The Supreme Court on Tuesday made it easier for companies to challenge patents, ruling in favor of MedImmune Inc., a biotech firm that makes a childhood respiratory drug.
The 8-1 decision in the dispute between MedImmune and Genentech Inc. comes amid a debate in the business world and in government over whether patents are granted too often and are impeding rather than spurring inventions.
The companies are fighting over a Genentech patent on one of MedImmune's top sellers _ Synagis, a children's respiratory drug developed by MedImmune with more than $1 billion in sales annually.
The court ruled that MedImmune may pursue its claim in the lower courts that no royalties are owed and that the patent is invalid.
MedImmune had sought a declaratory court judgment while paying royalties under protest, prompting Genentech to argue MedImmune's complaint should be dismissed.
But Justice Antonin Scalia, writing for the majority, said that MedImmune had satisfied the legal requirement that there is a controversy, even though MedImmune did not refuse to make royalty payments under the licensing agreement.
MedImmune "assuredly did contend that it had no obligation under the license to pay royalties on an invalid patent," Scalia wrote. "Promising to pay royalties on patents that have not been held invalid does not amount to a promise" not to contest the matter.
Justice Clarence Thomas dissented, saying that by continuing to make royalty payments, albeit under protest, MedImmune had no cause of action against Genentech.
Corporations that are major patent holders backed Genentech in the dispute, saying that creating a unilateral right for a licensee like MedImmune to challenge a licensed patent will destabilize thousands of existing patent settlements and license agreements.
The case could have chilling effects on patent licensing and technology transfers that generate billions of dollars annually, 3M, General Electric, Procter & Gamble and E.I. DuPont de Nemours and Co. said in court papers supporting Genentech before the ruling.
The Bush administration supported MedImmune in the case, telling the Supreme Court that invalid patents can hurt efficient licensing, hinder competition and undermine incentives for innovation.
The case is MedImmune v. Genentech, 05-608.