Friday, March 30, 2007

Forum Shopping and MedImmune, SanDisk, and patent DJs

Where is the F word in MedImmune and SanDisk?

I mean forum as in forum shopping and choice of forum. The word FORUM does not appear in MedImmune and it does not appear in SanDisk. Why? Would the judiciary deny that expanded declaratory judgment (DJ) jurisdiction may be an incentive to forum shop and forum race?

The Supreme Court's decision, and the Federal Circuit's view of immediately-famous footnote 11, may effectively transfer from patent owners (POs) to accused infringers (AIs) the right to choose the forum and the right to choose the time when patent infringement suits begin.

If the facts of MedImmune or SanDisk had been a final exam question (before the Supreme Court had ruled), any student who failed to mention forum shopping would have gotten an F from me. Now that the Supreme Court has ruled, I think the Justices get an F. All of them: even dissenting Justice Thomas. He omitted the F word, too.

Respondent/PO Genentech did mention forum shopping once, in n32 of its brief (not exactly up front and center), but the MedImmune amici were remarkably timid about it. If you wordsearch among the briefs, you get only one hit about forum shopping. It is from University of Akron IP professors Jay Dratler, Jr., A. Samuel Oddi, and Jeffrey M. Samuels. They side with MedImmune, which may explain why they mention forum shopping and then explain that Article III is not about fairness but about separation of powers. I don't think the two are mutually exclusive. I rather thought the Constitution was based on principles of fairness and rightness throughout. Isn't the idea behind "case or controversy" that people should be able to seek redress when they need it, and that other people should not be unnecessarily hounded by people seeking redress who do not need it? Then, too, declaratory judgment actions sound in equity, to use an antique turn of phrase. Equity is definitely about fairness.

MedImmune represents a triumph of the patent bashers and the defense bar mentality to a degree that even patent defendants may come to dislike (the clients, not the lawyers: we lawyers will be enjoying full employment). Most patent defendants have a portfolio of patents of their own. (A quick search today shows that MedImmune is assignee on more than 60 patents, SanDisk on more than 600.) Now their licensees and maybe potential licensees and possibly even people who look at one of their patents and think it's interesting, will all have MedImmunity to start a lawsuit whenever they want, wherever they want.
(Am I overstating? Probably. But imagine you are thinking about making a new product and you find a prior art patent that might cover what you want to do. You study up and find a plausible invalidity argument. The US system does not have an opposition proceeding, and you think reexamination is too pro-patentee or time consuming or otherwise undesirable, so you ask the patent owner for a license. If you are offered anything less than a sweetheart deal, you sign up and then file a MedImmune suit. Farfetched? Or is it happening as I write? And are patent owners now sweetening the sweetheart deals even more, trying to make an upfront payment of what economists call rent, the rent that MedImmune has bestowed on licensees?)

THE BLOGOSPHERE DOES NOT LIKE THE F WORD, EITHER

The blogosphere seems not to have mentioned forum shopping and
MedImmune in the same breath yet, either. Please correct me if I'm wrong. The hits I get by searching the web for the two words - forum MedImmune - do not lead to anything relevant of recent date. Old posts have the two words somewhere, but not tied together.

I did find a good paper from Skadden that was written before the Supreme Court had ruled. It mentions that a PO who is the second to sue may be able to get dismissal or transfer of an AI's first-filed DJ. But after
MedImmune, what equities favor the second-to-file PO?

OTHER MISSING CONCEPTS: THE SANCTITY OF CONTRACTS, BARRIERS TO ENTRY, and RECIPROCITY OF SUIT

These recent decisions attack the sanctity of contracts, in particular patent licenses, but don't admit it. Upholding contracts was important in
Lear v. Adkins, but had to make way for "the important public interest in permitting full and free competition in the use of ideas which are in reality a part of the public domain." In MedImmune, the public interest was not invoked at all.

