WASHINGTON — The Supreme Court last week heard a patent case that could have industry-wide implications if the justices deem it permissible for a licensee to challenge its licensor’s intellectual property without breaching their contract.

Such a scenario likely could lead to a wave of new patent challenges, some legal observers said, which could translate to higher licensing costs. The issue has arisen as a result of a challenge by MedImmune (Gaithersburg, Maryland) of intellectual property that it licenses from Genentech (San Francisco), the so-called Cabilly patent.

“Should you be able to challenge the validity of the patent that you’ve just licensed?” asked Mark Wilson, a lawyer at Alston & Bird’s Charlotte office. “That’s an interesting question” — and one fraught with a range of ramifications, because licenses essentially represent patent settlements without involving the courts.

“It’s a resolution to an actual or potential dispute,” he said, thereby implying that the matter is resolved once a license is in place.

The Federal Circuit ruled against allowing suits by licensees in interpreting a requirement in the Declaratory Judgment Act that there must be a case of actual controversy. The requirement stems from Article III of the Constitution, which says there must be an actual problem before the courts can issue a declaratory judgment.

“You have to have that case of controversy; you have to have some conflict there,” Wilson told Medical Device Daily’s sister publication BioWorld Today. “If you’re a licensee, where’s the conflict? You’re not going to get sued. Because you have a license, the patentee could never sue you, unless you violate your license agreement. That’s a completely different matter.”

But MedImmune has not broken its license to the patent, which it uses in producing Synagis (palivizumab), its top-selling drug for preventing respiratory syncytial virus in high-risk infants. Nevertheless, the company has been fighting Genentech’s extension of the patent well beyond its original expiration date through an agreement a couple of years ago.

Still, the Supreme Court is hearing the challenge, perhaps because of its recent interest in reforming the patent system.

“I think that they could leave the door open for people that resolve cases for business reasons to potentially challenge those same patents,” Wilson said, “and try to rid the world of what they consider to be an invalid patent.”

In the end, if a majority of justices rule in MedImmune’s favor, the decision would swing legal powers away from patentees because licensors would be able to bring suit at their discretion without breaking their deals. Presently, patentees can file first when charging infringement, but they wouldn’t be able to file against licensees because of their license agreements.

“It shifts the power completely over to the other side,” Wilson said, “to control the location of the case and when the case is filed.”

To fix that, future licensing deals likely would be drafted with provisions allowing licensors to terminate any agreement if licensees seek to challenge the licensed patent in court. In addition, it’s probable that license fees would climb to compensate for the costs of potential lawsuits.