The Supreme Court recently announced its ruling in the MedImmune v. Genentech case, and in doing so has substantially altered the rules of engagement for patent licensing. Justice Antonin Scaliaââ?¬â?¢s majority opinion overturned the circuit courtââ?¬â?¢s ruling that the case or controversy requirement was not met. In ruling that there was standing the court held that –

Where threatened government action is concerned, a plaintiff is not required to expose himself to liability before bringing suit to challenge the basis for the threat. His own action (or inaction) in failing to violate the law eliminates the imminent threat of prosecution, but nonetheless does not eliminate Article III jurisdiction because the threat-eliminating behavior was effectively coerced. Similarly, where the plaintiff�s self-avoidance of imminent injury is coerced by the threatened enforcement action of a private party rather than the government, lower federal and state courts have long accepted jurisdiction.

In making their point, the court also referenced the Altvater v. Freeman (319 U.S. 359) case. Under Altvater, a party is allowed to challenge the validity of a patent without stopping royalty payments in light of the threat of treble damages. Basically, the ruling allows for parties to challenge the validity of a patent that they currently license without having to create a ââ?¬Ë?reasonable apprehension of imminent suitââ?¬â?¢ by breaching the license and stopping royalty payments and incurring the accompanying contractual liabilities. This decision revises the way the patent system will work from now on, but is it a reform in the right direction? At first blush, it seems to be a way to weed out the patents that should not have been granted, which is good. However, it will undoubtedly increase the amount of patent litigation as licensees may now try to invalidate patents without incurring liability, and try to get those licenses for free. It will be interesting to see how the industry handles this turn of events, and how creative the drafters of licenses will get in the hopes of finalizing patent licenses going forward.