Lear was also concerned with that perhaps-old-fashioned antitrust concept, the "barrier to entry." (395 U.S. 653, 669 n.16). Patent licensees have the benefit of the patent as a barrier to entry, even while they attack the patent in court. Perhaps potential new entrants, knowing of the suit, find the patent to be no barrier at all? But maybe they just see it as a sinking barrier, not yet sunk and possibly buoyant. In that case, the theory goes, the patent helps the licensee-plaintiff's competitive position while the suit is wending its way to a conclusion. We can never run the experiment both ways to learn about what would happen with and without the lawsuit, but I wonder if some economist or law-economist has compiled any historical data on licensed patents, comparing the level of new entry into a market where patents are later invalidated with the level where the patents are not challenged, or are upheld or subject to settlement. There probably is no such study, because if there were, some brief would have mentioned it and there would have been a footnote about it somewhere.

RECIPROCITY

In post-
MedImmune licensing negotiations, a licensee has more liberty to start a suit than the licensor-PO, who must await a colorable breach. Licenses of the future may RECITE that initiating a DJ is a breach, but at that point the horse is stolen: the forum and the timing have been chosen by the AI.

The Supreme Court did not answer the question whether Genentech, having received the royalty payment from MedImmune, albeit under protest, could sue. What it said was:
"Assuming (without deciding) that respondents here could not claim an anticipatory breach and repudiate the license, the continuation of royalty payments makes what would otherwise be an imminent threat at least remote, if not nonexistent. As long as those payments are made, there is no risk that respondents will seek to enjoin petitioner's sales. Petitioner's own acts, in other words, eliminate the imminent threat of harm. The question before us is whether this causes the dispute no longer to be a case or controversy within the meaning of Article III."
(127 S.Ct. at 772, internal footnote n8 omitted, emphasis mine). It then proceeded to answer that question "NO."

If Genentech did sue, then MedImmune could have the suit dismissed on the basis that it was licensed and had done nothing to breach. Is there anything to stop it from the next day starting a suit in a forum of its choice? What could Genentech do then: could it get the suit back to the forum it had preferred earlier?
The fact that all district court appeals are heard by the Federal Circuit (except for Vornado actions) does not eliminate forum shopping. District courts differ in their patent intelligence, the general crowdedness of their dockets, the sympathies of their jurors, etc. etc. and in fact MOST patent lawsuits never reach the Federal Circuit. The District Court is the main event in patent cases, as Judge Rader said it should be in Cybor, but that is a subject for another blog.
MedImmune, by keeping the license alive, deprived Genentech of a basis for suit, yet it has - per the Supreme Court - a right itself to choose the time and place of suit. Maybe that resolution is a great boon to society, but it would be nice to have been told why.

THE SKY IS FALLING

Every big patent decision is met by members of the bar saying that this will end life as we know it. Usually, however, life goes on pretty much as before. Is this the exception?

If ever a decision was designed to encourage litigation and to discourage the peaceful, intelligent and lower-cost method of contracting to resolve disputes, it strikes me that
MedImmune is it.

The only good news for patent owners is that now they get to be defendants, a more favored class in patent cases these days.


References

Cybor: Cybor Corp. v. FAS Techs., 138 F.3d 1448, 1474 (Fed. Cir. 1998) (Rader, J., concurring in the judgment)

Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc., 535 U.S. 826 (2002)

Lear:
Lear, Inc. v. Adkins, 395 U.S. 653 (U.S. 1969)

MedImmune:
MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (U.S. 2007).

MedImmune Briefs:
- Genentech: Brief for Respondent Genentech, Inc., (No. 05-608), July 26, 2006, 2006 U.S. S. Ct. Briefs LEXIS 1676, 2006 WL 2190748, at page *44.
-
University of Akron Professors' Brief to the Supreme Court: Brief of Three Intellectual Property Professors as Amici Curiae in Support of the Petitioner (No. 05-608) , 2006 U.S. S. Ct. Briefs LEXIS 419, 2006 WL 1355595, at *13.

SanDisk:
SanDisk Corp. v. STMicroelectronics, Inc. (Fed. Cir., March 26, 2007)

Skadden paper: http://www.skadden.com/content/Publications/Publications1219_0.pdf
(see page 5, point 5)






2 comments:

Roberta J. Morris said...

Ah. I see that an anonymous commenter on Dennis Crouch's PatentlyO blog, someone named "C," posted a comment on 3/28/07 and pointed out that DJs are filed so that AIs can have choice of forum. Yes.
http://www.patentlyo.com/patent/2007/03/cafc_expands_sc.html

Roberta J. Morris said...

Link to Crouch blog page is here.