1. Patent Licensing in the
Wake of MedImmune, eBay,
KSR and Microsoft
Timothy J. Shea, Jr. – Director
Sterne, Kessler, Goldstein & Fox P.L.L.C.
Drafting and Negotiating Patent
License Agreements
West Legalworks - One Day Workshop
Boston, MA
June 14, 2007

2. Introduction
• Several very significant decisions
by U.S. Supreme Court in patent
cases within the past year
• Cases are changing the rules of the
game for patent licensing
• Reflects heightened interest of
Court in patent cases
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3. Introduction
• Reasons for heightened scrutiny:
• Increased value of technology and IP in U.S. economy
• Increase in number of patents sought and granted
• Increased public awareness of importance of patents
– NTP v. Research in Motion (Blackberry case)
• Rise of patent holding companies
– NTP
• Perception that patents are stifling innovation more than
promoting it
– FTC Report
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4. Introduction
• Common Themes:
– Federal Circuit reversed
– Traditional legal principles in areas such
as equity and jurisdiction apply equally to
patent cases
• No special rules for patent disputes
– Elevation of helpful guidelines to rigid
rules by Federal Circuit is improper
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5. Introduction
• Result:
– Elimination of bright line rules relied on by
Federal Circuit is leading to greater
uncertainty in areas such as permanent
injunctions, DJ jurisdiction, obviousness
– Incremental erosion of patentee’s power (or
at least return to pre-Fed. Cir. Level)
– Playing field shifting in favor of defendants
and licensees
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6. eBay Inc. v. MercExchange L.L.C
• 126 S.Ct.1837 (May 15, 2006)
– Unanimous decision (Thomas)
• Issue: Does traditional four-factor test for
permanent injunctive relief apply to patent
disputes?
• Background:
– MercExchange in business of patent licensing
– Patent at issue was business method patent for
electronic market for sale of goods between private
individuals
– MercExchange sought to license patent to eBay
• Had previously licensed it to other companies
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7. eBay Inc. v. MercExchange L.L.C
• No agreement 0 MercExchange filed suit
• Dist. Ct.
– Jury found patent valid and eBay had infringed
– Permanent Injunction denied
• D. Ct. concluded award of damages sufficient
• Fed. Cir. Reversed
– Applied “general rule that courts will issue permanent
injunctions against patent infringement absent
exceptional circumstances”
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8. eBay Inc. v. MercExchange L.L.C
• Supreme Court reversed Fed. Cir.
– “well-established principles of equity” require
plaintiff seeking permanent injunction to
satisfy 4-factor test:
1. irreparable injury
2. remedies at law (e.g. money damages)
inadequate
3. balance of hardships between plaintiff and
defendant justify PI
4. public interest not disserved by PI
NO SPECIAL RULE FOR PATENT CASES
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9. eBay Inc. v. MercExchange L.L.C
• Fed. Cir. erred in holding statutory right
to exclude alone justifies presumption
the injunction should be granted
• Court looked to Patent Act
– Injunctions “may” issue “in accordance with
principles of equity”
• Copyrights
– Similar right to exclude, but no special rule
for injunctions
• Traditional rule applies
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10. eBay Inc. v. MercExchange L.L.C
• Neither Dist. Ct. nor Fed. Cir. Applied proper
test
– Dist. Ct. erred in concluding that MercExchange’s
willingness to license and lack of commercial activity
practicing patents meant could not show irreparable
harm
• Court notes universities and independent inventors who
seek to license may still meet 4-prong test
– Fed. Cir. Erred in concluding injunction should be
denied only in exceptional circumstances
• S. Ct. did not opine on appropriateness of
injunction in this case
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11. eBay Inc. v. MercExchange L.L.C
• Roberts Concurrence (Scalia, Ginsburg)
– Notes “long tradition” of granting injunctive relief in
“vast majority” of patent cases
– Suggests tradition should continue
• Kennedy Concurrence (Stevens, Souter,
Breyer)
– notes tradition of granting injunctions but suggests
recent developments may require change
• Rise of licensing industry
• Questions business method patents
• Quotes FTC report on innovation
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12. eBay Inc. v. MercExchange L.L.C
• Kennedy concurrence
– “When the patented invention is but a
small component of the product the
companies seek to produce and the
threat of an injunction is employed
simply for undue leverage in
negotiations, legal damages may well
be sufficient to compensate for the
infringement and an injunction may
not serve the public interest.”
