A unanimous Supreme Court of the United States, in a decision authored by Justice Breyer, reversed the U.S. Court of Appeals for the Federal Circuit, holding that the patentee bears the burden of persuasion on the issue of infringement, even when the issue arises in the context of a licensee’s declaratory judgment action against the patentee. Medtronic, Inc. v. Mirowski Family Ventures, LLC, Case No. 12-1128 (Supr. Ct., Jan. 22, 2014) (Breyer, Justice).
In the decision below, the Federal Circuit found that where an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, the licensee seeking a declaratory judgment of non-infringement bears the burden of proof. Medtronic Inc. v. Boston Scientific Corp.et al. (IP Update, Vol. 15, No. 10).
The case involved a device known as an implantable cardioverter defibrillator. Mirowski Family Ventures (MFV), assignee of the patents, exclusively licensed the patents to Boston Scientific, which in turn sub-licensed them to Medtronic. The license agreement allowed Medtronic to challenge any assertion that newly introduced products were subject to the license via declaratory judgment. Soon afterward, Medtronic began paying royalties on a new product that Boston Scientific alleged was subject to the license and, at the same time, sought a declaratory judgment of non-infringement. Throughout the course of litigation, the parties disagreed over whether the licensee carried the burden of proving non-infringement or the licensor carried the burden of proving infringement. The district court held that the licensor carried the burden of proving infringement and ruled in favor of Medtronic because of MFV’s failure to carry its burden. MFV appealed to the Federal Circuit.
On appeal, MFV argued that because Medtronic is the party seeking relief and because MFV is foreclosed from filing a counterclaim of infringement by virtue of the license agreement between the parties, Medtronic carries the burden of proving non-infringement. Medtronic argued that the burden of proof on the issue of infringement always rests with the patentee, not with the accused infringer. The Federal Circuit agreed with MFV and held that the party seeking relief bears the burden of proving the allegations in his complaint.
The Federal Circuit explained that this burden allocation was an exception to the general rule and only applied where a license agreement prevents the licensor from asserting a counterclaim of infringement in the declaratory judgment action. The Federal Circuit further explained that because Medtronic was asking the court for relief or change of status quo, it should bear the burden of showing it was entitled to such relief.
In support of this exception, the Federal Circuit noted that the Supreme Court, in MedImmune v. Genentech (2007) (IP Update, Vol. 10, No.1), held that a licensee need not breach an agreement to have standing to file a declaratory judgment action seeking a declaration of invalidity, non-infringement or unenforceability and that “in the post-MedImmune world,” the high court had thus shifted the burdens in such cases.
Amici Appellate Standing Issue Is Resolved
In its decision, the Supreme Court initially addressed a Federal Circuit jurisdictional question posed in an amicus brief filed by Tessera Technologies, a well-known licensing entity. Specifically, Tessera argued that, because MFV could not file an infringement action and the action arose in the context of a license, any dispute as to whether a product was subject to license should have been adjudicated by MFV bringing an action for damages for breach of contract.
The Supreme Court disagreed, noting that had Medtronic stopped paying royalties, MFV would have been able to terminate the license and bring an action for patent infringement. As the Court explained, such an action would arise under federal patent law because “patent law creates the cause of action. … Thus, this declaratory judgment action, which avoids that hypothetical threatened action, also ‘arises under’ federal patent law.”
The Burden of Proof Remains on the Patentee
In terms of the substantive question presented, the Supreme Court answered that when a licensee seeks declaratory judgment against a patentee, asserting that its products do not infringe the licensed patent, “the patentee bears the burden of persuasion on the issue of infringement.” Justice Breyer began his analysis with a statement of the Court’s long-held precedent that “the burden of proving infringement generally rests upon the patentee” and the operation of the Declaratory Judgment Act is only “procedural” and leaves “substantive rights unchanged.” The burden of proof, the Supreme Court explained, is a substantive aspect of a claim.
“Taken together these three legal propositions indicate that, in a licensee’s declaratory judgment action, the burden of proving infringement should remain with the patentee.”
The Supreme Court also noted “practical considerations” associated with the Federal Circuit’s burden-shifting in terms of post-litigation uncertainty about the scope of the patent, as well as “unnecessary complexity” by “compelling a licensee to prove a negative.” As the Court explained “[s]hould the declaratory judgment plaintiff fail to show noninfringement, it and others could continue to make and sell the same products, requiring the patentee to bring an infringement lawsuit and—with the burden now on the patentee—prove infringement. Thus, the declaratory judgment action would have failed to resolve the legal rights of the parties, contrary to the objective of the action.”
The Court further found the Federal Circuit rule to be inconsistent with MedImmune and with the purpose of the Declaratory Judgment Act, which was to mitigate the “dilemma” faced by a licensee as “to the choice between abandoning his [license] rights or risking” an infringement suit.