Party Performing Contract Under Protest May Bring Declaratory Judgment Act Claim

In the context of a patent dispute, the U.S. Supreme Court has clarified that federal jurisdiction exists under the Declaratory Judgment Act even though a plaintiff actually performs under a disputed contract, as long as the plaintiff maintains that performance is subject to controversy.

In MedImmune v. Genentech, Inc., 127 S. Ct. 764 (U.S. Jan. 9, 2007), Genentech maintained that MedImmune’s primary product infringed on its patent and demanded royalties. MedImmune maintained that the patent was not enforceable but agreed to pay royalties through a license agreement under protest because of the risk of liability for treble damages and attorney’s fees. It then brought a declaratory judgment action, but the trial court and the Federal Circuit held that such claims could not be brought because MedImmune in fact was performing under the contract so there was no dispute for purposes of Article III.

The U.S. Supreme Court held that jurisdiction did exist, and that by enacting the Declaratory Judgment Act, Congress specifically wanted to avoid requiring a party to breach a contract as a precondition to federal jurisdiction. It noted that the Court’s jurisprudence in government cases made this clear (i.e., Congress did not require a party to actually perform an illegal act for there to be jurisdiction for a declaratory judgment action), and agreed with the many lower courts that had reached the same conclusion with respect to disputes among private parties.