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Businesses based on the licensing of patented technologies could be able to sue the owners of the patents while still using those patents if a biotech firm wins its landmark US case. The case could upend the basis of much US patent law.

Currently in the US, a company which licenses and uses a patented technology cannot sue its owner claiming that the invention should not be patented because the law says that a licence agreement means that the two companies cannot be in dispute.

One biotech firm, MedImmune, hopes to change that in a Supreme Court case that has the patent world transfixed. It is claiming that it should be allowed to challenge what it sees as "bad patents" held by Genentech.

Lower courts said that because MedImmune uses a piece of Genentech technology under patent licence, it cannot challenge the patent. The law treats the licence as the settlement of any dispute between the two companies.

The Federal District Court ruled that no case was possible because there is no "case of actual controversy" between the two companies. That decision is being appealed to the Supreme Court, which heard oral arguments last week.

MedImmune is arguing that cancelling its licence with Genentech would either open it up to a patent infringement law suit, but discontinuing the product based on the patent would cost them lost revenues of up to the $1 billion a year that its product earns the company.

While some argue that nobody is better positioned to assess whether or not a patent is valid than a licensee, there are worries that a precedent set by a MedImmune victory would create havoc. During the oral hearings one of the judges, Anthony Kennedy, said that a result in favour of MedImmune could "flood the courts" with cases.

Genentech is arguing that the courts cannot hear a case because they have no jurisdiction where there is not a breach of contract or an actual dispute between two companies. It claims that MedImmune is trying to use the case as a testing ground for how courts would rule if it did break its contract.

The US government is now involved in the case. The Solicitor General wrote a brief to the court which seemed to support MedImmune. "Some patents are invalid, and there is a strong federal policy in ridding the economy of such patents," wrote Paul Clement.

Clement said licencees are well placed to judge the value and nature of patents. Supporters of MedImmune's view hope that allowing licence holders to take cases would help to weed out weak patents. Supporters of Genentech's view, such as universities in the US, believe that building litigation expenses into licences in order to cover the costs of future cases would raise the cost of patent licences and of innovation.

A decision in the case is expected before next June.

Copyright © 2006, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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