements.”
 
The patent in question in the Genentech-MedImmune case is US No. 6,331,415 — often called the Cabilly patent after lead inventor Shmuel Cabilly — which broadly covers techniques for producing monoclonal antibodies.
 
Genentech receives royalties for the patent from companies including MedImmune, Abbott Laboratories, Johnson & Johnson, and ImClone Systems, all of which use the technique to produce mAb-based therapies.
 
MedImmune is pursuing a two-pronged strategy to challenge the ‘415 patent. Namely, in light of January’s Supreme Court ruling, MedImmune is seeking broad invalidation of the patent in a lawsuit pending in US District Court.
 
However, the company had also previously filed a challenge with the US Patent and Trademark office, which last month rejected the patentability of the claims in the ‘415 patent. Genentech said in a statement that it plans to respond to the final USPTO action within the next several months and, if necessary, appeal the decision through the office and the courts.
 
In addition, Genentech said that the '415 patent remains valid and enforceable through the appeals process, which it estimates may take approximately one to two years, or longer.

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