On January 22, 2014, the Supreme Court issued its opinion in Medtronic, Inc. v. Mirowski Family Ventures, LLC.1 The Court held that the burden of persuasion for proving patent infringement remains with the patentee in a declaratory judgment action brought by a licensee. This remains true even where the patentee cannot assert an infringement counterclaim. In so ruling, the Court reversed the Federal Circuit’s prior opinion, which placed the burden of proving noninfringement on the licensee.
The Medtronic case addressed the burden of persuasion in a declaratory judgment action brought by a licensee. The Supreme Court previously addressed declaratory judgment jurisdiction for patent licensees in MedImmune, Inc. v. Genentech, Inc.2 In that case, the Court held that an Article III controversy exists where “there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”3 According to the Court, declaratory judgment jurisdiction exists even when the licensee continues to make royalty payments pursuant to a licensing agreement.4 The Court reasoned that a licensee should not be required to end royalty payments and risk liability for infringement in order to challenge the coverage of the license.5
Medtronic sued Boston Scientific Corporation, Guidant Corporation, and Mirowski Family Ventures, LLC for a declaratory judgment of noninfringement and invalidity of two reissued patents, RE 38,119 and RE 39,897.6 Medtronic was a licensee to both patents.7 Addressing the parties’ dispute over the burden of persuasion, the district court held that the patentee bears the burden for proving infringement.8
The Federal Circuit reversed.9 Although recognizing that a patentee who files a complaint has the burden of proving infringement, the Federal Circuit noted that, because Medtronic continued to pay royalties pending the outcome of the litigation, the patentee was precluded from asserting an infringement counterclaim in this case.10 The Federal Circuit held that, in such cases, the licensee seeking a declaratory judgment of noninfringement bears the burden of persuasion.11 As the court explained: “[t]he burdens of pleading and proof with regard to most facts have been and should be assigned to the plaintiff who generally seeks to change the present state of affairs and who therefore naturally should be expected to bear the risk of failure of proof or persuasion.”12
THE SUPREME COURT’S DECISION
In a unanimous opinion, the Supreme Court reversed the Federal Circuit and held that the burden of persuasion for proving patent infringement lies with the patentee, just as if the patentee brought an infringement suit.13 The holding was based on three legal principles: (1) “the burden of proving infringement generally rests upon the patentee,”14 (2) the Declaratory Judgment Act is merely “‘procedural’ leaving ‘substantive rights unchanged,’”15 and (3) “the burden of proof is a ‘substantive’ aspect of a claim.”16
The Court worried that shifting the burden of proof to the licensee in a declaratory judgment suit would create several problems. First, shifting the burden depending on the type of action could create uncertainty about the scope of the patent.17 For example, if the declaratory judgment plaintiff failed to prove noninfringement and continued the allegedly infringing behavior, the patentee might bring an infringement action and may fail to prove infringement. If both sides lose, the infringement question remains undecided, leaving the parties and others uncertain as to what products or processes are covered by the patent.18
Next, the Court stated that shifting the burden could create unnecessary complexity because a patentee is in a better position to know and identify how a product or process infringes a patent.19 If the burden shifts, the declaratory judgment plaintiff would be essentially required to prove a negative and negate all possible infringement theories.20
The final concern voiced by the Court was that shifting the burden would be inconsistent with the basic purpose of the Declaratory Judgment Act.21 The Court stated that the “very purpose of that Act is to ameliorate the dilemma posed by putting one who challenges a patent’s scope to the choice between abandoning his rights or risking suit.”22 As in MedImmune, a declaratory judgment action should not put a licensee in a worse position by forcing the licensee to bear the burden of proving noninfringement.
IMPLICATIONS OF THE MEDTRONIC DECISION
The Supreme Court’s holding in Medtronic reinforces the right of a licensee to challenge the scope of a licensed patent. Even if the terms of the license prevent the patentee from asserting an infringement counterclaim, the patentee must still prove that the licensee’s product or process infringe the claims of the patent to prevail in a declaratory judgment action brought by the licensee. It remains to be seen whether the licensee and patentee could contract around this basic rule. However, the Supreme Court did, at the end of its opinion, touch on the public policy interests of the patent system, stating “[a] patentee should not be allowed to exact royalties for the use of an idea that is beyond the scope of the patent monopoly granted,”23 perhaps indicating that the Court would disfavor a patentee attempting to shift the burden of proof through licensing terms and make challenging the licensed patent more difficult.
1Medtronic, Inc. v. Mirowski Family Ventures, LLC, 134 S. Ct. 843 (2014).
2MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007).
3Id. at 127.
4Id. at 134.
6Medtronic, Inc. v. Boston Scientific Corp., 777 F. Supp. 2d 750, 757–58 (D. Del. 2011).
7Id. at 758–59.
9Medtronic, Inc. v. Boston Scientific Corp., 695 F.3d 1266, 1269 (Fed. Cir. 2012).
10Id. at 1273.
11Id. at 1274.
12Id. at 1272 (quoting Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49, 56 (2005).
13Medtronic, 134 S. Ct. at 846.
14Id. at 849.
15Id. (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937); Beacon Theaters, Inc. v. Westover, 359 U.S. 500, 509 (1959))
16Id. (quoting Raleigh v. Illinois Dept. of Revenue, 530 U.S. 15, 20–21 (2000)).
18Id. at 850. (“[R]elitigation of an issue (say, infringement) decided in one suit “is not precluded” in a subsequent suit where the burden of persuasion “has shifted” from the “party against whom preclusion is sought . . . to his adversary.”(citing the RESTATEMENT (SECOND) OF JUDGMENTS § 28(4) (1980))).
22Id. (quoting MedImmune, 549 U.S. at 129).
23Id. at 851–52 (quoting Blonder-Tongue Laboratories, Inc. v. University of Ill. Foundation, 402 U.S. 313, 349 50 (1971)).