On January 22, 2014, in a unanimous 9-0 decision, the U.S. Supreme Court in Medtronic, Inc. v. Mirowski Family Ventures, LLC, No. 12-1128 (Breyer, J.), held that "when a licensee seeks a declaratory judgment against a patentee to establish that there is no infringement, the burden of proving infringement remains with the patentee." (Slip Op. at 1.) In so holding, the Supreme Court reversed the Federal Circuit which held that where the patentee is a declaratory judgment defendant that is foreclosed from asserting an infringement counterclaim based on the continued existence of a license, the licensee/plaintiff bore the burden of persuasion on non-infringement.
Medtronic introduced seven new medical devices that it believed to be outside the scope of the license agreement. Id. Mirowski disagreed and provided notice to Medtronic that it believed the new medical devices infringed various claims of two of its patents. Id. Medtronic, in turn, brought a declaratory judgment action in the District of Delaware seeking a judgment that the new devices were either non-infringing or that the two asserted patents were invalid. Id.
After a bench trial, the district court found for Medtronic on the basis that Mirowski had not successfully proven infringement. Medtronic, Inc. v. Boston Scientific Corp., 777 F. Supp. 2d 750, 766 (D. Del. 2011). The district court found that Mirowski, as the party asserting infringement, bore the ultimate burden of proof on infringement. Id.
On appeal, the Federal Circuit acknowledged that the patentee ordinarily bears the burden of proving infringement and that where a licensee seeks a declaratory judgment of non-infringement, a counterclaiming patentee/defendant bears the burden of proving infringement. 695 F.3d 1266, 1272 (Fed. Cir. 2012). However, the Federal Circuit decided that a different rule applies when the patentee, like Mirowski, is foreclosed from asserting an infringement counterclaim by the continued existence of a license. Accordingly, the Federal Circuit found that Medtronic had the burden to demonstrate that its seven new medical devices did not infringe Mirowski's patents. Id.
In reversing the Federal Circuit decision, the Supreme Court relied on three legal propositions: (1) the burden of proving infringement ordinarily rests on the patentee; (2) the operation of the Declaratory Judgment Act is only procedural and does not impact substantive rights; and (3) the burden of proof is a substantive aspect of a claim. Taken together, the Court concluded that the burden of proving infringement should remain with the patentee. Id. at 6-7.
The Supreme Court also held that practical considerations require the same result. First, keeping the burden of persuasion on the patentee avoids potentially inconsistent results which could arise if an infringer lost a declaratory judgment action because it failed to prove non-infringement and it (or others) continued in the same allegedly infringing behavior. A later suit by the patentee could bring about an inconsistent result if the patentee then failed to meet its burden of proving infringement. Id. at 7-8. Second, the Court noted, "A patent holder is in a better position than an alleged infringer to know, and to be able to point out, just where, how, and why a product (or process) infringes," Id. at 8, and that an "alleged infringer may have to work in the dark, seeking . . . to negate every conceivable infringement theory" if the patentee does not bear the burden of proof, Id. at 8. Third, the Court held that "burden shifting here is difficult to reconcile with "the 'very purpose' of [the Declaratory Judgment] Act [which] 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." Id. at 8-9 (citing MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 129 (2007)). The Court concluded, "[e]ither Medtronic would have to abandon its right to challenge the scope of Mirowski's patents, or it would have to stop paying royalties, risk losing an ordinary patent infringement lawsuit, and thereby risk liability for treble damages and attorney's fees as well as injunctive relief." Id. at 9. The Supreme Court found that "The Federal Circuit's burden shifting rule . . . makes the declaratory judgment procedure—compared to, say, just refusing to pay royalties—disadvantageous [and] [t]o that extent it recreates the dilemma that the Declaratory Judgment Act sought to avoid." Id. at 9.
According to the Court, public policy does not weigh in favor of shifting the burden to licensees:
The public interest, of course, favors the maintenance of a well-functioning patent system. But the 'public' also has a 'paramount interest in seeing that patent monopolies . . . are kept within their legitimate scope.' Precision Instrument Mfg. Co. v. Automotive Maintenance Machinery Co., 324 U. S. 806, 816 (1945). 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.' Blonder-Tongue Laboratories, Inc. v. University of Ill. Foundation, 402 U. S. 313, 349–350 (1971). And '[l]icensees may often be the only individuals with enough economic incentive' to litigate questions of a patent's scope. Lear, Inc. v. Adkins, 395 U. S. 653, 670 (1969). The general public interest considerations are, at most, in balance. They do not favor a change in the ordinary rule imposing the burden of proving infringement upon the patentee.
Id. at 11.
The Court's decision also began addressing a jurisdictional question of whether a declaratory judgment action seeking a declaration of non-infringement by a patent licensee arises under federal patent law notwithstanding the existence of a license and potential breach of license claim. The Court noted that "[i]f Medtronic were to act on [its belief that its products do not infringe] (by not paying royalties and not bringing a declaratory judgment action), Mirowski could terminate the license and bring an ordinary federal patent law action for infringement. Consequently this declaratory judgment action, which avoids that threatened action, also 'arises under' federal patent law." (Slip Op. at 5) (internal citations omitted).
This decision is a change in the law applicable to licensors who should be aware that allegations of infringement may invite declaratory judgment claims on which they will now bear the burden of proving infringement.
A copy of the full decision is available at http://www.supremecourt.gov/opinions/13pdf/12-1128_h315.pdf.
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