"In the modern economy, licensing of intellectual property rights is a widespread and essential activity." Those are the opening lines from the amicus curiae brief submitted by the Intellectual Property Owners Association ("IPO") for the Medtronic Inc. v. Boston Scientific Corp. case. The Supreme Court is set to hear oral arguments in that case on Tuesday, November 5, 2013. The IPO, which represents more than 200 companies that own or have an interest in U.S. intellectual property rights, and one of its members, Koninklijke Philips N.V ("Philips"), both submitted briefs in support of Boston Scientific, et al. Specifically, both organizations argued that the Federal Circuit decision should be upheld because to decide otherwise would disrupt the balance of power between patentee/licensors and licensees, such that it would create disincentives for patent holders to enter into license agreements in the first place. Philips additionally argued that even if the Supreme Court were to side with Medtronic and require the patent holder to prove infringement in Medimmune-type declaratory judgment actions, it should still expressly allow the parties to retain the freedom to shift the burden of persuasion in the license agreement.
As a reminder, the sole issue on appeal in that case is whether the burden of proof shifts in a declaratory judgment action brought by a licensee under Medlmmune, such that the licensee has the burden to prove that its products do not infringe the patent. The Federal Circuit had decided this issue in the positive, thereby requiring Medtronic as the licensee to establish non-infringement of the licensed patents. We have previously reported on the respective parties' positions (see "Supreme Court Grants Certiorari in Medtronic v. Boston Scientific"), as well as the United States' amicus curiae brief (see "United States Weighs-In on the Medtronic Case") in which it took the position that the burden of proving infringement should never shift from the patent holder. Today, we report on the amicus curiae briefs that took the opposite position (supporting the respondent in this case) -- that the burden of proof should be on the licensee that brought the suit. Tomorrow, we will report on both the amicus curiae brief of a collection of legal scholars, in which they support the petitioner, Medtronic, as well as that of Tessera Technologies, which argued that the lower court lacked federal-question jurisdiction, and therefore that the case should be vacated and remanded.
IPO Amicus Curiae Brief
The IPO's position can be summarized with a single sentence from the introduction of its brief: "To permit a licensee to maintain the status quo, force the licensor to prove infringement–even where the licensor cannot plead it, let alone seek infringement remedies and suffer no negative impact even if the licensee loses, would cause a significant imbalance between a patentee-licensor and a license." The IPO approached the question with the recognition that license agreements have become essential in the modern economy, allowing parties to "settle litigation, to gain access to technology, to generate a revenue stream for inventors, and for myriad other reason." In fact, the brief pointed out that the position taken by the Solicitor General "largely ignored the primacy of contract law in defining the relationship between the licensor and the licensee." The IPO also pointed out that the Federal Circuit's decision does not conflict with the public interest in "weeding out" invalid patents, because patent validity is not implicated in this case. No party has taken the position that the burden of persuasion should shift with regard to proving a patent is invalid, especially considering the heightened "clear and convincing" burden-of-proof standard.
The IPO made four main points. The first was to highlight that this case applies in only "the narrowly defined circumstances" in which the declaratory judgment defendant (patentee) is foreclosed from any infringement remedy, and instead the best to be hoped for is the maintenance of the status quo of the previously negotiated license. In other words, the only party with something to gain is the licensee. The IPO, therefore, supported the Federal Circuit's application of the "well-established equitable principle" that challengers should bear the burden of proof. To do otherwise "would create an unintended loophole," at least from the point of view of the patentee-licensor, which could render patent licenses "of little worth."
Contrary to the assertions made in other amicus curiae briefs, the IPO pointed out that the Federal Circuit's opinion was not at odds with MedImmune and it was not at odds with the public policy concerns expressed in the Supreme Court case of Lear v. Adkins, 395 U.S. 653 (1969). With regard to MedImmune, the Supreme Court was silent as to which party had the burden of proof, and that issue was not relevant to that decision. Therefore, the Federal Circuit Medtronic opinion cannot be at conflict with it. With regard to Lear, the Supreme Court had abolished licensee estoppel because the public had an interest in culling invalid and unenforceable patents. In contrast, the MedImmune case only impacts the interests of the parties to the license. Therefore, again, the Federal Circuit opinion cannot be at conflict with the Supreme Court.
Finally, the IPO stressed the public policy in encouraging the formation of contracts, including settling legal disputes. If the burden of persuasion fell to the patent holder in these types of case, it would create disincentives to license the patent in the first place. The benefit of certainty in entering into a license would "obliterated" if the patent holder bared all of the risk in the subsequent litigation. As a result, a potential licensor could initiate litigation prior to a license in order to "seek a higher, enforceable and more certain recovery." Otherwise, "licenses would be free to challenge any patent claims resolved under an already negotiated, arms-length contract." In other words, the licensee could "'have its cake and eat it too.'" This disparity is even more pronounced in relation to settlement agreements. As the IPO put it, "[a] patent owner would be foolish to agree to a patent-settlement license under this situation."
Philips Amicus Curiae Brief
Philips began its brief in support of Boston Scientific by pointing out that it (Philips) has been inventing and manufacturing electronics and electrical products for at least 120 years. In fact, last year it filed U.S. patent application for over 1300 inventions. It has been both a licensor and licensee of patents, and has an interest in having a clear and appropriate rule regarding the issue in the present case -- the burden of persuasion in declaratory judgment non-infringement cases. It also pointed out that in today's marketplace, consumer products are often covered by tens or hundreds of patents. Licenses to such intellectual property are often bundled, and therefore can include weak patents along with the strong. The parties to such an agreement are able to assess the relative strengths of those bundles, and negotiate appropriately.
As a result, in addition to standing with the IPO brief detailed above, Philips separately urged the Supreme Court that, if it should hold that the patent holder bears the burden in such case, it should "expressly acknowledge that sophisticated parties' retain freedom, via contract, to shift the burden of persuasion relating to patent infringement to the licensee." It pointed out that the Courts have otherwise allowed parties to contractually agree to modify litigation rights, such as waiving objections to personal jurisdiction and due process rights. Because the parties are in the best position to understand the particular facts of their case, and are able to negotiate and bargain based on those fact, they should be able to allocate the burden(s) through contract.
Philips concluded by noting that the amicus brief by Tessera Technologies is in agreement with the proposition that "sophisticated parties should be free to shift the burden of persuasion as they deem appropriate by contract." We will detail that brief tomorrow, as well as the final amicus brief that was filed by a coalition of legal scholars.
