A patentee bears the burden of proving infringement when a licensee seeks a declaratory judgment of non-infringement, the U.S. Supreme Court has held. The ruling reversed the Federal Circuit and clarified declaratory judgment burdens that have evolved in the wake of the Court's ruling in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), which held that a licensee still paying royalties may file a declaratory judgment action challenging a patent's validity.
The Court's unanimous decision in Medtronic, Inc. v. Mirowski Family Ventures, LLC, No. 12-1228 (U.S. Jan. 22, 2014), came in an opinion authored by Justice Breyer. It was the first of at least 10 anticipated IP-related opinions this term.
The case involved a license between the patent holder Mirowski and the licensee Medtronic. Under the regime established by the license, the licensee could institute a declaratory judgment action to challenge whether a particular product was covered by a licensed patent, while paying its license fees into an escrow account. However, the license did not permit the patentee to file a counterclaim of infringement because the licensee was still complying with and was therefore covered by the license. Mirowski believed that several of Medtronic's products practiced the licensed patents and notified Medtronic, seeking additional royalties. Medtronic responded by challenging that assertion in a declaratory judgment action. The disputed royalties accumulated in an escrow account for distribution to the prevailing party.
The district court held that Mirowski, as the party asserting infringement, had the burden of proving infringement and that Mirowski had not met that burden. The Federal Circuit disagreed. It acknowledged that a patentee normally bears the burden of proof, but concluded that when the patentee is a declaratory judgment defendant and (like Mirowski) is foreclosed from asserting an infringement counterclaim by the continued existence of a license agreement, the party seeking the declaratory judgment (in this case Medtronic) bears the burden of persuasion. The Supreme Court reversed, clarifying that the burden never shifts from the patentee to prove infringement.
The Court held as follows:
A patent licensee paying royalties into an escrow account under a patent licensing agreement seeks a declaratory judgment that some of its products are not covered by or do not infringe the patent, and that it therefore does not owe royalties for those products. In that suit, who bears the burden of proof, or, to be more precise, the burden of persuasion? Must the patentee prove infringement or must the licensee prove noninfringement? In our view, the burden of persuasion is with the patentee, just as it would be had the patentee brought an infringement suit.
According to the Court, the ruling was both logically driven by its earlier decision in MedImmune, and was the product of several practical considerations. For one thing, to shift the burden depending upon the form of the action could create post-litigation uncertainty about the scope of the patent. In close cases, the fact that a licensee (infringer) could not prove non-infringement by a preponderance of the evidence would not necessarily mean that the licensor (patentee) could prove infringement by a preponderance of the evidence. The evidence simply might not be conclusive for either party. This lack of certainty would frustrate the purpose of the Declaratory Judgment Act, which is to finally resolve parties' disputes.
The High Court also believed that if it were to shift the burden to the licensee to prove infringement, the result, at least on occasion, would be to increase the complexity of the litigation unnecessarily. A patent can contain many pages of claims and limitations. And in the Court's view, a patentee 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 a claim of that patent. If the alleged infringer had the burden of proving infringement, it may have to work in the dark and negate every conceivable infringement theory.
Had the Court adopted the Federal Circuit's decision, the shifted burden would have discouraged licensees from filing declaratory judgment suits for the reasons the Court pointed out. By clarifying that the burden will always rest with the patentee to prove infringement even when challenged by a licensee, the case makes declaratory judgment suits more likely to succeed and consequently could produce more challenges by licensees to the scope of coverage of their patent licenses.
The case is Medtronic, Inc. v. Mirowski Family Ventures, LLC, No. 12-1228 (U.S. Jan. 22, 2014). A copy of the Supreme Court's opinion is available here.