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13. Injunctive Relief after eBay
• Survey of approximate two dozen post-
eBay cases
– Injunction granted in about 70% of cases
• Very likely where direct competitors, competing
products, loss of market share, harm to reputation
– Injunction denied
• More likely where plaintiff not practicing invention,
established licensing program, significant harm to
business of infringer
– Finisar Corp. v. Directv Group, Inc.
» Finisar not practicing invention
» Injunction would put Direct TV out of market
– Z4 Techs., Inc. v. Microsoft
» No irreparable harm, hardship for Microsoft
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14. eBay – Impact on Licensing
• Injunctions no longer automatic
• Risk to potential infringer mitigated
• Injunctions even more difficult for patent
“trolls”
• Primary weapon of trolls (i.e., threat of
shutting down potential infringer’s
business) now less potent
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15. MedImmune, Inc. v. Genentech, Inc.
• 127 S.Ct. 764 (Jan. 7, 2007)
– Scalia
– 8-1
• Issue: Must a patent licensee terminate
or be in breach of license before it can
seek a declaratory judgment that the
underlying patent is invalid,
unenforceable, or not infringed?
• Answer: No
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16. MedImmune, Inc. v. Genentech, Inc.
• Background
• MedImmune entered into agreement with
Genentech in 1997 to license “Cabilly” patent and
application
– Covered MedImmune’s product Synagis
• Cabilly II issued in 2001
– Genentech sent letter to MedImmune stating
royalties due on Cabilly II
• MedImmune disputed validity, but paid royalties
under protest rather than risk treble damages and
injunction preventing sale of Synagis (80% of
revenues)
• MedImmune brought DJ action
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17. MedImmune, Inc. v. Genentech, Inc.
• Dist. Ct. dismissed for lack of
subject-matter jurisdiction
– Citing Gen-Probe v. Vysis, Inc. (Fed.
Cir. 2004)
• Held that patent licensee in good standing
cannot establish Art. III case or
controversy regarding validity,
enforceability, or scope of patent because
license “obliterate[s] any reasonable
apprehension” that licensee will be sued
• Fed. Cir. affirmed
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18. MedImmune, Inc. v. Genentech, Inc.
• Supreme Court reversed
– Set forth standard for DJ jurisdiction
• “[W]hether the facts alleged, under all the
circumstances, show that there is a
substantial controversy, between parties
having legal interests, of sufficient
immediacy and reality to warrant the
issuance of a declaratory judgment.”
– Court noted that no dispute that
standard would be met if MedImmune
had ceased making payments.
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19. MedImmune, Inc. v. Genentech, Inc.
– However, as long as payments made, no
risk of suit by Genentech
– Court analogized to constitutional challenge
• Where threatened action by government is
concerned, no requirement to expose self to
liability before bringing suit to challenge basis for
the threat
• Subject matter jurisdiction not precluded simply
because threat-eliminating behavior was
effectively coerced
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20. MedImmune v. Genentech
– Cited earlier decision in Altvater v.
Freeman, 319 U.S. 359 (1943)
• Patent licensee’s failure to cease
payment of royalties did not render
nonjusticiable dispute over validity of
patent
• Fact paid under injunction does not
render distinguishable
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21. MedImmune, Inc. v. Genentech, Inc.
– “The rule that a plaintiff must destroy a large
building, bet the farm, or (as here) risk treble
damages and the loss of 80 percent of its
business, before seeking a declaration of its
actively contested rights finds no support in
Article III.”
