Does the burden of proving patent infringement in a declaratory judgment action fall upon the licensee or licensor?
In a traditional patent infringement suit, the patent owner has the burden of proving infringement. In MedImmune, Inc. v. Genentech, Inc., the Supreme Court held that a patent licensee could bring a declaratory judgment action against a licensor without violating the agreement. Here, Petitioner Medtronic entered a license agreement with Respondent Mirowski Family Ventures (“MFV”) that allowed Medtronic to challenge the validity, enforceability, and scope of a medical device patent in a declaratory judgment action. The Supreme Court will decide who—the patent owner or the licensee—has the burden of proving infringement in such an action. Medtronic argues that the traditional burden of proof (i.e., burden on the owner) should apply in the declaratory judgment context, as this would promote fairness and consistency in judgments, further the public interest in determining the scope of a patent, and avoid reaching issues of substantive law in declaratory judgment actions. MFV argues that the burden of proving noninfringement should be on the licensee because it is the party seeking relief and because this would incentivize patent owners to enter into license agreements. The Court’s ruling in this case will reshape the incentives for entering into and litigating license agreements, and thereby impact the litigation practices in declaratory judgment actions involving patent licenses.
Questions as Framed for the Court by the Parties
In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007), this Court ruled that a patent licensee that believes that its products do not infringe the patent and accordingly are not subject to royalty payments is "not required ... to break or terminate its ... license agreement before seeking a declaratory judgment in federal court that the underlying patent is ... not infringed."
The question presented is whether, in such a declaratory judgment action brought by a licensee under MedImmune, the licensee has the burden to prove that its products do not infringe the patent, or whether (as is the case in all other patent litigation, including other declaratory judgment actions), the patentee must prove infringement.
Morton Mower (“Mower”) and Mieczyslaw Mirowski (“Mirowski") developed the first implantable cardioverter defibrillator (“ICD”) between 1969 and 1980. An ICD is implanted into a patient’s chest and provides an electric shock to resynchronize the cardiac muscles when it senses a very rapid heartbeat that may cause a heart attack. Mower also developed a cardiac resynchronization (“CRT”) device in the 1980s to assist patients who had been saved by the ICD. The CRT improves the heart’s pumping ability and addresses the needs of patients with congestive heart failure. Mower patented the CRT under two patents, (RE’119 and RE’897) and assigned them to Mirowski Family Ventures (“MFV”). MFV exclusively licenses its patents to co-Respondent Guidant Corp. (“Guidant”).
In 1991, Petitioner Medtronic, Inc. (“Medtronic”) entered a sublicense agreement with Eli Lilly & Co. (“Lilly”), who was then MFV’s exclusive licensee. This agreement allowed Medtronic to challenge the validity, enforceability, and scope of the covered RE’119 patent in a declaratory judgment action.
In 2006, the parties entered a Litigation Tolling Agreement (“LTA”) under which MFV would inform Medtronic if any new products infringed the RE ’119 patent. Under the LTA, Medtronic could seek a declaratory judgment of noninfringement while remaining MFV’s licensee. The fact that Medtronic remained the licensee would prevent MFV from filing a counterclaim of infringement in the declaratory judgment action. The LTA also provided for Medtronic to retain withheld royalties (plus interest) for the disputed products in its own account, and then to either keep the royalties upon winning or pay the royalties upon losing the declaratory judgment action.
Under this agreement, MFV notified Medtronic in 2007 of several products that it believed infringed its patent and Medtronic filed for a declaratory judgment, asserting noninfringement, invalidity, and unenforceability. The United States District Court for the District of Delaware held that MFV, the defendant in the declaratory judgment action, bore the burden of proving infringement since it is the patent holder. The district court found that MFV had not met its burden and therefore found for Medtronic. The United States Court of Appeals for the Federal Circuit vacated the district court’s ruling, finding that Medtronic had the burden of proving noninfringement because it was the only party seeking relief. The Supreme Court granted certiorari to determine who bears the burden of proving infringement in a declaratory judgment action.
This case will address who bears the burden of proving infringement or noninfringement in a declaratory judgment action involving patent licenses. Medtronic argues that placing the burden on a licensee creates an unacceptable choice between finality and fairness. MFV, in contrast, argues that it is fundamentally unfair to place the burden on a party that is not seeking relief. In addition, each side argues that its position best serves the public interest, with one side arguing that placing the burden on the licensor would disincentivize licensing and litigation settlements and the other arguing that challenges to patent validity benefit consumers and promote scientific innovation.
