In a nine to zero decision authored by Justice Breyer, the United States Supreme Court reversed a decision of the Federal Circuit and held that when a licensee seeks a declaratory judgment against a patentee that the licensee's products do not infringe the licensed patent(s), the patentee bears the burden of persuasion on the issue of infringement.
Petitioner Medtronic, Inc., ("Medtronic") designs, makes, and sells medical devices. Respondent Mirowski Family Ventures, LLC, ("Mirowski") owns patents relating to implantable heart stimulators. In 1991, Medtronic and Mirowski entered into a patent-license agreement that allows Medtronic to practice several Mirowski patents in exchange for royalty payments. In 2007, pursuant to terms of the agreement, Mirowski notified Medtronic that it believed several newly released Medtronic products infringed the licensed patents and, therefore, Medtronic owed additional royalties. Medtronic disagreed and challenged Mirowski's infringement claim in a declaratory judgment action. The District Court (for the District of Delaware) concluded that Mirowski, as the party asserting infringement, bore the burden of proving infringement and that Mirowski had not met that burden. Mirowski appealed to the Federal Circuit.
The Federal Circuit disagreed. It acknowledged that a patentee normally bears the burden of proof, but concluded that where, as here, the patentee is a declaratory judgment defendant and, like Mirowski, is foreclosed from asserting an infringement counterclaim by the continued existence of a licensing agreement, the party seeking the declaratory judgment, namely Medtronic, bears the burden of persuasion with respect to infringement.
The Supreme Court reversed the Federal Circuit's decision. As an initial matter, the Court addressed a procedural argument, made in an amicus brief, that the Federal Circuit lacked subject-matter jurisdiction in the case because the hypothetical cause of action underlying the dispute would be for breach of contract. The Court rejected this argument. The Court held that title 28 U.S.C. §1338(a) gives federal district courts exclusive jurisdiction over "any civil action arising under any Act of Congress relating to patents," and §1295(a)(1) gives the Federal Circuit appellate jurisdiction over any case where jurisdiction in the district court "was based, in whole or in part, on section 1338 ." The Court further held that although Declaratory Judgment Act does not "extend" the federal courts' "jurisdiction," courts determining declaratory judgment jurisdiction often look to the "character" of the declaratory judgment defendant's "threatened action," i.e., whether the defendant's hypothetical "coercive action . . . would necessarily present a federal question." In this case, if Medtronic had acted consistent with the understanding of its rights that it seeks to establish through the declaratory judgment suit by ceasing to pay royalties, Mirowski could terminate the license and bring a suit for infringement. That suit would arise under federal patent law because "patent law creates the cause of action." Thus, the declaratory judgment action, which avoids that hypothetical threatened action, also "arises under" federal patent law.
Turning to the main substantive issue, the Court then held that when a licensee seeks a declaratory judgment against a patentee that its products do not infringe the licensed patent, the patentee bears the burden of persuasion on the issue of infringement. The Court held that its conclusion is strongly supported by three settled legal propositions. First, a patentee ordinarily bears the burden of proving infringement. Second, the "operation of the Declaratory Judgment Act" is only "procedural" and, therefore, does not alter any "substantive rights." Third, "the burden of proof" is a " 'substantive' aspect of a claim." Accordingly, a patentee still should bear the burden of proof in declaratory judgment actions arising under the patent laws.
The Court also presented several practical considerations that "lead to the same conclusion." For one, shifting the burden based on the form of the action could create post-litigation uncertainty about a patent's scope. "Suppose the evidence [of infringement] is inconclusive," the Court stated, and an alleged infringer loses his declaratory judgment action because he failed to prove noninfringement. In that case, the alleged infringer could simply continue the allegedly infringing activity and leave the patentee to sue for infringement. In that second case, when the burden shifts, the patentee might too lose the action because he may not be able to prove infringement in light of the inconclusive evidence. Moreover, the Federal Circuit's incorrect ruling may also create unnecessary complexity by compelling a licensee to prove a negative. Finally, burden shifting is difficult to reconcile with the Declaratory Judgment Act's purpose of ameliorating the "dilemma" posed by "putting" one challenging a patent's scope "to the choice between abandoning his rights or risking" suit.
The Court also addressed several "contrary" arguments and called them "unconvincing." First, the "ordinary default rule"--that plaintiffs have the "risk of failing to prove their claims"--has exceptions, and declaratory judgment suit like the present case is one of them. Second, the fact that the Federal Circuit limited its holding to the circumstance where a license forecloses an infringement counterclaim by a patentee cannot, by itself, show that its holding is legally justified. Third, the Court's holding will not permit any licensee "at its sole discretion [to' force" a patent holder into full-blown infringement litigation because, per the Court's decision in MedImmune, Inc. v. Genentech, Inc. 548 U.S. 118 (2007), such litigation can occur only when there is a genuine and sufficiently immediate dispute about a patent's validity or application. In this case, the Court held, Mirowski set this dispute in motion by accusing Medtronic of infringement, and there is no convincing reason why burden of proof law should favor the patentee. Finally, general considerations relating to the public interest in maintaining a well-functioning patent system are, at most, in balance, and do not favor changing the ordinary burden of proof rule.
Medtronic, Inc. v. Mirowski Family Ventures, LLC., United States Supreme Court