– Court rejected Genentech’s argument that
common-law rule that a party to a contract
cannot challenge its validity and, at same
time, reap its rewards applies
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22. Impact of MedImmune
• Dramatic shift in balance of power
between parties to existing license
agreements
– Little downside to licensee in
challenging validity of licensed patent
– More power to licensee to compel
renegotiation
– Increased uncertainty for licensors
• No repose
• Potential for sudden increase in litigation
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23. Impact of MedImmune
• Potential licensees now have
incentive to take license to reduce
exposure then seek DJ
• Licensors must carefully examine
existing license relationships
– Where DJ more likely, determine if
termination possible
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24. Questions Unanswered by MedImmune
• Status of Licensee Estoppel
– “We express no opinion on whether a
nonrepudiating licensee is similarly
relieved of its contract obligation
during a successful challenge to a
patent’s validity – that is, on the
applicability of licensee estoppel
under these circumstances.”
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25. Questions Unanswered by MedImmune
• Legality of Contractual Limitations on
Licensee Challenges?
– Can licensors include provision that license
will terminate if licensee challenges validity?
• Not clear - presumption against restrictions on
licensee’s right to challenge validity, but S. Ct. in
MedImmune specifically declined to address Lear.
– Other contractual provisions to consider:
• Admissions that licensed patent examined and
valid?
• Escalated royalties/milestones in event of suit?
• Forum selection clauses?
• Notice of suit?
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26. Post-MedImmune Cases
• SanDisk Corp. v. STMicroelectronics (Fed. Cir.
March 26, 2007)
• Appeal of Dist. Ct. dismissal of DJ action
• Background:
– Parties are competitors in flash memory field
– ST’s VP of IP and Licensing sent letter to CEO of
SanDisk noting patents that “may be of interest” and
seeking meeting to discuss cross-license
– At cross-licensing meeting, parties discussed patent
mapping and infringement analyses. However,
parties said no plans to sue each other
– Parties exchanged cross-licensing offers
– A few weeks later, SanDisk filed DJ action
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27. Post-MedImmune Cases
• SanDisk con’t
• D. Ct. granted ST’s motion to
dismiss on ground SanDisk did not
have reasonable apprehension of
suit.
– “studies and determined infringement
analyses . . . Did not constitute the
requisite ‘express charges [of
infringement] carrying with them the
threat of enforcement.”
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28. Post-MedImmune Cases
• SanDisk con’t.
• Citing MedImmune, Fed. Cir.
Reversed
– Recognized MedImmune as rejection
of Fed. Cir. reasonable apprehension
of suit test
– Mere knowledge of existence of
patent of another, even if perceived to
pose infringement risk, will generally
not give rise to DJ jurisdiction absent
some affirmative act by patentee
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29. Post-MedImmune Cases
• SanDisk con’t.
– “We hold only that where a patentee asserts rights
under a patent based on certain identified ongoing or
planned activity of another party, and where that party
contends that it has the right to engage in the
accused activity without license, an Article III case or
controversy will arise and the party need not risk a
suit for infringement by engaging in the identified
activity before seeking a declaration of its legal
rights.”
– Fed. Cir. Noted infringement analysis was essentially
assertion of rights by ST based on specific, identified
activity of SanDisk
• Referred to infringement liberally at meeting
• Asked for royalties
• Statement that does not intend to sue does not moot
actual controversy created by its acts.
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30. Post-MedImmune Cases
• Bryson concurrence
– Worried about “broad implications” of
decision
– “Therefore, it would appear that under
the court’s standard virtually any
invitation to take a paid license . . .
Would give rise to an Article III case or
controversy.”
– Predicts “sweeping change” in the law
of DJ jurisdiction
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31. Post-MedImmune Cases
• Dilemma:
– May be able to avoid DJ by sending
general offer to license without
specifying infringing activity
– However, may not be enough to put
on notice.
– Incentive for licensor to file suit then
seek to negotiate license
• File but don’t serve
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32. Post-MedImmune Cases
• Teva Pharm. v. Novartis Pharm.