FAIRNESS AND EFFECTIVENESS OF DECLARATORY JUDGMENTS
According to Medtronic, patent law has clearly established that the licensor bears the burden of proving infringement. A group of legal scholars (“Scholars”) argue in support of Medtronic that placing the burden of proof on the licensee could result in inconsistent decisions, since a licensee could lose a declaratory judgment action, but might otherwise win in a traditional enforcement suit where the burden of proof is back on the licensor. Medtronic argues that this potential inconsistency creates an unacceptable choice between fairness and finality, since it would be unfair to prevent a party from relitigating an issue that was previously decided under a different burden of proof.
MFV argues, however, that a court should put the burden of proof on the only party seeking relief, regardless of a “role reversal” relative to traditional patent infringement cases. In this case, MFV points out that Medtronic is the only party seeking relief from the declaratory judgment, and that the license agreement actually prevents MFV from filing a counterclaim. In such a case, MFV argues, the default rule is that the party seeking relief, who is not necessarily the patent holder, should bear the burden of proof. MFV asserts that because the defending licensor seeks no relief in a declaratory judgment action, it should not be burdened by proving infringement. Any other rule, contends the Intellectual Property Owners Association (“IPOA”), arguing on behalf of MFV, would lead to abuse of declaratory judgment actions by placing the risk and burdens of litigation entirely on the patent owner.
INCENTIVES AND THE PUBLIC INTEREST
In support of MFV, the IPOA contends that placing the burden of proof on the licensor will undermine the public interest by discouraging patent licenses and settlements outside of court. According to the IPOA, the public has an interest both in the creation of licenses and in the efficient settlement of disputes. Placing all of the risk on the licensor without any of the upside, according to the IPOA, will discourage licenses, since the best case scenario for the patent holder who can prove infringement is to continue collecting royalties it already expected under the agreement. Since many patent disputes are settled by licensing agreements, according to the IPOA, this rule will also significantly decrease the incentive to settle lawsuits rather than fully litigating them.
The Scholars, arguing on behalf of Medtronic, emphasize the strong public interest in clarifying the scope and validity of patent claims. Rulings in patent cases, they argue, can promote scientific progress by providing both litigants and third parties clarity about what will and will not infringe a patent. Thus, in the Scholars’ view, it is arguable that more patent litigation is a good thing. The Scholars fear that, because of the burden of proving noninfringement, a licensee may accept a licensor’s assertion of infringement rather than challenging it. Similarly, Medtronic contends that noninfringement claims by licensees are important to challenge the scope of patent claims. Indeed, Medtronic contends, licensees are frequently the only parties with sufficient economic incentive to challenge patent validity and scope. Medtronic argues, therefore, that discouraging declaratory judgment actions by licensees would harm the public interest by allowing patents to go unchallenged, leading to both higher prices for consumer and an impediment to scientific innovation.
In a “traditional” suit in which a patent licensor alleges infringement by the licensee, the licensor has the burden of proving infringement. In MedImmune, Inc. v. Genentech, Inc., the Supreme Court held that when a licensee believes that a patent is invalid, unenforceable, or not infringed, the licensee can bring a declaratory judgment action against the licensor without breaching the license. Under MedImmune, licensees do not have to risk liability for infringement in order to bring a declaratory judgment suit to determine their rights.
Medtronic argues that the patent licensor has the burden of proof because, under substantive patent law, the licensor bears the burden of proving infringement. Medtronic claims that it would change substantive law and defeat the purpose of declaratory judgment actions if the Court shifted the burden of proof to the licensee. MFV, however, argues that patent law does not support the burden of proof being placed on the patent licensor when only the licensee is seeking relief in a suit. Rather, MFV argues for allocating the burden of proof to the party seeking relief.
BURDEN OF PROOF AND SUBSTANTIVE LAW
Medtronic asserts that the allocation of burden of proof is substantive law and an essential element of an infringement action that reflects the legislature’s policy judgment on this issue. Medtronic argues that because the Court ruled in Aetna Life Ins. Co. v. Haworth that the Declaratory Judgment Act affects only procedure and not substantive law, shifting the burden of proof to the licensee in a declaratory judgment suit would be impermissible. Medtronic further argues that parties would be discouraged from bringing declaratory judgment actions if they had to bear a greater burden than in a traditional suit. Medtronic also worries that there may be no issue preclusion if the burden of proof is shifted in a declaratory judgment suit, because the substantive law for declaratory judgments would be different from the substantive law for traditional suits. Without issue preclusion, Medtronic argues, the judgment would not be final and the purpose of bringing a declaratory judgment would be lost because the parties would be able to re-litigate the case.
MFV agrees that the allocation of the burden of proof should be preserved in a declaratory judgment suit only when both parties seek relief. However, MFV argues that it is only where the defendant brings a counterclaim that a declaratory judgment suit has the same elements as a traditional action. In contrast, MFV contends that there is a material difference in a suit when the declaratory judgment defendant cannot file a counterclaim. Where this material change exists, MFV argues that a “default rule” which allocates the burden of proof to the party seeking relief should apply. MFV reasons that since Medtronic is the only party seeking relief, Medtronic should bear the burden of proof.
