Burden of Proof for Patent Licensees Debated at Supreme Court

Burden of Proof for Patent Licensees Debated at Supreme Court

 WASHINGTON, D.C. — (Mealey’s) To uphold findings by the Federal Circuit U.S. Court of Appeals that a patent licensee bears the burden of proving noninfringement “would impair the purpose and utility of the Declaratory Judgment Act,” an attorney for petitioner Medtronic Inc. told the U.S. Supreme Court on Nov. 5 (Medtronic Inc. v. Boston Scientific Corp., et al., No. 12-1128, U.S. Sup.; See 10/7/13, Page 27).

(Transcript available.  Document #16-131118-004T.)

“This Court has said for 125 years that it rests with the [party asserting infringement].  What neither the Federal Circuit nor my friend on the other side of this case has ever identified is what is the source of the rule that shifts the burden in a declaratory judgment action,” Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr in Washington argued on behalf of Medtronic.

Litigation Tolling

Mirowski Family Ventures LLC (MFV) is the owner by assignment of U.S. reissue patents RE38,119 and RE39,897, which MFV then licensed to respondents Boston Scientific Corp. and Guidant Corp. (MFV, collectively).  The patents are directed to a cardiac resynchronization therapy (CRT) device that increases the heart’s effectiveness by causing both the patient’s left and right ventricles to contract simultaneously as the heart beats.  Medtronic is a manufacturer of medical devices and equipment that in 1991 entered into a sublicense agreement covering the RE’119 patent with Eli Lilly & Co., Guidant’s predecessor.  The agreement allowed Medtronic to challenge the patent’s validity, enforceability and scope in a declaratory judgment action.

In 2003, pursuant to its sublicense, Medtronic began paying royalties into escrow while challenging the validity of the RE’119 patent.  The parties then entered into an agreement that tolled their litigation and obligated MFV to inform Medtronic which Medtronic products MFV believed made use of the RE’119 patent, or subsequent reissue patents that claim priority from the RE’119 patentm such as the RE’897 patent.  If Medtronic disagreed, the tolling agreement gave Medtronic the right to retain its license and obligated Medtronic to seek a declaratory judgment of noninfringement in the U.S. District Court for the District of Delaware.

In 2007, MFV identified several Medtronic products that MFV thought practiced its patents.  Accordingly, pursuant to the tolling agreement, Medtronic filed a declaratory judgment action in the U.S. District Court for the District of Delaware.  After conducting a bench trial in 2010, Judge Sue L. Robinson found that MFV, as the patent owner, bore the burden of proving infringement and that MFV was unable to meet its burden.  The judge entered judgment for Medtronic.   MFV appealed the grant of declaratory judgment of no literal infringement and no infringement under the doctrine of equivalents to the Federal Circuit.  Medtronic cross-appealed the District Court’s claim construction ruling that the terms “improving the hemodynamic efficiency of a heart” and “biventricular pacemaker” are limited to the treatment of congestive heart failure.

Royalty Obligation

In September 2012, the Federal Circuit reversed the District Court’s claim construction, holding that “[w]hile the specification explains the use of the invention to treat congestive heart failure, it also discloses the invention’s value in treating other diseases.”  After finding that the District Court “erred by restricting the claimed invention to the treatment of congestive heart failure,” the Federal Circuit vacated the court’s determination of no invalidity based on its improper claim construction and said that, on remand, Medtronic can pursue its invalidity contention based on the correct claim construction.

The Federal Circuit also reversed the District Court’s ruling regarding the burden of proof when a plaintiff seeks a declaration of invalidity and a defendant’s infringement counterclaims are precluded by the existence of a license.  The panel said that “it is Medtronic and not MFV that is asking the court to disturb the status quo ante and to relieve it from a royalty obligation it believes it does not bear,” so Medtronic must prove that it is entitled to a finding of noninfringement.  The Federal Circuit held that “in the limited circumstance when an infringement counterclaim by a patentee is foreclosed by the continued existence of a license, a licensee seeking a declaratory judgment of noninfringement and of no consequent liability under the license bears the burden of persuasion.”

MFV filed a petition for writ of certiorari with the Supreme Court, presenting questions on the Federal Circuit’s claim construction ruling (Mirowski Family Ventures, LLC v. Medtronic, Inc., et al., No. 12-1116, U.S. Sup.), and Medtronic filed a petition for writ of certiorari which presents the following question:  “In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 137 (2007) [an enhanced version of this opinion is available to lexis.com subscribers], 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.”

On May 20, without ruling on MFV’s petition, the Supreme Court granted certiorari to Medtronic.

Status Quo Disturbed

Waxman opened oral arguments by urging reversal of what he called error by the Federal Circuit.  “Patent law places the burden of proving infringement on the patentee,” Waxman noted, “and until this case it was settled that the burden does not shift if the issue arises in a declaratory action seeking a judgment of noninfringement.”

“The Federal Circuit imposed a different rule in suits brought under MedImmune where the party seeking a declaration of noninfringement is a licensee.  That was error.  Allocation of the burden of proof inheres in the governing substantive law while the Declaratory Judgment Act is procedural only and does not change substantive rights.  The burden of proof in MedImmune actions, like all other declaratory actions, remains where it would have rested in the equivalent coercive suit brought by that patentee,” Waxman said.

Shifting the burden could not only provide a means for circumventing the Declaratory Judgment Act (DJA), Waxman warned, but also “threaten the issue preclusive effect of the declaratory judgment.”  Chief Justice John G. Roberts Jr. then mused that while “that may be true,” “the basic issue [is that] MedImmune changes all that.”

“The idea is you're moving along with the license, everybody’s happy.  All of a sudden you jump into court.  Why shouldn’t you have the burden as the party who seeks to disturb the status quo?” Justice Roberts asked.

“The reason, Mr. Chief Justice, is the reason that the burden of proof is substantive, and a declaratory judgment action under the Act is . . . aimed not to change any substantive rights.  And that’s why all of the decided cases in this area left the burden exactly where substantive patent law left it,” Waxman replied.

No Coercive Counterclaim

Arthur I. Neustadt of Oblon, Spivak, McClelland, Maier & Neustadt in Alexandria, Va., representing the respondents, told the Supreme Court that “the Federal Circuit got it right in this case.”  Justice Antonin Scalia noted in response, however, that the Supreme Court has “said time and time again that the burden of proof normally does not shift.” Justice Scalia then asked, “What’s different here?”

“The difference is that there is no infringement.  Medtronic is a licensee.  As a result, there can be no coercive counterclaim.  As the Chief Justice noted, they’re paying royalties.  There is no infringement,” Neustadt replied.

Seemingly not persuaded, Justice Scalia later wondered why the absence of a valid infringement counterclaim would shift the burden under the DJA because the “whole purpose [of the statute] is to enable you to sue before the other side has a cause of action against you.”

“We are dealing with a declaratory judgment statute, and we’ve said time and time again that it doesn't alter the burden of proof.  And your response is:  Well, it does when the other side can’t counterclaim.  And my response to that is:  Usually the other side can’t counterclaim,” Justice Scalia added.

Medtronic is represented by Martin R. Lueck, Jan M. Conlin and Stacie E. Oberts of Robins, Kaplan, Miller & Ciresi in Minneapolis; Waxman, Paul R.Q. Wolfson, Brian H. Fletcher, Carolyn Jacobs Chachkin and Weili J. Shaw of Wilmer Cutler in Washington; and Mark C. Fleming of Wilmer Cutler in Boston.  Neustadt, Thomas J. Fisher and John F. Presper of Oblon Spivak and Sidney J. Silver of Silver, Freedman & Taff in Washington represent the respondents.

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