When Is Less Really More for a Patent Licensee?
In Apple v. Qualcomm, Federal Circuit Finds No Standing to Challenge Validity of a Few Patents When Many Were Licensed
The development timeline for small-molecule drugs and biologics is lengthy, estimated to take between 10 and 15 years. As a result, pharmaceutical companies need to consider freedom to operate issues long before they receive FDA approval or market their new product. These considerations might lead a company to take a license, seek to invalidate a competitor’s patent, or some combination of the two. The Patent Trial and Appeal Board (“PTAB”) is a popular venue for challenging patent validity and in 2020, Bio/Pharma and Chemical Patents accounted for 12% of petitions filed at the PTAB.
Filing a petition for inter partes review (“IPR”) does not require Article III standing, but appealing the Board’s decision does. Additionally, 35 U.S.C. § 315(e) precludes a petitioner from later asserting in a civil action “that the claim [of the challenged patent] is invalid on any ground that the petitioner raised or reasonably could have raised during that inter partes review.” As a result, a petitioner might think twice before filing an IPR that they will not have standing to appeal.
The recent Federal Circuit decision in Apple v. Qualcomm sheds some light on what a patent challenger needs to allege in order to demonstrate that a licensing agreement gives rise to an Article III case or controversy such that a petitioner has standing to appeal an adverse final written decision from the PTAB.
Apple IPR’ed claims from two of Qualcomm’s patents and when the PTAB issued adverse final written decisions holding that Apple had not proven that the challenged claims would have been obvious, Apple sought to appeal to the Federal Circuit. However, a settlement of all litigation between the two companies preceded Apple’s appeal. According to Qualcomm, because of the settlement, Qualcomm’s infringement claims against Apple were no longer a basis for Apple’s standing to appeal the PTAB’s adverse final written decision not to invalidate Qualcomm’s patents. However, as a part of the settlement, Apple and Qualcomm entered into a six-year license agreement.
The Federal Circuit addressed whether, in light of the settlement, Apple had Article III standing to appeal the PTAB’s decision. Apple relied on MedImmune, Inc. v. Genentech Inc. to argue that its payment obligations under the settlement-license agreement gave rise to standing. In MedImmune, the Supreme Court overturned the Federal Circuit’s dismissal for lack of subject matter jurisdiction and held that a licensee was not required to break or terminate a license agreement in order to have standing to seek declaratory judgment that the underlying patent was invalid, unenforceable, or not infringed. The MedImmune licensor claimed a right to royalties under the licensing agreement and the licensee claimed that no royalties were owed because the licensed patent was invalid and not infringed.
Here, the Federal Circuit rejected Apple’s reliance on MedImmune and the notion that “a license to 100,000 patents would provide standing to challenge the validity of any single licensed patent, even if the validity of any one patent would not affect the licensee’s payment obligations.” Apple failed to allege that the validity of two patents out of the tens of thousands of patents licensed would affect its contractual rights under the settlement-license agreement. The Federal Circuit found that “[t]his failure [was] fatal to establishing standing under the reasoning of MedImmune[.]” In other words, a licensee must allege that the validity of the challenged patents specifically impacts their contractual obligations under the license or they cannot avail themselves of Article III standing under MedImmune’s reasoning. This holding provides insight into both what a patent challenger needs to allege, and what a licensee may want to take into account when a license involves many patents. Accordingly, for example, a licensor may decide to include a provision in the license that says something to the effect that no individual patent’s validity impacts the rights or obligations under the license and a licensee would want to make clear that the validity of either certain patents or all patents impacts the licensee’s obligations under the license.
The Federal Circuit also found that the possibility of Qualcomm suing Apple for infringement after the license expired was too speculative to give rise to standing. Apple’s declarations did not specifically set forth plans to engage in conduct that would infringe the patents at issue after the license agreement expired, and the Federal Circuit was not swayed by Apple’s suggestion that the court take judicial notice that “Apple sells and will continue to sell its smart phone products.” For life sciences companies this may mean that filing for FDA approval, or perhaps even receiving it, may not give rise to standing on its own. Declarations may be required to specifically set forth how planned continued conduct will infringe the patents at issue even after a licensing agreement expires.
Finally, the Federal Circuit found that estoppel under 35 U.S.C. § 315(e) was not a sufficient injury to provide standing. As a result, it is important to consider standing to appeal issues before filing an IPR.