Medtronic counters that the “default rule” should only apply when first deciding where the substantive law would place the burden. According to Medtronic, once the allocation of the burden of proof has been established in the substantive law, the burden of proof does not shift when a procedural device such as the Declaratory Judgment Act is applied. Medtronic also disputes MFV’s assertion that a licensor has no counterclaim unless the licensee has already breached the contract. Rather, Medtronic argues that the licensor can file a counterclaim for a declaratory judgment of infringement.
MFV argues that Medtronic’s interpretation of the default rule is inapplicable in this case because MFV is not able to bring a “coercive action” in a declaratory judgment against Medtronic until Medtronic breaches its license.
ALLOCATION OF THE BURDEN OF PROOF UNDER PATENT LAW
Medtronic claims that MFV should bear the burden of proof because substantive patent law assigns the burden of proving infringement to the patent owner. Medtronic also argues that it is well established that the burden of proving infringement does not shift during the course of litigation. Thus, in Medtronic’s view, it is clear that MFV would bear the burden of proof in a traditional infringement suit. Medtronic points out that a declaratory judgment action is simply an inverted infringement action and, therefore, the burden should not be shifted to the licensee.
MFV concedes that Medtronic’s argument regarding the allocation of the burden of proof in patent law may have some merit if the instant case referred to patent infringement. However, MFV argues that patent infringement claims and claim coverage claims are distinct from each other. MFV contends that because Medtronic continued its royalty payments pursuant to the license, Medtronic’s claim only regards the scope of claim coverage. MFV argues that Medtronic’s argument regarding substantive patent law is inapplicable because Medtronic only cites to patent infringement cases.
Medtronic also argues that the policies behind patent law support the burden being placed on the patent licensor, because the licensor has a “monopoly” and there is always an implicit or explicit threat to sue. Furthermore, Medtronic asserts that its license agreement did not resolve any controversy between the parties; instead it only served as a framework for parties to resolve any disputes through litigation. Thus, in Medtronic’s view, MFV started the controversy by demanding royalties. Medtronic argues that the purpose of seeking a declaratory judgment is to allow a licensee to litigate without risking liability, and it is appropriate that the burden remain with the licensor.
MFV disagrees with Medtronic’s assertion that a patent owner’s “monopoly” on an invention should automatically place the burden on the owner. MFV distinguishes between the inventor’s monopoly and an “anti-social” monopoly; that is, the negative connotation of “monopoly" is inappropriate for an inventor because the inventor created something of value for the community. MFV argues that because a patent owner created something valuable and because the Constitution provides that patent law should promote science and the useful arts, substantive patent law should not impose a burden of proof on patent owners simply because they own patents. Instead, MFV argues that substantive patent law should place the burden on the party that seeks relief and that looks to alter the legal status quo, whether it is the licensor or the licensee.
Medtronic argues that the burden of proof in a declaratory judgment action should lie with the party asserting infringement because of the difficulty of demonstrating noninfringement, which is akin to proving a negative. For this reason, Medtronic asserts, it is settled law that the burden of proof should rest with the party who holds “the affirmative of the issue.” Moreover, Medtronic claims that the complexity of patents, which may contain many claims that might have been infringed, makes it particularly difficult to prove noninfringment. Medtronic thus argues for the burden to remain with the patent holder for practical and efficiency reasons. The United States similarly argues, on behalf of Medtronic, that requiring a licensee to disprove infringement as to every claim and on every conceivable theory would be impractical to implement.
MFV responds that proving noninfringement has nothing to do with “proving a negative” and that it is actually easier to prove noninfringement than infringement. This is because, according to MFV, a party trying to prove infringement must show that a device infringes every element of a claim. In contrast, MFV argues that noninfringement may be shown by the absence of just one element of a claim, a far easier task. This also means, in MFV’s view, that a licensee need not anticipate any conceivable theory by which a device might infringe In addition, MFV points out that district courts frequently limit the number of claims that are at issue in the case in order to make cases more manageable.
The Court will decide which party bears the burden of proof regarding claim coverage when a patent licensee brings a declaratory action and the licensor does not bring a counterclaim. Medtronic argues that the burden of proof should always fall on the patent owner, while MFV argues that it should rest on the party seeking relief. The Court’s decision will shape the scope of its previous ruling in MedImmune and impact the incentives for entering into patent licenses and the way parties litigate declaratory judgment actions over such licenses.
- Crouch, Supreme Court to Hear Another Case Involving Licensees in Good Standing Who Challenge Patent Rights, Patently-O, May 20, 2013.