In late 2017 we wrote about how a deal involving technology developed at the Weizmann Institute resulted in litigation between two former friends and scientific collaborators, and how the case illustrates the difference between conceiving an idea and commercializing that idea.
Now it turns out that the underlying deal, between Gilead Sciences and Kite Pharma, on the one hand, and Cabaret Biotech on the other, is itself at risk. In a complaint filed yesterday in the US District Court for the District of Delaware (hat tip, again, to Aaron Feigelson for catching this), Cabaret revealed that Gilead/Kite, which under the deal have a license to Cabaret’s US patent no. 7,741,465, haven’t made royalty payments to Cabaret in nearly a year, and have threatened to obtain a declaratory judgment of invalidity of the patent, despite the fact that a drug covered by the patent, sold under the brand name YESCARTA, had $216 million in sales in the first half of 2019. Cabaret has now filed for a declaration that the patent is not invalid.
Prior to 2007, a licensee that believed the licensed patent was invalid had only one recourse in the US to challenge the patent and thus get out of royalty payments: to stop paying royalties and thus be in breach of the license, and then to wait to be sued for infringement by the licensor. The licensee could then assert invalidity as an affirmative defense, but at the risk of being found to have willfully infringed the patent. The mere threat of being sued if the licensee were to cease making royalty payments in the future was considered insufficient to establish a “case or controversy” that would give federal courts jurisdiction to entertain a declaratory judgment action.
That situation changed with the Supreme Court’s decision in Medimmune, in which the Court ruled that licensees shouldn’t have to face such a harsh choice, and could seek a declaratory judgment of patent invalidity even while continuing to make royalty payments.
The present case is a bit unusual, in that typically it would be a reluctant licensee (i.e. one that was threatened with an infringement suit and subsequently agreed to a license) that wishes to bring a DJ action. Here, according to the complaint, (a) Gilead/Kite sought an exclusive field-of-use license from Cabaret, (b) represented to shareholders and potential shareholders that the ‘465 patent protects the YESCARTA franchise (although the complaint doesn’t say in what context such representation was made), and (c) encouraged Cabaret to seek a patent term extension. And it is of course unusual in that the patentee merely seeks a declaration of non-invalidity.
We’re not going to speculate about what calculations drove Gilead’s decision to stop making royalty payments and to threaten DJ action. But seeing as how the patent survived two ex parte reexaminations, it’s not a stretch to speculate that Gilead’s validity challenge – which it will now be forced to make – will be based not on prior art, but will come in the guise of the currently fashionable routes to challenge validity: ineligible subject matter under §101; and lack of written description/lack of enablement under §112. We’ll know soon enough, when Gilead/Kite file their response. Note that if Gilead/Kite do have a prior art challenge, they can bring it in the context of an Inter Partes Review before the USPTO. Indeed, because Cabaret does not allege infringement, the one-year deadline for bringing such a challenge under 35 U.S.C. §315(b) does not apply in this case.