MedImmune v's Genentech - Licensing Revolution?

Well, here's a conundrum - what to do when the Supreme Court makes a ruling that not only reverses the rulings of lower courts but also contradicts conventional business practices? In allowing a patent validity challenge without insisting on a cessation of royalty payments the Supreme Court has, in effect, removed all the risk from the licensee who wishes to mount a challenge. Many in the industry are suggesting that this will create mayhem, confusion and turmoil - I don't quite see it that way.

I think future licensing agreements will have new clauses inserted that cause the licensee to forgo this new right granted by the Supreme Court. Failure to agree to such terms on the part of the licensee will be a clear signal to the licensor that a challenge is distinctly possible and either the points will tick up to compensate for the increased risk, or the deal will not be done. How else can licensors continue to do business?

The bigger issue I see is with the thousands upon thousands of agreements already in place! This is not to suggest that all of these (or even most of them) will be the subject of patent challenges, but there have to be quite a few situations where companies are currently paying royalties for bits of enabling IP that they would prefer to go away. Now they can mount a challenge with substantially reduced risk - and I think this is bound to occur. Who loses in these circumstances? Well, it is the smaller organisations that do not have the resources to fully defend all their IP - and here I think Universities must be at particular risk.

In the end I am not sure that this ruling will make such a huge difference to licensing, but there will be a number of cases where the nature of an existing agreement shifts dramatically so that challenges will be put in place. The lawyers win (as ever) and I hope that promising products do not suffer as a result, but in the end I think business will do what it always does best and adapt to the new legal framework. Unless of course the ruling prevents adaptation, in which case the pharmaceutical and biotech industries could be in for a VERY interesting 2007!