(Fed. Cir. March 30, 2007)
– Teva filed ANDA to market generic
version of Novartis’ drug FAMVIR®
• Para. IV cert. that did not infringe any of
five patents listed by Novartis in Orange
Book
– Novartis sued Teva on drug patent
only
– Teva sought DJ on four nonasserted
method patents
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33. Post-MedImmune Cases
• Teva v. Novartis
• D. Ct. dismissed DJ for lack of
jurisdiction
• Fed. Cir. Reversed
– Considered “all circumstances” and found
actual case or controversy
– Factors:
• Listing in Orange Book
– May not itself be enough for DJ but a factor
• Teva’s submission of ANDA was act of
infringement
• Purpose of Hatch-Waxman – to obtain patent
certainty
• Existing litigation on drug patent
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34. Post-MedImmune Cases
• Teva v. Novartis
– Patent owner may not be able to sue
on only select patents listed in Orange
Book covering same product
– Concurrence suggests Orange Book
listing alone should be enough for DJ
jurisdiction
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35. Microsoft Corp. v. AT&T Corp.
• Decided April 30, 2007 (Ginsburg)
• Background
– AT&T has patent on computer used to
digitally encode and compress recorded
speech
– Windows OS contains software code that
enables computer to do this
– Microsoft sells Windows to overseas
manufacturers who then install on computers
and sell to public
• Key – Microsoft provides master disk from which
manufacturers make copies that are installed on
computers
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36. Microsoft Corp. v. AT&T Corp.
• AT&T sued Microsoft for infringement
under 271(f)
– 271(f)(1)
• “Whoever without authority supplies or causes to
be supplied in or from the United States all or a
substantial portion of the components of a
patented invention, where such components are
uncombined in whole or in part, in such a manner
to actively induce the combination of such
components outside of the United States in a
manner that would infringe the patent if such
combination occurred within the United States,
shall be liable as an infringer.”
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37. Microsoft Corp. v. AT&T Corp.
• D. Ct. found Microsoft liable
• Fed. Cir. Affirmed
• Supreme Court reversed
– Because Microsoft did not supply actual copies
loaded on computers, no 271(f) liability
– Here “component” was copy of Windows, not
Windows in abstract
– Ease of copying not relevant to analysis
– Presumption against extraterritoriality
– To prevent copying abroad, must pursue patents
abroad
• Problem for software patents
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38. KSR Int’l v. Teleflex Inc.
• Decided April 30, 2007 (Ginsburg)
• Patent on adjustable pedal assembly
with electronic pedal position sensor
attached to a fixed pivot point
• Prior art taught
– Pedal assembly with electronic sensor on
pivot point
– Sensors of type claimed
– Location of sensor on fixed portion of pedal
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39. KSR Int’l v. Teleflex Inc.
• D. Ct. granted SJ of obviousness
• Fed. Cir. Reversed
– Said D.Ct. did not apply teaching,
suggestion, motivation (TSM) test
strictly enough
• References needed to address precise
problem facing inventors in order to be
combined
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40. KSR Int’l v. Teleflex Inc.
• Supreme Court reversed (again)
– Fed. Cir. applied TSM test in overly
narrow, rigid manner
• Graham test is flexible
• Improvement must be more than
predictable use of prior art elements
• Not limited to references dealing with
precise problem addressed
– Any need or problem known in the field and
addressed by patent can provide reason for
combining elements
• “Obvious to try” could be enough in some
instances
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41. KSR Int’l v. Teleflex Inc.
• Impact of KSR
– TSM test not dead
• Still considered “helpful insight” but not overriding
consideration
– Return to flexible approach
• Less difficult to make out prima facie case were
combination of known elements
– Concern about increased use of hindsight at
PTO
– Licensing
• More leverage to licensees and potential infringers
– Particularly in view of MedImmune and eBay
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42. Patent Licensing in the Wake of MedImmune,
eBay, KSR and Microsoft
Thank You
Timothy J. Shea, Jr.
Sterne, Kessler, Goldstein & Fox, P.L.L.C.
(202) 772-8679
tshea@skgf.com
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