Declaratory Judgment

Statutory remedy for the determination of a justiciable controversy where the plaintiff is in doubt as to his or her legal rights. A binding adjudication of the rights and status of litigants even though no consequential relief is awarded.

MedImmune, Inc. v. Genentech, Inc.

It is a fundamental constitutional principle under Article III that the U.S. court system may only hear "cases" and "controversies." Courts may not entertain lawsuits where the plaintiff does not have a personal stake in the outcome or has not suffered an actual injury. Courts may not issue advisory opinions. The enactment of state and federal declaratory judgment acts in the 1920s and 1930s seemed to challenge these principles, as a plaintiff was authorized to ask a court to interpret a legal provision, usually a statute or a contract, and have the court issue a ruling on the matter. However, the court may only declare the rights and other legal relations; it cannot award damages or issue an injunction. Though the U.S. Supreme Court upheld the constitutionality of the Declaratory Judgment Act, 28 U.S.C.A. §2201, in 1937, it has been called on to define the act's relation to specific substantive areas of the law. In MedImmune, Inc. v. Genentech, Inc., __U.S.__, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007), the Court was called on to decide whether a patent licensee must terminate or breach its license agreement before it can seek a declaratory judgment that the underlying patent is invalid, unenforceable, or not infringed.

MedImmune, Inc. manufactured Synagis, a drug used to prevent respiratory disease in infants and young children. In 1997 it contracted with Genentech, Inc., to obtain a patent license for two processes. One of the processes, dealing with the production of "chimeric antibodies," was under patent, while the other process involving "the coexpression of immunoglobulin chains" was under a pending patent application. MedImmune agreed to pay royalties on the sales of licensed products and Genentech granted MedImmune the right to make, use, and sell these products using its two processes. In December 2001 Genentech was awarded a patent for the coexpression process. Genentech then contacted MedImmune and stated its belief that Synagis was covered by the new "Cabilly II" patent and that MedImmune was to start paying royalties beginning March 1, 2002.

This communication raised great concerns with MedImmune, as Synagis accounted for 80 percent of its revenues since 1999. If MedImmune did not pay the royalties it feared that Genentech would terminate the 1997 licensing agreement and sue for patent infringement. If Genentech prevailed in an infringement lawsuit, MedImmune could bee ordered to pay treble (triple) damages and attorney's fees, and to stop the production and sale of Synagis. MedImmune paid the royalties under protest and reserved all its legal rights. It then filed a declaratory judgment action seeking a declaratory judgment on the contractual rights and obligations contained in the 1997 agreement. MedImmune also challenged the Cabilly II patent, arguing it was invalid and unenforceable. The U.S. District Court dismissed the lawsuit, concluding it did not have subject-matter jurisdiction because of a ruling by the Federal Circuit Court of Appeals. In that case the appeals court held that a patent licensee cannot establish an Article III case or controversy dealing with the validity, enforceability, or scope of the patent because the license agreement "obliterates any reasonable apprehension" that the licensee will be sued for infringement." The Federal Circuit applied this precedent on MedIummune's appeal and upheld the lower court.

The Supreme Court, in an 8-1 decision, overturned the Federal Circuit decision and precedent. Justice Antonin Scalia, writing for the majority, reviewed the history of declaratory judgment law in the Supreme Court and admitted that the decisions did not "draw the brightest of lines between those declaratory judgment actions that satisfy the case-or-controversy requirement" and those that did not. Scalia concluded that MedImmune would have met without question the requirement if it had refused to make the royalty payments under the 1997 licensing agreement. By paying the royalty MedImmune was under no risk of legal action from Genentech because MedImmune's own acts eliminated the "imminent threat of harm."

Justice Scalia pointed out that when the government threatens an action the Court does not require a plaintiff "to expose himself to liability before bringing suit to challenge the basis for the threat." Where there is a "genuine threat of enforcement" the Court did not require the plaintiff to "bet the farm, so to speak, by taking the violative action." The very point of enacting the Declaratory Judgment Act was to ameliorate the dilemma facing a plaintiff—abandon his rights or risk prosecution. Turning to private parties, Scalia found that lower federal courts had long accepted jurisdiction where the "plaintiff's self-avoidance of imminent injury is coerced by threatened enforcement action." Therefore, MedImmune was not required to violate or terminate its 1997 agreement before seeking a declaratory judgment that the patent was invalid, unenforceable, or not infringed.

Justice Clarence Thomas, in a dissenting opinion, contended that the Court had mistakenly extended its government-threatened action jurisprudence to private contractual obligations.